IFR 03.7.2020

8 International Financing Review March 7 2020

Top news

Volkswagen fires up green financing

„ Bonds Automaker seeks to put controversial past behind it

BY ED CLARK

Scandal-hit VOLKSWAGEN

announced a green framework

ANDûSUSTAINABILITYûSTRATEGYûONû

4HURSDAYûASûITûLOOKSûTOûRAMPûUPû

the production of electric

vehicles and burnish its ESG

credentials.

4HEû'ERMANûCOMPANYSû

reputation as an

ENVIRONMENTALLYûCONSCIENTIOUSû

AUTOMAKERûWASûSEVERELYû

tarnished in 2015 when the US

Environmental Protection

!GENCYûFOUNDûTHATûITSûDIESELûCARSû

had software installed to defeat

emissions tests.

7HILEûTHEûCOMPANYûHASû

SINCEûSUCCESSFULLYûRETURNEDûTOû

the bond market, this latest

announcement is its boldest

STEPûINûTRYINGûTOûMAKEû

amends for a scandal that has

cost it more than US$30bn in

VEHICLEûRElTSûlNESûANDû

provisions.

For some green investors this

is still not enough to enable

THEMûTOûPARTICIPATEûINûANYûFUTUREû

green bonds issued under the

new framework.

h$UEûTOû@DIESELGATEû67ûISûOFFû

limits,” said one asset manager.

h;7E=ûAREûNOTûREADYûTOûTRUSTû

THEMûFOLLOWINGûTHEûSCANDALû;7E=û

have not conducted a detailed

ASSESSMENTûBUTûEVENûIFûTHEYûDOû

HAVEûAûGREATûGREENûBONDûITûMAYû

BEûDIFlCULTûTOûEXPECTûANû

improvement of the overall ESG

score.”

4HEûCOMPANYûISûALSOûATûRISKû

of being excluded from some

ESG indices. IHS Markit, for

EXAMPLEûRECENTLYûSAIDûITûWASû

creating an ESG index that

excludes members of its

I4RAXXû-AINûIFûTHEYûFAILûTOû

MEETûTHEûNECESSARYû

standards.

Companies will be assessed

AROUNDûVALUE

BASEDûCONTROVERSY

based and ratings-based

exclusions. A failure to meet the

threshold in one of the areas

means an exclusion from the

index.

The mandate follows the

ANNOUNCEMENTûBYû67ûTHATûITûISû

looking to overtake Tesla in

electric car production, and hire

a climate campaigner to

champion environmental

policies.

67ûISûFARûFROMûOFF

LIMITSûTOûALLû

ESG investors, however. Some

see the compliance work that

the corporate has put in and the

attractiveness of its bond

SPREADSûASûSUFlCIENTûREASONûTOû

invest.

h)NûTHEûCASEûOFû67ûWEûHAVEû

BEENûBUYERSûOFûTHEIRûDEBTûOVERû

THEûPASTûTWOûYEARSûONûTHEûBASISû

THATûTHEYûHAVEûSHOWNûTANGIBLEû

signs of addressing their

LEGACYûISSUESûANDûTHATûWEû

BELIEVEDûTHOSEûLEGACYûISSUESû

WEREûMOREûTHANûREmECTEDûINû

the prevailing spreads,” said

Euan McNeil, co-manager of

the Kames Ethical Corporate

Bond Fund.

Proceeds from bonds issued

under the new framework will

be used to fund the manufacture

of electric cars and charging

infrastructure.

h7EûHAVEûDONEûAûLOTûOFûWORKû

in terms of compliance since

the emissions scandal and are

CONlDENTûTHEûBONDSûPROCEEDSû

MATCHûINVESTORSû

requirements,” said a

Volkswagen spokesperson.

Funds flex financial muscle for ESG disclosure

„ People & Markets Investors pile pressure on banks to up their game

BY TESSA WALSH

Global asset managers are using

THEIRûlNANCIALûMUSCLEûTOûPUTû

pressure on banks to provide

better ESG information as

regulators push for more

detailed climate risk exposure.

"UTûFUNDSûENGAGEMENTûANDû

STEWARDSHIPûTEAMSûAREûlNDINGû

that few banks are able to

ANSWERûDIFlCULTûQUESTIONS

ESG investors including BMO

Global Asset Management, AXA

Investment Managers and

&EDERATEDû(ERMESûSAYûTHATû

although most lenders are doing

BASICûANALYSISûONûLOANûANDû

PROJECTûlNANCEûPORTFOLIOSûOFTENû

BYûOVERLAYINGûTHEIRû#32û

strategies, information is still

lacking in investment banking,

TRADEûlNANCEûRETAILûANDûPRIVATEû

banking and wealth

management.

h7EûWANTûBANKSûTOûEXPANDû

environmental and social risk

criteria to all business lines, and

show them that in a climate

EMERGENCYûTHEYûNEEDûTOû

RESPONDûANDûIFûTHEYûDOûNOTû

there will be massive business

consequences,” said Nina Roth, a

director in BMO Global Asset

-ANAGEMENTSûRESPONSIBLEû

investment team.

Funds are upping the

pressure as banks face

unprecedented levels of

SCRUTINYûINTOûTHEIRûINTERNALû

lending and underwriting

PROCESSESûASûTHEYûSCRAMBLEûTOû

COMPLYûWITHûTHEû&INANCIALû

3TABILITYû"OARDSû4ASKû&ORCEûONû

Climate-Related Financial

Disclosures, and more central

banks put environmental stress

testing in place.

-OSTûBANKSûCLIMATEûRISKû

MANAGEMENTûISûATûANûEMBRYONICû

STAGEûACCORDINGûTOûAûREPORTûBYû

-OODYSûWHICHûFOUNDûTHATûONLYû

ûOFûûBANKSûSURVEYEDûHAVEû

disclosed the carbon emissions

OFûCOMPANIESûANDûASSETSûTHEYû

HAVEûFUNDEDûANDûONLYûû

consider climate risk at all stages

of the credit risk process.

Global asset managers are also

lNDINGûTHATûINFORMATIONûISû

PATCHYûWHICHûISûMAKINGûITû

DIFlCULTûTOûCOMPAREûBANKSû

environmental performance.

/NLYûAûTHIRDûOFûTHEûBANKSûTHATû

-OODYSûSURVEYEDûAREûDISCLOSINGû

UNDERûTHEû4#&$SûFOURûPILLARSûOFû

GOVERNANCEûSTRATEGYûRISKû

management and metrics.

h#LIMATEûRISKûONûTHEûBALANCEû

sheet has emerged to be one of

the top three ESG issues that

investors like us look at with

banks,” said Yo Takatsuki, head

of ESG research and active

ownership at AXA Investment

Managers.

Although most banks are now

integrating climate

considerations into risk

MANAGEMENTûFEWûHAVEûYETû

adopted more sophisticated

stress-testing methods that

central banks require.

h3OMEûOFûTHEûMOREû

progressive banks have started

in TCFD representations to get

MOREûDETAILûABOUTûWHATûTHEYREû

holding and the value of that

balance that is at risk if certain

CLIMATEûSCENARIOSûPLAYûOUTûANDû

are more willing to put their

own investment under the

microscope,” Takatsuki said.

7HILEûINVESTORSûWELCOMEûTHEû

recent rash of exit statements

around banks divesting from

COALûTHEYûWANTûMOREûDETAILSûTOû

ENSUREûTHATûBANKSûRISKû

MANAGEMENTûSYSTEMSûANDû

processes can implement their

pledges.

AWKWARD QUESTIONS

Investors are asking awkward

QUESTIONSûTOûIDENTIFYûBANKSûWITHû

well integrated and staffed ESG

RISK

MANAGEMENTûSYSTEMSûTHATû

can accept or reject all

transactions and clients after

screening for ESG, matching

their own approach.

&UNDSûAREûUSINGûTHEIRûlNANCIALû

leverage to test how integrated

BANKSûSYSTEMSûAREûANDûWHETHERû

their practices work across

business lines.

4 IFR Top news 2323 .p 4 - 14 .indd 8 06 / 03 / 2020 19 : 26 : 35