ESG Debt in 2022

This week we would like to share some highlights from a recently published report by Sustainable Fitch on ESG Credit Trends for 2022. This report attempts to identify the key trends for the ESG debt market for the coming year, based on how different topics have gained relevance, and how different bond frameworks are being used. Here are some snippets we found very interesting, but we do recommend reading the full report if these topics are relevant to your organization right now:

• “Investors, regulators and stakeholders in capital markets are paying increasing attention to social issues and this ESG theme will rise in prominence over 2022.”
• “…the nexus between environmental and social issues will become stronger as ESG integration becomes more sophisticated as more disclosures and data become available.”
• “We expect to see a rising level of issuance of sustainability and sustainability-linked debt as investors combine climate and social objectives under single mandates.”
• “At the core of the social and environmental nexus is the issue of financing a just transition to a low-carbon economy for populations most at risk from adverse socioeconomic impacts.”
• “Increasing regulatory attention on environment and social risks and shifting consumer preferences for sustainable products have emphasized the importance of sustainable, resilient, ethical and transparent supply chains.”
• “… we anticipate that the range of social factors within ESG will expand beyond these topics and become more central to sustainability strategies for a wide range of bond issuers from corporates to sovereigns.”
• “We expect to see growth in SLBs with a combination of green and social targets for issuers that lack the dedicated assets necessary for a use-of proceeds bond.”
• “The addition of a social framework to the EU taxonomy, expected in the next year, will provide guidance on the private sector’s contribution to socially sustainable outcomes and support more issuance of corporate bonds with social targets or use of proceeds.”
• “Technology firms have increased their activity on the social side of the sustainable bond market. […] The growth of artificial intelligence and algorithm-based analysis has the potential to create unforeseen issues related to access and affordability, bias and discrimination, and privacy.”
• “The role of state-owned enterprises in the fossil fuel value chain is also a consideration.”
• “Economic dislocation from the shift to low-carbon technologies is likely to be an issue of concern to all major economies in 2022, and lessons can perhaps be drawn from the closure of Germany’s black coal industry in recent decades, which was driven by economic rather than climate concerns.”
• “The objective of more standardized forms of reporting on various facets of sustainability is to allow for greater transparency, less scope for greenwashing from reporting entities due to asymmetric reporting. More standardized reporting can also create a more harmonized set of decision-useful data, which investors, regulators and other stakeholders can use to scrutinize and compare financially material sustainability risks […].”

Mexico has not been far behind on ESG debt growth trends. Last year there were almost 40 ESG debt emissions raising more than 8.5 billion dollars, 3 times more than in 2020. This should only continue to grow and the new ESG disclosures, which can influence a wide range of market participants and locations, will be of great relevance in 2022. The ISSB’s evolution under the auspices of the IFRS, the US SEC’s updated climate risk disclosures, and EU work on the SFRD regulatory technical standards are all things to keep an eye on.

I hope you found this interesting. As usual, if there is anything we can help you with, please reach out.

Best,

Marimar

CEO, Miranda ESG