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The Green & Sustainable Hub (GSH) is pleased to share its sincere New Year wishes with its newsletter readers. This period is always an opportunity to reflect on the last twelve months; results, achievements and not yet met objectives. Such a stocktaking can inspire our plan for the year ahead. We have succinctly assembled below what caught our attention in 2021 and will drive our efforts and activities in 2022 (see the table below).
We sorted out trends or events across the following categories: market developments (i), regulation (ii), private and public initiatives or policies (iii), or science, data and methodologies (iv). All these drivers compound each other and make sustainable finance more mainstream and binding. Investors are no longer the sole engine of sustainable finance but are rather toe-to-toe with regulators (or even “reined in” by the latter), in a more crowded landscape with new-comers such as Courts, while central banks and supervisors gradually take action beyond dialoguing.
The sustainable finance market as a whole is reaching scale, becoming the “new normal” on some segments (above trillions, with a phenomenal growth of KPI-linked debt instruments) and getting diversified (Green ECP, Green RMBS, SLB in the HY segment, SL TLB, ESG CLOs, Green CAT bonds). Yet with significant room for innovations and justified concerns over sustainable washing.
In 2022, we expect Just Transition to be under the spotlight while the interrelationships between low-carbon transition and inflation are vivid. Isabel Schanel from the ECB has made it explicit earlier this month “Energy poverty is a serious threat to the cohesion of our society and to the support for climate-related policies [1]”. She argues “It would be a serious mistake if governments, faced with rising energy prices, would backtrack from their commitment to reduce emissions”. Sustainable finance can help in framing and tackling these fair transition issues.
A lot of methodological developments (temperature alignment but above all short-term implementation plan and ambition assessment) are likely to occur in 2022, to properly tackle new themes (climate change adaptation, biodiversity, negative emissions). Financial service providers – starting with rating agencies – but also Consultancies, Law firms and Auditors, are expected to keep up with the pace of sustainable finance regulations, update their range of products and services and be inventive in allowing proper compliance with new requirements. The scrutiny of supervisors against net zero washing should bring more discipline.
At Natixis, we will continue the extension of our sustainable financing offering & geographical footprint, including though a reinforced presence in Middle East with a new position in Dubai. Our APAC and Americas set-up have been enhanced. We are also to enlarge our range of advisory services (related to regulation, impact reporting or “new” themes such as adaptation and resilience in particular), with a special focus on Financial Sponsors. Our consultancy work on SDG alignment for Public Development Banks on behalf of the IDFC will be presented, and add to our 2030 Agenda expertise and feed our emerging market and MDBs efforts.
One of the core principles of Natixis’ new strategic plan – “commit” – released in 2021 will underpin our efforts. Through its “2024 ambitions”[2], the Group intends to accelerate on the energy transition and responsible finance. We aim to cement our positioning as our clients’ go-to financial partner for their energy transition strategies. Between 2020 and 2024, a 1.7 time of Natixis CIB's “green” revenues is targeted. Meanwhile, ESG is also to be put further at the center of our asset management and insurance activities[3].
In addition, Natixis and Groupe BPCE publish their first TCFD climate reports in October 2021, setting ambitious targets, such as reducing its financing of oil and gas exploration-production activities by 15% between 2020 and 2024 and laying out € 9 billion in new financing for renewable energy over the same period.
Finally, Natixis commits to aligning its balance sheet and investments with a "net zero" emissions trajectory consistent with the Paris Agreement (aligning our CIB’s portfolio with a +2.5°C trajectory by 2024 and +1.5°C by 2050, leveraging our Green Weighting Factor).
We are looking forward to working together by offering tailor-made support, though-leadership analysis and expertise in your endeavor towards making your activities more sustainable.
Natixis Green & Sustainable Hub
[1] Isabel Schnabel, Member of the Executive Board of the ECB (Frankfurt, 8 January 2022), “Looking through higher energy prices? Monetary policy and the green transition”, Remarks at a panel on “Climate and the Financial System” at the American Finance Association 2022 Virtual Annual Meeting Member of the Executive Board of the ECB, available here.
[2] Natixis Strong growth ambitions for Natixis’ business lines at the heart of the “BPCE 2024” strategic plan, available here And here (PPT presentation)
[3] With a target of over €600 billion in assets under management in the sustainable or impact investing category for Natixis IM representing 50% of total AuM by 2024.
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MARKET |
REGULATION (ii) |
PRIVATE AND PUBLIC INITIATIVES |
SCIENCE, DATA & METHODOLOGIES (iv) |
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2021 was the year of |
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Phenomenal growth of the SLB market (~ 900% increase compared to 2020, the total market size surpassing 100 $Bn eq.)
Newcomers and/or approaches (cement, aviation, O&G industries, e.g., Repsol’s brand-new overarching allowing UoP and SLB formats)
Issuers to convert a part of their entire outstanding bonds into Green Bonds (Gecina, ICADE, Colonial)
Many “first”:
True ESG consideration throughout the financing lifecycle of a firm (from VC to IPO), with growing interest from Private Equity firms and Leverage world (see LMA / ELFA: Guide for Company Advisers to ESG Disclosure in Leveraged Finance Transactions)
Creation of Social Bond Funds: Amundi and BNPP AM (on the top of historic player Columbia-Threadneedle) |
Official adoption of the EU final delegated acts on climate change mitigation and adaptation (with a few missing activities, namely gas, nuclear, agriculture, mining) China Green Bond Endorsed Projects Catalogue (2021 Edition) entered into force
Release of the EU-China Common Ground Taxonomy
Launch of ECB’s strategic review and climate action plan (monetary policy operations, disclosure, risk assessment, collateral framework and corporate sector asset purchases)
Rise of greenwashing and climate liability or litigation against companies, investor and States (Shell’s ruling, DWS probe, Commune de Grande-Synthe v. France ; Neubaer, et al. v. Germany)
Publication of the implementing decree of Article 29 of the French Energy-Climate Law (clarifying and strengthening sustainability-related financial disclosures for market players (former Article 173).
Initial proposal to integrate ESG risks into EU prudential rules Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD)
Launch of Corporate Sustainability Reporting Directive (CSRD) proposal amending the existing reporting requirements included in the Non-Financial Reporting Directive (NFRD), with the aim to simplify and bring sustainable reporting on par with financial reporting (i.e., standardize sustainability-related disclosures) and broaden its scope
Sustainable Finance Disclosure Regulation (SFDR) came into force (financial market participants, starting with portfolio managers, now must disclose on ESG at firm and product/ funds-levels; Art. 6, 8 or 9 classification))
The concepts of ‘double materiality’ and ‘principal adverse impacts’ (PAIs) gained prominence |
Net zero commitments and initiatives proliferation from corporates and financial institutions (NZAMI, NZOA, NZBA, NZIA and Glasgow Financial Alliance for Net Zero (GFANZ) global coalition of leading financial institutions in the UN's Race to Zero)
Growing backlash against net zero claims (supervisors warning on its use, “companies and carbon neutrality: initial conclusions and issues identified” by AMF, France)
A fragile win at the COP26 (a few outputs and new alliances: Paris Rulebook finalization, “coal phase down”, Global Methane Pledge; but loss and damage negotiation and climate finance failure)
Strengthened countries’ ambitions (batch of new NDCs) but a widening “action gap” (mismatch between targets and decarbonization reality)
World Conservation Congress of the International Union for Conservation of Nature (IUCN) held in Marseille ahead of the COP15 on biodiversity
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Release of the IPCC’s Sixth Assessment Report (AR6) on climate change’s physical Science Basis (the 1.5°C temperature rise came more quickly than expected, i.e., by 2030 at current emissions pace, negative emissions to play an important but limited role)
IEA’s net zero by 2050 Report (identifying demanding/disrupting milestones in a net-neutrality scenario, including no new oil and gas fields approved for development, no new coal mines or mine extensions in 2021, no new ICE car sales by 2035)
SBTi methodology update with a more stringent framework on 1.5°C only and net zero target setting standard
Increased pressure towards comparability and standardization of climate objectives (perimeter, definitions, methodologies, etc.)
Release of the World Benchmarking Alliance's pilot Just Transition Assessment (180 companies across three sectors)
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What 2022 holds for us |
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MARKET |
REGULATION (ii) |
PRIVATE AND PUBLIC INITIATIVES |
SCIENCE, DATA & METHODOLOGIES (iv) |
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Annual Sustainable Bond issuances expected to far exceed $1 trillion in 2022
Sustainability-Linked Issuances to fuel the exponential growth of the sustainable bond market for corporates
First SLB for an SSA
Green Bonds aligned with proposed EU Green Bond Standard likely to see higher greeniums due to initial scarcity
Carbon credit markets expansion (launch of numerous regional exchanges, Singapore and Hong Kong)
A ramp up in sustainable finance for US Real Estate off the back of increasing local regulations to improve US building stock
Private Equity firms to ramp up sustainability funds
Increased allocation towards private debt, real assets and infrastructure to fill investment gap needed to reach net zero pledges
Investors increasingly looking beyond bond contents to focus on issuers’ strategies and positioning (consistency of efforts, brown footprint)
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Loaded ESG regulatory agenda with many consequences on businesses, reporting and originate to distribute models
Publication of the EU social taxonomy expected
EU’s Sustainable Finance Renewed Strategy implementation
Possible adoption of the EU Green Bond Standard and EU Ecolabel for retail financial products
Adoption of the complementary Delegated Act on nuclear and gas, and Delegated Acts for the other environmental objectives
Global “Taxomania” (above 30 taxonomies developed or under development, e.g., UK, Canada, Colombia, etc.)
Regulatory climate disclosure with EU taxonomy eligibility (and alignment for some) mapping
Anticipation of SFDR regulatory technical standard (RTS) ‘Level 2’ implementation (deferred to 1st January 2023)
The revised Markets in Financial Instruments Directive (MiFID) requiring addressing ESG elements in all relationship between financial advisors and end investors (i.e., institutional investors and retail).
US regulators (FRB and SEC) taking sustainable issues seriously (OCC’s draft principles for managing exposures to climate-related financial risks)
Climate stress testing by numerous banking regulators around the world |
Adoption of more science-based trajectories and interim targets (after having taken 2050 commitments)
Growing budgets and spending plans allocated to sustainable investments to meet net-zero objectives (COP26 targets, EU Green deal, late US Build Back Better plan to come in revamped form)
COP15 in China and emphasis on biodiversity/ natural capital finance
Climate change adaptation policies and investment plans to become more prominent globally as unfolding effects of climate change keep accelerating
Social concerns to continue rise up on investors agenda as Covid-19 pandemic keeps unfolding
Industry-led initiatives on fair transition to become more sophisticated
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IPCC’s six assessment reports (AR6) on impacts, adaptation and vulnerability and Mitigation
Nexus low-carbon transition, inflation, and fuel poverty/social inequalities
Net Zero methods & tools
Further ESG factor incorporation in Credit ratings
ESG alternative data and AI empowerment, back by Blockchain and Big Data analytics process
Growing data set on biodiversity and natural capital
From negative emissions to emission removals approach
ISSB Climate Reporting Standard launch/ draft by the IFRS Foundation
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