The information you need to make your sustainability ambitions a reality
In this edition
- Methane Emissions: On the rise and unaccounted
- Climate-Related Financial Risks: Where is OSFI’s Focus?
- Molecular Recycling: Enabling a Circular Plastic Economy
- Podcast: The Role of Insurance in Climate Innovation
- Sustainability Deal Announcements
Government of Canada publishes Green Bond Framework
The Government of Canada’s (GoC) intention to launch a Green Bond Program was affirmed in the 2021 Budget. With the publication of their Framework on March 3rd 2022, the Government is now preparing to issue its inaugural $5bn Green Bond. Shortly after the Green Bond Program was announced, The Canadian Net Zero Emissions Accountability Act, also received Royal Assent in June 2021, which codified the GoC commitment to Net Zero by 2050. As such, the Green Bond Program will support Canada’s green transition by offering investment opportunities in both climate and environmental measures, while also fostering the development of Canada’s sustainable finance market. Some notable observations from the recently released Green Bond Framework include:
- Nine green category spends – notable thematics include circular economy, climate adaptation and renewable energy
- Performance thresholds generally linked to the Climate Bonds Initiative (CBI) certification requirements for clean transportation and renewable energy
- Eligible window for expenses is reasonable at 5 years (2 fiscal years prior to issuance, existing fiscal year and 2 fiscal years forward)
- Seek to allocate 50% of proceeds raised related to fiscal year of issuance and 2 years forward
- They have explicitly excluded nuclear and fossil fuel, in line with major green bond indices & green investor criteria
In addition, they have brought in the social angle by speaking about a just and inclusive transition. They have committed to report on social co-benefits and impacts on Indigenous communities for Green expenditures (where available).
UBS, Standard Chartered, and BNP Paribas join Carbonplace
The founding members of Project Carbon – CIBC, Itaú Unibanco, National Australia Bank, and NatWest Group – have announced a new name for the initiative – Carbonplace, and the addition of three new founding members – UBS, Standard Chartered, and BNP Paribas.
This coalition will provide a new technology platform for the voluntary carbon market, facilitating reliable, secure, and scalable trading of high-integrity carbon credits as well as providing settlements infrastructure and systems for marketplaces and exchanges. Carbonplace is expected to be operational by the end of 2022.
The Carbon Call: Solving carbon emissions and removal accounting challenges
In the October 2021 edition of the CIBC Sustainability Newsletter, we highlighted the Carbon Tracker Initiative, which studied whether companies incorporate material climate-related matters in their 2020 financial reporting. This study found a gap in emissions reporting methods.
Therefore, we are glad to see the Carbon Call initiative led by Microsoft, the ClimateWorks Foundation and 20+ leading organizations. The initiative aims to improve the methods for tracking how much greenhouse gas emissions companies and countries are emitting. The Carbon Call was launched in February 2022, with an effort to develop common, reliable and interoperable carbon emissions accounting systems.
Today, carbon accounting suffers from data quality issues and measurement, reporting inconsistencies and siloed platforms – a recent Washington Post investigation found that a 13.3-billion-ton gap may exist annually between country-level emissions as reported to the United Nations and actual emissions. The Carbon Call will aim to uncover and address gaps in the existing global carbon accounting systems and will focus on four key areas: methane, indirect emissions, carbon removal and the land-use sector.
Methane emissions: On the rise and unaccounted
The International Energy Agency (IEA) recently released the Global Methane Tracker 2022, which provides a complete set of country-level estimates for methane emissions from the energy sector, accounting for approximately 40% of total anthropogenic methane emissions globally. The tracker found that methane emissions from the energy sector are approximately 70% greater than what is officially reported by national governments. Using a country-by-country estimate for coal and oil and gas activities, it found that China was the largest source of global energy-related methane emissions, followed by Russia and then, the United States.
The tracker concludes that methane emissions are significantly undercounted and are currently on the rise. Methane mitigation offers the largest, fastest and cheapest opportunity for climate action in the near-term, and is critical for keeping the 1.5°C temperature Paris Agreement target in reach.
Molecular Recycling: Enabling a Circular Plastic Economy
According to a recent report from Closed Loop Partners, molecular recycling technologies have the potential to support downstream material recovery and enable a transition to a circular system for plastics. Molecular recycling, unlike chemical recycling, uses enzymes, soundwaves and other technology platforms that transform plastics. Together with mechanical recycling, the two systems can symbiotically help decarbonize manufacturing and meet the demand for various grades of recycled plastic resin.
The report introduces 9 molecular recycling technologies, as well as recommendations and a core evaluation checklist. The report also advocates that industries, brands, NGOs, policymakers and consumers work together to solve the plastic waste crisis. Solutions such as looking beyond single-use plastic packaging, scaling reuse and recycle systems, entering long-term supplier contracts and creating new product standards could support the initiative.
Integrating molecular recycling technologies into plastics recycling systems in the US and Canada could double the amount of plastic packaging recycled and generate up to $970 million dollars annually.
Figure B – Recycling inputs and outputs: Early and developing material flows by technology category
To learn more about why a circular economy is so important and to hear about what is being done so far in Canada, register to attend the forthcoming CIBC Sustainability Circular Economy Roundtable here.
Just Transition: The Role of Financial Institutions
As governments, industry and communities across the globe mobilize to accelerate climate action, the concept of a Just Transition is gaining heightened focus, including explicit mention in the Glasgow Climate Pact. The Just Transition concept recognizes that the transition to a low carbon economy will have greater impacts on and challenges for specific industries, regional economies and workers, and calls for supports to be put in place for those who need it, while also creating opportunities for a more sustainable, inclusive economy.
In late-2021, Clifford Chance, an international law firm, in collaboration with the Institute for Human Rights and Business and the CDC Group (which is the UK’s development finance institution) published a White Paper on the banking sector’s role in delivering a Just Transition, titled ‘Just Transactions.’ The report addresses how banks can support a just transition to net zero through climate-related financing activities, and explores the challenges and opportunities it presents. To learn more on the topic, listen to our podcast on Just Transition here.
2022 IPCC Report: Dissecting the Climate Change Impact
Climate-related impacts are widespread and, in some cases, irreversible according to the recent IPCC report, Climate Change 2022: Impacts, Adaptation and Vulnerability. Some of the effects include heat-related human mortality; food insecurity and malnutrition and; significant loss to agriculture and tourism industries. The previous IPCC report published in 2014 focused on projected impacts however the recent report goes into great lengths over the impacts that have already occurred.
Countries are not reducing greenhouse gas emissions fast enough, making adapting to climate change more critical and difficult. Additionally, this bleak outlook on climate is leading to negative impacts on mental health – known as climate anxiety – which is disproportionately affecting young people.
To learn more about climate anxiety, listen in to CBC’s podcast where guest Britt Wray, Planetary Health Fellow at Stanford University, discusses the rising occurrence of climate anxiety and understanding how to cope with it. If you have teens or young adults in your house, this is a good way to understand how they are likely to feel.
Climate-Related Financial Risks: Where is OSFI’s focus?
The Office of the Superintendent of Financial Institutions (OSFI), an independent arm of the Government of Canada that supervises and regulates financial institutions and pension plans, recently released its policy priorities. This follows their ‘blueprint on transformation’ published in December 2021, as well as the Bank of Canada-OSFI joint pilot project on climate transition risk scenarios.
We believe that OSFI is focused on financial institutions’ readiness to manage climate-related financial risk, by building awareness for financial institutions and promoting resilience – it starts with disclosure and data, which we expect will be mandatory, and could eventually include climate-related capital and liquidity considerations. For our clients who want to understand one of the financial institutions’ stakeholder interests, our regulator, we recommend reading these materials.
New York Federal Reserve Bank’s climate stress test demonstrates ‘substantial’ risk for large global banks
In the February 2022 edition of the CIBC Sustainability newsletter, we reported the Bank of Canada’s and the Office of the Superintendent of Financial Institutions (OSFI) Climate Scenario Analysis, which looked at the financial impact on banks from the transition risk of climate change.
A similar study was done in the US where researchers at the New York Federal Reserve Bank developed an approach to assess the exposure of large global banks to climate-related risks, and whether financial institutions have enough capital to withstand these risks – a climate stress test. The 27 banks in the Fed study accounted for 80% of the oil and gas loan market share. The researchers developed a metric for measuring climate risk – the expected capital shortfall of a financial institution in a climate stress scenario also referred to as CRISK – and found that CRISK increased substantially for banks in 2020 and that it was “economically substantial” for some banks that have large fossil fuel exposures.
Consideration for a Canadian Sustainability Standards Board – open for comment
The Independent Review Committee on Standard-Setting in Canada (IRCSS) – established to review the governance and structure for Canadian accounting, auditing and assurance standards – released a consultation paper to seek input on its recommendation of a Canadian Sustainability Standards Board (CSSB) being contemplated to complement and connect to the recently announced International Sustainability Standards Board (ISSB). The consultation paper is available for public opinion until March 31st, 2022.
Reviewing the ESG Strategy: China launches 5-year Agricultural Development Plan
China is the world’s biggest greenhouse gas emitter and coal consumer, so it expects to add 180 gigawatts (GW) of new power generation capacity from non-fossil fuel sources during 2022. 180 GW is a huge amount, representing well over $1 trillion and more than the current installed solar PV in the US.
The trend towards sustainability in Asia, and particularly in China is continuing to grow. We are now seeing sustainable thematics emerge outside of energy, and in areas such as food sustainability.
As part of its regular state central planning exercise, China recently unveiled its five year Agricultural Development Plan which now includes a focus on food sustainability: cultivated meat, plant-based eggs and other food production technologies.
With such a large and increasingly affluent Chinese population, and a trend away from reliance on foreign food supply chains, sustainable food production and food tech is an emerging ESG trend we are watching in China.
EU Social Taxonomy: Defining what constitutes a social investment
The increasing demand for social bonds (to finance social housing, healthcare, and jobs for target groups) is an indicator that investors see social investments as an opportunity. This high demand also shows that private capital can be directed to advance socially valuable activities. It is, therefore, crucial to define clearly what constitutes a social investment, as has already been done with environmental investments.
The suggested structure of this social taxonomy consists of three objectives, each of which addresses a different group of stakeholders: 1) decent work (including for value-chain workers); 2) adequate living standards and wellbeing for end-users and; 3) inclusive and sustainable communities and societies.
This social taxonomy report from the EU, published February 28, 2022, aims to answer these challenges.
Ensuring the usability of the EU Taxonomy
The International Capital Market Association (ICMA) recently published a paper which identifies the challenges that the financial and corporate sector would have in providing information in alignment with the EU Taxonomy. ICMA identifies practical concerns over usability of the taxonomy, such as the difficulty in estimating the required information on alignment, or the reliance on EU criteria in an international market.
The report makes recommendations to EU co-legislators and regulators with first three recommendations designed to address usability concerns, and the last two addressing issues of assessing the taxonomy alignment of green and sustainability bonds.
Sustainability across CIBC
Deal announcements
In line with our commitment to make sustainability a reality for our clients and the communities we serve, CIBC Capital Markets led significant client deals and provided sustainability advisory as part of a focused objective to help our clients become global leaders in environmental stewardship and sustainability.
Province of Ontario
Joint Lead and Bookrunner on a $1.75B re-opening of 8-year Green Bonds – the second largest green bond offering for the Province
BCI QuadReal Realty
Joint Bookrunner on a $400MM issue of 4-year Green Bonds
CIBC Events
Upcoming event
CIBC Sustainability Circular Economy Roundtable: Enabling the Ecosystem
Publications
The Sustainability Agenda
CIBC Capital Markets’ podcast series focusing on the evolving complexities of the sustainability landscape – with a view to addressing current issues in a concise format to help you navigate and take action.
Chart of the day:
The Carbon Cost of Transportation
Source: Visual Capitalist
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