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Last Wednesday, the European Commission proposed a highly divisive policy, calling for the energy derived from natural gas and nuclear to be labeled as “sustainable” investments if they meet certain criteria.
While admitting that the proposal was not perfect, EU Financial Services Commissioner, Mairead McGuinness, claimed it struck a balance between differing opinions.
The move has subjected the European Commission to criticism, with environmental groups and climate activists accusing the EU of “greenwashing." They claim that labeling natural gas and nuclear as green energy would slow down the adoption of renewable energy.
But proponents supporting the move counter that such incentives would aid underdeveloped countries to transition from coal to cleaner alternatives.
The decision, however, is not final. The European Parliament and council of heads have four months to consider the proposal.
Could the move hurt The Union's credibility? Was the proposal well-thought-out for an entity as influential as the EU, a beacon of climate action? Could it really accelerate the world's transition to a low-carbon future?
What do you think?
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Following the Federal Reserve’s latest monetary policy meeting in January, the Fed is set to embark on its rate hike cycle with the first hike coming as soon as March to tame stubbornly high inflation. Concerns about an impending rate hike sparked volatility across assets classes, including US high-yield bonds. However, if history is a guide, US high yield performed well in the rising interest rate environment. The ICE BofA US high yield index outperformed with an average return of 16.2% during the Fed rate hike cycles since 1994 and delivered positive returns in 4 out of those 5 instances with the exception in 1999-2001, which coincided with the dot-com bubble burst.
That said, the economic background behind the rate hike cycle this time around looks different. The US inflation rate is nearly at a 40-year high of 7%, while the unemployment rate of 3.9% is just shy of the Fed's goal of maximum employment than the previous rate-hike cycles. These factors could cause the Fed to get even more aggressive. Moreover, the Fed has doubled the pace at which it is scaling back bond purchases, putting it on track to conclude the program by March 2022. It has also hinted at shrinking its balance sheet post hiking rates, with market participants expecting it to start in June 2022. Nevertheless, the corporate balance sheets had improved substantially in 2021 to weather the aftermath of monetary tightening.
Most of the companies are in the recovery or expansion phases of the credit cycle. Additionally, the high-yield index has near-zero exposure to the technology sector (highly sensitive to change in real interest rate) and short duration (around 5 years), making them stand pat against the rate hikes.
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The Himalayas, one of the most beautiful yet fragile ecosystems in the world, is a source of water for billions of people living in South and Southeast Asia.
China is the largest refiner of the world’s lithium and currently the biggest investor in lithium mines around the globe. Chinese scientists recently discovered ‘super-large’ deposits of lithium near Mount Everest, that could potentially produce a million tons of lithium oxide, a key element in batteries powering electric vehicles.
While this discovery could provide raw material to accelerate the fast-growing Electric Vehicles (EV) and battery storage market, prospects of mining the newly found lithium deposits would be an energy- and water-intensive operation, leading to adverse environmental impacts, and raising severe concerns over the fate of freshwater resources in the Himalayas.
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On Sunday, #Mumbai, India’s financial center, announced the Mumbai Climate Action Plan (MCAP) to achieve net-zero by 2050, becoming South Asia’s first city to do so. The detailed plan puts Mumbai two decades ahead of India’s national goal commitment of achieving net-zero by 2070 made at COP26 in Glasgow.
A coastal city, Mumbai is at a high risk of major flooding from rising sea levels. Mumbai’s plan is even more pressing considering that Indian cities will have to brace for a massive influx of migrants from rural areas. Rising temperatures are expected to increase crop failures and major water scarcity over the next few decades.
The plan was finalized with support from World Resources Institute, India, and C40 cities network after conducting a vulnerability assessment and a GHG & natural green inventory over the past six months.
The plan focuses on six key sectors – energy & buildings, #sustainable mobility, urban greening and #biodiversity, air quality, and urban flooding & water resource management. The largest investments will have to be made in the #energy sector which accounts for approximately 72% of the 23.42 million tons of the city’s total #GHG emissions in 2019. BMC (Brihanmumbai Municipal Corporation) commissioner, IS Chahal said that the civic body is currently working on infrastructure projects worth INR 40,000 crores to mitigate the potential effects of climate change on Mumbai and make the city more climate-resilient for its 19 million residents.
Is your city next?
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On Monday, the Securities and Exchange Commission (SEC), U.S.’s financial regulator, for the first-time proposed a climate disclosure rule that would require U.S. public companies to report on climate-related risks and impacts from their business activities in their annual reports and stock registration statements. The proposal aims to improve environmental public disclosures of corporate America, increasing transparency and holding companies accountable for their business’ climate impact. SEC chair, Gary Gensler said that the proposal was drafted in response to increasing investor demand for information on climate change factors that could affect the financial performance of the investee companies. Mr. Gensler said, “Investors with $130 trillion in assets under management have requested that companies disclose their climate risks.”
According to Morningstar, 2021 saw a record US$71 billion flow into U.S. ESG focused funds. While companies will have to disclose Scope 1 and Scope 2 greenhouse gas (GHG) emissions, it is still unclear which companies will have to disclose the more extensive and complicated Scope 3 GHG emissions. According to S&P Global, 35% of North American companies have already set GHG targets, but Scope 3 emissions are not included in these targets. Legal challenges are anticipated to the proposed rule, with concerns being raised about SEC’s authority, being a financial regulator to require disclosure of corporate emissions data. The public including companies, investors, and the legal community, will have up to 60 days to give their feedback on the plan, which is likely to be finalized later this year.
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India has forayed into the green bond space amid the global boom in sustainable investments, as committed by the Indian Finance Minister, Ms. Nirmala Sitaraman in the Union budget for FY2022-23. The green bond market has been growing steadfastly since its inception in 2007. This is in line with India’s commitment to achieving net-zero by 2070, as pledged by India in the Conference of Parties (COP 26) at Glasgow.
As part of the Indian government’s borrowing program in FY2022-23, the country plans to issue sovereign green bonds worth at least USD 3.3 Billion (~INR 25,000 Crores). Although the government has historically seen lower yields on green bonds, which closed at 6.85% on Monday (14 March 2022), it could prove attractive to foreign investors. The initial issuance will start in the first half of FY2022-23 and may increase green debt depending on the stakeholders’ response to the debut sale of the bonds.
India, being one of the world’s largest emitters of greenhouse gases (GHG), is looking forward to funding renewable energy projects with the money raised, thereby helping reduce its carbon intensity and having a positive environmental impact.
India is making aggressive strides towards a low-carbon economy, setting ambitious targets of achieving 175 GW of renewable energy capacity by the end of 2022, and quadrupling its current renewable power generation capacity by 2030. Indian companies in the renewable energy sector have raised debt worth INR 1,760 Crores in February this year.
Will Indian sovereign green bonds help mitigate its climate risks?
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Last Wednesday, the European Commission proposed a highly divisive policy, calling for the energy derived from natural gas and nuclear to be labeled as “sustainable” investments if they meet certain criteria.
While admitting that the proposal was not perfect, EU Financial Services Commissioner, Mairead McGuinness, claimed it struck a balance between differing opinions.
The move has subjected the European Commission to criticism, with environmental groups and climate activists accusing the EU of “greenwashing." They claim that labeling natural gas and nuclear as green energy would slow down the adoption of renewable energy.
But proponents supporting the move counter that such incentives would aid underdeveloped countries to transition from coal to cleaner alternatives.
The decision, however, is not final. The European Parliament and council of heads have four months to consider the proposal.
Could the move hurt The Union's credibility? Was the proposal well-thought-out for an entity as influential as the EU, a beacon of climate action? Could it really accelerate the world's transition to a low-carbon future?
What do you think?
