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Author Topic: potential impact of green financial regulation on investment funds and banks  (Read 977 times)

bluesky

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Dear all,

Although I am more interested in the science underlying climate change, ultimately, financial regulation if used appropriately could be a quick driver for change (far from being the only one, I do believe in "walking the the walk" and day to day personal change to reduce carbon footprint, and external pressure from active NGO in climate change awareness). L'argent c'est le nerf de la guerre...

I hope there are a few ASIF members who are secretly reading the forum and hold major position in the financial community, (whether regulator, central banks or investment funds) attempting to change from the inside but I doubt it. For the moment there is almost exclusively "green washing" in the financial world. Green bonds, despite developing fast are still a very tiny fraction of the overall funds invested worldwide, and they are subject to scrutiny and challenge in relation to their proper definition and labelling, there is likely some green washing within the green bond issuance market. Many of the so called "sustainable", "ethical", and other type of "greenish" investment funds are widely using the green washing recycling tools.

some ideas:

- Central banks of key countries , eg, US, Europe, UK, Japan, agreeing to take a larger haircut when accepting collateral on fossil fuel industry, this could be graded depending on the "dirtiness" of the brown investment  and graded with time , eg 10% year one on coal, oil and gas energetic company ramping up 5% the first 3 years and 10% thereafter...
(if you have a few penny or more in a pension fund, watch out, so many in the UK and US have at least a few percentage in oil companies, even if they are ethical, sustainable, and for fund of funds or most popular index linked funds this is a given... meaning that if your pension fund is managed by Blackrock, Vanguard or State Street, you're surely biting in dirty investment...)

-Central bank of key countries implementing "selective" Quantitative Easing (or "QE" = central bank buying bonds in order to provide liquidity to the financial market), i.e. not buying bonds issued by the largest carbon emitter, with degree of carbon emitter strengthened year on year. Again it would have to be at least from one or several of the largest central banks.

-Compulsory information to citizen who owns pensions funds or investment funds, that their funds are invested partly either directly or indirectly related fossil fuel industry, the warning should be accompany by a plain language word summary of the latest IPCC report or a video about climate change based on science and stressing the impact on the personal life of the investors and its children. Many do not review their funds for many years, it could be made through a change of security process making compulsory for all to login to their fund website, then the  investment and climate warning would be unfolded, the process of re sining off your login could not be completed as  long as the personal investor would not have viewed the climate video entirely. The warning should also tell that with ramping up of renewable and regulation on climate change, most of fossil fuel assets in the balance sheet of these companies have been largely overvalued and could be flattened to zero in the near future.
This could be easily implemented through regulation, EU and UK could start first without needing any other to do so. This would have the benefit to involve US banks and pensions funds trading in Europe (the Blackrock, Vanguard and others...) and then some key states in the US could follow (California, New York...)

-Also of interest if you have any efficient idea to force the largest investors on the planet (again Blackrock, Vanguard, State Street... investing far more than the largest banks...) to ditch their obvious collusion with the dirty fossil fuel industry

Any thoughts?
« Last Edit: November 10, 2019, 10:26:25 AM by bluesky »

sidd

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the thread "Global economics and finances - impacts"  in "Policy and Solutions" has some previous discussion. Mebbe take it there ?

sidd

El Cid

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bluesky,

- Central banks' QE is usually done by buying government bonds, not corporate bonds (except Japan)
- Central banks don't accept collateral from corporates
- Pension funds selling existing shares of oil companies wouldn't achieve anything because that would not influence the oil companies per se. Buying and selling existing (already issues) shares does not change company financial. The only thing that does is buying/not buying newly issued shares. Oil companies have not issued new shares for years (The Saudi state will soon sell Saudi Aramco shares but the proceeds will go to the Saudi state, not the company eventually)
- Big fund managers: As said above it won't change a thing whether any of them stop holding oil company shares, the companies' operations will not be influenced

To make it more understandable: If you are betting or not betting on a horse will not change how fast that horse runs or whether it even takes part in the race. The financial sector is a betting house. You need to deal with the horse


The real solution is not what you have written about, but direct Government investments (see Green New Deal) or very serious incentives (eg tax breaks) for the private sector.

bluesky

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bluesky,

- Central banks' QE is usually done by buying government bonds, not corporate bonds (except Japan)
- Central banks don't accept collateral from corporates



Good point, another way would be to require banks to hold significantly more capital for any fossile fuel investment, any trade related to it, any loans, making this industry loss making on bank balance sheet< Global impact on bank balance sheet could be neutralised by less capital requirement for green assets loans and trading. There is something call Basel III regulating bank capital, there could be a green version of Basel III, the EU and the UK could unilaterally implement an environmentally based Basel IV, that would massively boost economic transformation of Europe, but EU is still bickering to switch the European Investment Bank, into a green bank and lagging behind...there are far more dirty assets in EU main banks' balance sheet than the potential of green investment through the EIB should it be transformed into a green bank.

- Pension funds selling existing shares of oil companies wouldn't achieve anything because that would not influence the oil companies per se. Buying and selling existing (already issues) shares does not change company financial. The only thing that does is buying/not buying newly issued shares. Oil companies have not issued new shares for years (The Saudi state will soon sell Saudi Aramco shares but the proceeds will go to the Saudi state, not the company eventually)
- Big fund managers: As said above it won't change a thing whether any of them stop holding oil company shares, the companies' operations will not be influenced


On this point I disagree, if investment and pension holders sell their oil assets, there will be more sellers than buyers after some point and the shares in oil companies will substantially decrease. The three largest assets manager hold substantial assets (6 trillion for Blackrock overall if there is 3 per cent invested in oil companies this is USD 180 billion the percentage is likely much higher through indirect investments, funds of funds, ) their weight could considerably impact the share values of oil companies. But I linked with your last point, a high transaction tax on gas oil and coal company could be an incentive, and again this tax could be progressive, 5% year 1, incremented by 5 percentage point every year.
Same for Saudi Aramco IPO, if none of the 3 largest fund managers in the world and none of the  US, UK + EU,  Japanese banks subscribe to the IPO thanks to an escalating transaction tax (you buy year 1 with a 5 % transaction tax and resell year 5 with a 25% due to the 5% yearly incremental) nobody would subscribe to the Aramco  IPO, the value of this asset for Saudi Arabia would be significantly reduced, not a bad thing, that would reduce the nuisance factor of another potential very large oil lobbyist in the world.... There would also be a need that the tax being implemented for Chinese bank... for the moment this is all theoretical



The real solution is not what you have written about, but direct Government investments (see Green New Deal) or very serious incentives (eg tax breaks) for the private sector.

Completely agree with the importance of Government investments and the Green New Deal which I fully support, my previous suggestions were to find measure incentivising the very large private investment sector to disinvest their fossil fuel investment, none of the large investment funds and largest banks have reduced their dirty money investment, they hold hundred of billions of assets in it, the question is how to relatively quickly penalise this type of investment on the banks balance sheets and on the bank account of personal and individual investors (through the largest investment funds). Blackrock, Vanguard and State Street have massive power, more than any largest banks in the world, they are very significant shareholders in the largest dirty companies in the world, they seem to play a somewhat largely unknown but major role in the dirty  unsustainable economy, and there are tens of millions of people mainly in the UK and the US which are supporting indirectly these powerful investment funds as they are investing their savings, pension funds, into funds manged by one of these three dangerous companies... Thus the 3rd suggestion I made, aiming that all individual pension funds and investment fund holders would be fully aware of their underlying investment in fossil fuel industry and their consequences

https://www.theguardian.com/business/2019/may/21/blackrock-investor-climate-crisis-blackrock-assets
"BlackRock is counted among the top three shareholders in every oil “supermajor” bar France’s Total, and is among the top 10 shareholders in seven of the 10 biggest coal producers, according to Guardian analysis of data from financial information firm S&P."

https://www.theguardian.com/environment/2019/oct/12/top-three-asset-managers-fossil-fuel-investments
"The world’s three largest money managers have built a combined $300bn fossil fuel investment portfolio using money from people’s private savings and pension contributions, the Guardian can reveal.
BlackRock, Vanguard and State Street, which together oversee assets worth more than China’s entire GDP, have continued to grow billion-dollar stakes in some of the most carbon-intensive companies since the Paris agreement, financial data shows.
The two largest asset managers, BlackRock and Vanguard, have also routinely opposed motions at fossil fuel companies that would have forced directors to take more action on climate change, the analysis reveals."

91 minutes documentary on Arte, the French German high quality TV channel, about the power of Blackrock (subtitled in English)
https://www.arte.tv/en/videos/082807-000-A/blackrock-investors-that-rule-the-world/

Anyway I very welcome your answers to my post and your constructive debate as I initially thought there would not be any interest in this topic.
« Last Edit: November 10, 2019, 10:19:06 AM by bluesky »

El Cid

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Re: potential impact of financial regulation on investment funds and banks
« Reply #4 on: November 10, 2019, 10:22:50 AM »
"On this point I disagree, if investment and pension holders sell their oil assets, there will be more sellers than buyers after some point and the shares in oil companies will substantially decrease"

Of course, share prices would go down. But then what? For an existing oil company, (or in fact any existing company!) that has no need for new capital, its share price is irrelevant. The share price is important for the investor, he gains or loses if it goes up or down. For the company, it matters not until they need new capital. These oil companies need no new capital at all. If exxon's share price is 1 dollar or 100 dollars will not change anything for exxon, it has no influence on its operation.

bluesky

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the thread "Global economics and finances - impacts"  in "Policy and Solutions" has some previous discussion. Mebbe take it there ?

sidd

This suggestion of topic is significantly more focused than the one you are suggesting to move into, and moving it there might dilute the debate  (I have renamed the topic "potential impact of green financial regulation on investment funds and banks)...into oblivion
Happy to transfer it, if Neven or another administrator of the site would consider it necessary.

bluesky

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Re: potential impact of financial regulation on investment funds and banks
« Reply #6 on: November 10, 2019, 11:11:41 AM »
"On this point I disagree, if investment and pension holders sell their oil assets, there will be more sellers than buyers after some point and the shares in oil companies will substantially decrease"

Of course, share prices would go down. But then what? For an existing oil company, (or in fact any existing company!) that has no need for new capital, its share price is irrelevant. The share price is important for the investor, he gains or loses if it goes up or down. For the company, it matters not until they need new capital. These oil companies need no new capital at all. If exxon's share price is 1 dollar or 100 dollars will not change anything for exxon, it has no influence on its operation.

It is effectively the case as long as the oil price remains high. However, the good thing of disinvesting (and potential losses on share price and or transaction tax on dirty assets could be effective incentive) is that it frees a relatively large investment at once (300 billion invested in oil cos by Blackrock, Vanguard and State Street), the tax could be neutralised if the 300 billion would be reinvested into clean energy. There could also be a tax on holding dirty assets, I mean, if there is no disinvestment in oil shares toward clean energy within two years, a 5% tax on these dirty  assets would implemented at the end of this 2 years timeframe, going up to 10% after 3 years, 15% four years and so on, and the transaction would be also taxed.
The benefit would be three folds: 1/ protecting the individual investors from future losses of assets if in later years oil price drop after renewable has rump up fast and progressively replaced oil gas and coal, 2/ incentivising the rapid reallocation of dirty energy investment into clean energy for several hundred billions 3/ reducing the marginal cost of renewable further through larger scale and further seed money into transferring Research and Development project into even more cheaper renewable and subsidiarily into energy storage.

Adding to this it could considerably reduce the value of future Aramco IPO (now between 500 billion and 2 trillion) and interest for it. a good thing as Aramco is likely to be an even more powerful negative lobbyist once it is owned by Blackrock, Vanguard and State street investment funds at the current expected valuation.

« Last Edit: November 10, 2019, 11:18:01 AM by bluesky »

El Cid

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What you must understand about the stock market is that the past 20-30 years there has been NO NEW EQUITY ISSUANCE. On the contrary: see attached picture.

Investors, asset managers, etc are just buying and selling stocks issued long ago. The money that is on the stock market has no (direct) effect on investments. These are just wagers. If everyone had to sell oil stocks, they would put that money into other shares not into new investments! The stock market is now just a betting house, no longer a venue to attract capital (as seen on the chart i attached)

To facilitate new green investments, you need either direct government investment, or incentives for the private sectors. Or a mix of these, eg. the creation of public-private equiy/venture capital funds where the government provides cheap financing for green projects for willing private investors. But this is outside the stock market

bluesky

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What you must understand about the stock market is that the past 20-30 years there has been NO NEW EQUITY ISSUANCE. On the contrary: see attached picture.

Investors, asset managers, etc are just buying and selling stocks issued long ago. The money that is on the stock market has no (direct) effect on investments. These are just wagers. If everyone had to sell oil stocks, they would put that money into other shares not into new investments! The stock market is now just a betting house, no longer a venue to attract capital (as seen on the chart i attached)

To facilitate new green investments, you need either direct government investment, or incentives for the private sectors. Or a mix of these, eg. the creation of public-private equiy/venture capital funds where the government provides cheap financing for green projects for willing private investors. But this is outside the stock market

Thank you I do understand that the first part of your message and knew it for a very very long time ("NO NEW EQUITY ISSUANCE"), however your message forget to take into account the transaction tax and assets tax on dirty assets combined with regulation incentive that I suggest, I absolutely agree with your mantra of direct government investment and incentives on private sectors. However I am talking about 300 billion invested by Blackrock Vanguard and State Street into very dirty assets and I am suggesting a combination of regulation and tax in the investment fund industry to quickly and efficiently switch it to clean energy investment. This could be of course complementary to the measures you are advocating an that I am also supporting of.
It is good to read a post thoroughly before answering.
I am looking for efficient tax and regulation in relation to the banking and investment fund industry to fastened the investment and asset switch (transaction and asset tax on dirty assets , capital regulation on dirty assets through green Basel III. soft conduct regulation, please read the 3rd point of my first post), not antynomic to your measures but complementary.

TerryM

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Cid


I think that Musk's preoccupation with stock price has confused many. Kimbal and Elon have faced margin calls according to recent depositions about Tesla's bail out of SolarCity. Elon actually claimed (under oath) that he was "illiquid" just prior to Tesla's "miracle month".


When the jockey and his brother owe it all to the bookies it can affect the race. 8)
Terry


El Cid

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Terry, we are talking about oil majors here. They do not issue new shares, they don't need the capital, they are cash cows.

New companies need financing, but during the last 20+ years net equity issuance has been negative on the stockmarket, as most financing of new, revolutionary companies does not happen via the stock market. Private equity firms, venture capital and the like do it. And arguably, as capitalism has become more oligopolistic, there is less room for new firms and this is obvious from economic statistics.

Tesla is the exception, not the rule. They use the stockmarket what it is for: to get capital for new, often risky ventures. Sadly, this is now a very small slice of stock trading...

bluesky

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Re: potential impact of green financial regulation
« Reply #11 on: November 22, 2019, 10:55:09 PM »
EU "soft regulation" on green finance , lots of goodwill but still in its infancy, below from the "Green Finance" page of the EU commission:

https://ec.europa.eu/info/business-economy-euro/banking-and-finance/green-finance_en


"The recommendations of the High-level expert group on sustainable finance form the basis of the action plan on sustainable finance adopted by the Commission in March 2018.
The action plan sets out a comprehensive strategy to further connect finance with sustainability. Its key actions include
establishing a clear and detailed EU classification system – or taxonomy – for sustainable activities. This will create a common language for all actors in the financial system
establishing EU labels for green financial products. This will help investors to easily identify products that comply with green or low-carbon criteria
introducing measures to clarify asset managers' and institutional investors' duties regarding sustainability
strengthening the transparency of companies on their environmental, social and governance (ESG) policies. The Commission will evaluate the current reporting requirements for issuers to make sure they provide the right information to investors
introducing a 'green supporting factor' in the EU prudential rules for banks and insurance companies. This means incorporating climate risks into banks' risk management policies and supporting financial institutions that contribute to fund sustainable projects
To discuss its action plan, the Commission organised a high level conference on 22 March 2018."

« Last Edit: November 23, 2019, 01:33:27 AM by bluesky »

bluesky

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Re: potential impact of green financial regulation
« Reply #12 on: November 22, 2019, 11:09:18 PM »
While the EU's Vice President announcement on a possible lower capital requirement for green investment received a cold answer from the conservative Moody's rating agency, still reasoning within an outdated narrow minded 20th style of economic framework and forgetting that everything that would help us to reduce the risk of climate change is inherently lower risk for the community and the society as a whole.

https://www.reuters.com/article/climatechange-summit-eu-banks-idUSL8N1OC179


"EU eyes lower capital charges for banks' green investments

BRUSSELS, Dec 12 (Reuters) - The European Commission could lower capital requirements for banks’ environmentally-friendly investments in a bid to boost the green economy and counter climate change, the EU executive’s vice president said on Tuesday.
The Commission, which is in charge of proposing laws at EU level, is “looking positively” at plans to reduce capital requirements for banks’ green investments, Valdis Dombrovskis said at the “One Planet” summit on climate change financing in Paris.
This could be done at first stage by lowering capital requirements for certain climate-friendly investments, such as energy-efficient mortgages or electric cars,” Dombrovskis said in a speech at the conference held on the second anniversary of the Paris climate accord.
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He added that the reduced charges could be modelled on “existing discounts for investments in small and medium-sized enterprises or high-quality infrastructure projects”.
Currently, the EU grants capital reductions of 23.81 percent for banks’ exposures to small firms for investments below 1.5 million euros ($1.7 million), and is considering a 15 percent reduction for the share of investment above that threshold.

The climate change financing move would be part of a broader set of measures the EU plans to present in March to boost green investment and meet the target of cutting carbon emissions by 40 percent by 2030.
Brussels estimates that around 180 billion euros in additional low-carbon investments are needed per year to meet the target. ($1 = 0.8495 euros) (Reporting by Francesco Guarascio)"


The answer from Moody's (surely the guys at Moody's think that fossile fuel investment on average are as risky as environmentally friendly investments)

I think we should do more, increase the capital requirement for brown dirty carbon emitting investment and lower capital requirement for green investment, but surely it would still not satisfy agencies from another and another world...

https://sustainabonds.com/green-supporting-factor-could-weaken-banks-says-moodys/


"Lower capital requirements for green assets could be credit negative for banks, according to Moody’s, because they could lead to “real risks” being underestimated, but the EMF-ECBC’s Luca Bertalot argues that the industry could satisfy an evidence-based European Commission approach.
Commission vice president Valdis Dombrovskis said last Tuesday that the Commission is “looking positively” at reducing capital charges to boost green loans in areas such as energy efficient mortgages and car loans. The move was seen as encouraging for an Energy efficient Mortgages Action Plan (EeMAP) initiative being led by the European Mortgage Federation-European Covered Bond Council (EMF-ECBC) and broader lobbying for a so-called “green supporting factor”.
Some regularly authorities and others have argued that tweaking prudential regulation to incentivise climate-friendly investments is misguided, and, responding to potential moves in the EU, Moody’s said that lowering capital requirements for banks’ green assets would be credit negative.
“The green supporting factor would contribute to European policymakers’ objective of stimulating environment-friendly financing and investments,” it said, “but could weaken banks by establishing capital requirements that underestimate the real risk of green assets, a credit negative.
“The credit implications for affected banks would be negative,” Moody’s added, “because the lower capital requirements would likely lead banks to hold less capital for exposures that feature similar risk characteristics as traditional loans or bonds.
“Moreover, green investments may be in immature technologies not sufficiently tested or that can be quickly surpassed, and are exposed to high obsolescence risk. Policy and regulatory risk – for instance, changes in subsidies or carbon pricing and taxes – also will affect asset quality. For banks, such challenges would translate to a heightened risk of credit losses.”

The rating agency cited a European Parliament proposal to reduce risk weights on green investments by 24% for investments below Eu1.5m and by 15% the proportion exceeding Eu1.5m, basing eligibility criteria on Climate Bonds Initiative definitions.
However, Luca Bertalot, EMF-ECBC secretary general, said it is important to differentiate between the positions of the European Commission and Parliament, with the former adopting a more risk-sensitive approach.
“The Commission understands the need for a green supporting factor,” he told Sustainabonds, “but sees that it is difficult to define and it is difficult to assess the impact.”
Alongside EeMAP, the EMF-ECBC is leading an Energy efficiency Data Portal & Protocol (EeDaPP) initiative and, with an EeMAP pilot phase set for next year, Bertalot said the industry should be able to satisfy the Commission’s evidence-based approach."
« Last Edit: November 23, 2019, 01:33:48 AM by bluesky »

bluesky

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Re: potential impact of green financial regulation
« Reply #13 on: November 23, 2019, 01:17:19 AM »
European Union: The Proposed EU Green Bond Standard – a Sign of Things to Come?
Last Updated: 22 August 2019

http://www.mondaq.com/x/838988/Climate+Change/The+Proposed+EU+Green+Bond+Standard+a+Sign+of+Things+to+Come


"The European Union (EU)'s Technical Expert Group on Sustainable Finance ("TEG") recently revised their proposed EU Green Bond Standard ("EU-GBS"). The proposed standard stipulates the activities that may and may not be financed, the requirements for a green bond framework, the scope and format of allocation and impact reporting, and the requirements for external verification by accredited verifiers. What are the implications of this emerging standard on green financing market practice in the EU and beyond?
Introduction
In furtherance of the European Commission's Sustainable Finance Action Plan on financing sustainable growth, the TEG released its report on Green Bond Standard ("EU-GBS Report") on 18 June 2019. This is its updated report on the subject to "enhance the effectiveness, transparency, comparability and credibility of the green bond market",1 following its interim report in March 2019 which proposed the first iteration of the EU-GBS. Following public feedback on the draft, the TEG has now revised its proposed EU-GBS.
Proposed EU-GBS
The TEG has recommended that the EU-GBS be voluntary and comprise the following components:
Green Projects
Proceeds from EU Green Bonds (ie bonds that meet the requirements of the EU-GBS) shall be allocated only to finance or refinance green projects ("Green Projects") defined, subject to confirmation by an accredited verifier, as contributing substantially to at least one of the environmental objectives as defined in the EU Taxonomy Regulation ("Environmental Objectives").
The EU Taxonomy will be a legally mandated classification system of environmentally sustainable activities which sets out authoritatively what is environmentally sustainable. The proposal for a regulation on the establishment of a framework to facilitate sustainable investment ("Taxonomy Regulation") was released by the European Commission in May 2018 and after its first reading in the European Parliament in March 2019, is currently awaiting its first reading in the European Council. As the Taxonomy Regulation currently stands, after amendment by the European Parliament, the Environmental Objectives are:
climate change mitigation;
climate change adaptation;
sustainable use and protection of water and marine resources;
transition to a circular economy, including waste prevention and increasing the uptake of secondary raw materials;
pollution prevention and control; and
protection of biodiversity and healthy ecosystems, and restoration of degraded ecosystems).
The Green Projects must also not significantly harm any of the other Environmental Objectives and must comply with the minimum social safeguards set out in the eight fundamental conventions, identified in the International Labour Organisation's declaration on Fundamental Rights and Principles at Work. These cover freedom of association and the right to collective bargaining; the elimination of forced or compulsory labour; the abolition of child labour; and the elimination of discrimination in respect of employment and occupation.
Where Technical Screening Criteria have been developed under the EU Taxonomy for specific Environmental Objectives and sectors, the financed or refinanced projects or activities must also meet these criteria. Delegated regulations will have to be adopted by the European Commission to specify the Technical Screening Criteria after the Taxonomy Regulation comes into force. The TEG recently submitted its Taxonomy Technical Report proposing for the Commission's consideration, technical screening criteria for a number of activities that can make a substantial contribution to climate change mitigation based on compatibility with a 2050 net zero carbon economy (without causing significant harm to other Environmental Objectives). It also proposed for consideration, a qualitative process-based methodology to identity location and context specific climate adaptation activities.
An accredited verifier must either confirm the alignment of projects with the Technical Screening Criteria, or alternatively in cases where no technical screening criteria have been developed, that the projects nonetheless are aligned with the EU Taxonomy.
Expenditures that may be financed by EU Green Bonds include, any capital expenditure and selected operating expenditures of green assets that either increase the lifetime or the value of the assets, as well as research and development costs. While capital expenditure on green assets qualify without a specific look-back period, eligible green operating expenditures only qualify for refinancing with a look-back period of up to three years before the issuance year of the bond.
Green Bond Framework
The issuer must produce a Green Bond Framework ("GBF") which confirms the voluntary alignment of the green bonds issued, following the GBF with the EU-GBS and provide details on the key aspects of the proposed use of proceeds and on its green bond strategy and processes, such as:
the Environmental Objectives of the EU-GBS and how the issuer's strategy aligns with such objectives, as well as their rationale for issuing;
the process by which the issuer determines how Green Projects align with the EU Taxonomy;
a description of the Green Projects to be financed or refinanced by the EU Green Bond;
the process for linking the issuer's lending or investment operations for Green Projects to the EU Green Bond issued;
information on the methodology and assumptions to be used for the calculation of key impact metrics; and
a description of the reporting.
Allocation and impact reporting
Issuers must report at least annually, until full allocation of the bond proceeds to Green Projects and thereafter, in case of any material change in this allocation. The allocation report must include:
a statement of alignment with the EU-GBS;
a breakdown of allocated amounts to Green Projects; and
the geographical distribution of Green Projects.
Verification is only required for the final allocation report.
Issuers must report on the impact of Green Projects at least once during the bond lifetime, after full allocation of the bond proceeds to Green Projects and thereafter, in case of material changes in this allocation. The impact report must include:
a description of the Green Projects;
the Environmental Objective pursued by the Green Projects;
a breakdown of Green Projects by the nature of what is being financed, the share of financing and refinancing;
information (and when possible metrics) about the project's environmental impacts; and
information on the methodology and assumptions used to evaluate the Green Projects impacts.
Verification of the impact reporting is not mandatory.
Verification by accredited verifiers
Issuers must appoint an external verifier to confirm:
before or at the time of issuance, through an initial verification, the alignment of the GBF with the EU-GBS; and
after full allocation of proceeds, through a verification, the allocation of the proceeds to green eligible projects in alignment with the allocation reporting.
Verifiers must be formally accredited and supervised. Verification providers must disclose their relevant credentials and expertise and the scope of the review conducted in the verification report.
Next Steps
The ball is now in the EU Commission's court, to decide whether and how to take the TEG's recommendations on the EU-GBS Report forward.
Compatibility with GBP
The TEG created the EU-GBS as a standard that most green bond issuers can comply with over time and that could become an international best practice standard. To this end, the standard is designed to maximise its impact and acceptance in the European and international bond markets and is underpinned by best market practice and relevance to all stakeholders. The EU Taxonomy also builds on the classifications that have been developed for the international bond market, rather than departs from these classifications. Therefore, it is not surprising that the EU-GBS as currently proposed is by design compatible with the International Capital Market Association's Green Bond Principles ("GBP").
Compared to the EU-GBS, the GBP recognizes broad categories of green projects, but does not stipulate what projects may or may not be financed from green bonds aligned with the principles. The principles require the process for project evaluation and selection to be communicated, but do not formally require a green bond framework. External review of the alignment of the green bond or green bond programme with the GBP is also recommended but not mandatory.
The EU-GBS adds clarity to the GBP and streamlines and standardises some of the different practices under the principles."
« Last Edit: November 23, 2019, 01:34:17 AM by bluesky »

bluesky

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Re: potential impact of green financial regulation
« Reply #14 on: November 23, 2019, 01:30:39 AM »
Labour planning to de list listed companies not doing enough against climate change, if really implemented they might de list quite a few companies from the London Stock Exchange; good idea in theory, but would it be efficient if companies can be still traded in NYSE or Francfort, Singapour, Hong Kong or Tokyo, this is the dilema with green financial regulation some measures may work perfectly in a regional context i.e. at EU plus UK level, others would require a concerted international effort of regulatory and policymakers around the world, still a long shot; however a regulation implementation on EU+UK scale could have a spreading effect.

https://climatechangedispatch.com/labour-delist-firms-climate-change/

Labour Vows To Delist Firms Not Fighting Climate Change From Stock Exchange

" Companies that fail to act on the climate change they cause will be axed from the stock exchange, under radical Labour plans.
John McDonnell, the shadow chancellor, pledged his government would ensure firms are “pulling their weight” to tackle the “existential threat” to the planet.
And he warned: “For those companies not taking adequate steps under Labour they will be delisted from the London Stock Exchange.”


Vowing to “rewrite the rules” of the economy to benefit workers, Mr. McDonnell also insisted curbing the “climate crisis” would be “Labour’s overriding priority” if it wins the general election.
The Corporate Governance Code would be beefed up to “set out a minimum standard for listing related to evidencing the action being taken to tackle climate change.”

“If we are meet the climate change target to keep global warming to 1.5 degrees above pre-industrial levels, we need to ensure that companies are pulling their weight alongside government,” he told an event in London.
And, claiming some support from the corporate world, he added: “Business bodies are calling for companies to improve climate-related financial reporting and for all companies to bring forward decarbonization plans.”
Earlier, the Green Party lashed out at Labour for dropping plans to achieve net-zero carbon emissions by 2030, as a shadow cabinet minister revealed on Monday.

It said the decision proved only the Greens are willing to wage “a war” on climate change, with a £100bn pledge to end emissions by that date.
But Mr. McDonnell promised “a step-change in corporate governance and regulation that will support efforts to tackle the climate emergency”.