Europe Sets Standard For Corporate Sustainability

Shanny Basar

European markets have received the highest scores in the Morningstar Sustainability Atlas which ranks corporate environment, social and governance strategies. The survey said Portugal scores highest on environmental criteria, Denmark on social and the Netherlands on governance.

Morningstar added that Switzerland and the UK score well on ESG criteria, but controversies involving key index constituents such as UBS and HSBC lower their overall sustainability scores.

“The US is a middling performer on sustainability,” added the report. “Controversy is one factor; another is poor governance scores for companies like Facebook, Alphabet, and Amazon.”

Outside Europe, Colombia has the highest score and Taiwan is the top Asian market.

“China lands in the globe’s bottom tier across all three ESG criteria,” said Morningstar. “Companies like Cosco Shipping, China Resources Gas, and PetroChina are ESG laggards.”

WFE guidance

In order to encourage sustainable investing the World Federation of Exchanges, the global industry group for exchanges and clearing houses, has published a set of five WFE Sustainability Principles.

The association said more than 35 stock exchanges have issued or committed to issuing ESG reporting guidance for their listed companies since the WFE first published its guidelines in 2015.

Wu Qing, vice mayor of Shanghai and non-executive chairman of Shanghai Stock Exchange, said in a statement: “I am happy to see the fruition of the principles that I initiated and encouraged during my mandate as WFE chairman. In addition to the traditional role in supporting the development of the real economy, exchanges have become increasingly influential in ‘greening’ the global economy.”

Green bonds

One part of the green economy that has rapidly expanded is the green bond market.

There are opportunities for more than $1.45 (€1.3) trillion of potential green bonds according to Climate Bonds Initiative’s latest annual analysis of labelled green bonds and wider climate-aligned bond universe. The Bonds and Climate – Change State of the Market 2018 study is sponsored by HSBC.

Sean Kidney, chief executive of Climate Bonds, said in a statement that the report reveals a bigger climate-aligned investment universe than previously assessed.

Kidney said: “Investor demand for green bonds remains incredibly strong; more companies responding, would increase supply and satisfy investor appetite for a quality product that is consistent with international climate targets.”

Bram Bos, lead portfolio manager green bonds at NN Investment Partners, said in a report last month that the market has expanded rapidly. New issuance of green bonds reached €112bn last year, up from €73bn in 2016, driven by improving guidelines and taxonomies, strong political support and a sharp rise in investor demand. The Dutch fund manager expects new issuance this year to reach €120bn.

Bram Bos, NN IP

“Alongside this growth, the market has been extended with new impact investing products in the form of social and sustainability bonds that commit to social prosperity as well as environmental welfare,” Bos added. “The key differentiator of these products is their use of proceeds, with social bonds used to finance new or existing social welfare investments, and sustainability bonds providing a combination of green and social benefits.”

He noted that social and sustainability bonds are not yet a mainstream product but interest will continue to grow as there is more standardization and guidance.

Bos said: “Looking forward, we expect the green bond market to undergo a transformation from a sector point of view. In the first half of 2018, we have observed increasing participation among both financials and corporations – especially companies that operate in utilities and industrial sectors.”

Shanghai and Luxembourg stock exchanges

In June this year the Shanghai and Luxembourg stock exchanges launched a green bond channel to give international investors access to data and information on Chinese domestic green bonds listed in Shanghai. Last month they agreed that the Bank of China will act as the primary partner in offering related services to investors using the green bond channel.

Robert Scharfe, chief executive of LuxSE, said at the signing of the agreement in Shanghai: “I think initiatives like ours, to bridge the information gap and connect investors and issuers in full transparency, are of pivotal importance in growing the green finance market and pushing forward the climate transition.”

The Luxembourg exchange also launched an agreement with China Central Depository & Clearing to simultaneously display prices of CCDC’s three domestic green bond indices. CCDC is the central securities depository in the Chinese inter-bank bond market, as well as the primary depository for commercial bank book-entry government bond transaction.

The three indices reflect the performance of Chinese domestic green bonds in renminbi that support projects in China, including clean transportation and green finance.

Nasdaq Nordic

As the green economy has grown, Nasdaq launched two new market segments in Sweden last month – Nasdaq Stockholm Sustainable Commercial Papers and Nasdaq Stockholm Sustainable Products.

Ann-Charlotte Eliasson, head of fixed income listings at Nasdaq Nordic, said in a statement: “The launch of these two segments further highlights the increased interest in sustainable investment alternatives. Green commercial papers have the potential to materially affect the outstanding amounts of green debt instruments, while green structured products provide further possibilities for retail investors to lend to sustainable projects and assets.”

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