Insurance and Sustainable Finance July 8, 2019 Divya Bendre, Vice President, Sustainable Finance, HSBC divya.bendre@us.hsbc.com 1 PUBLIC
Important Notice – Informational Purposes Only This presentation, including the accompanying slides and subsequent discussion, is for general informational purposes only. The information used in preparing these materials was obtained from public sources and are intended solely for your information. HSBC assumes no responsibility for independent verification of such information and has relied on such information being complete and accurate. Any prices, levels or figures included in this presentation may relate to past performance and will vary in accordance with changes in market conditions. Past performance is not a reliable indicator of future performance. HSBC makes no representation or warranty (express or implied) of any nature nor is any responsibility of any kind accepted with respect to the completeness or accuracy of any information, projection, forecast, representation or warranty (expressed or implied) in, or omission from, this presentation. HSBC expressly disclaims any and all liability that may be based on any information contained herein, including any errors or omissions herein, and any obligation to update, or otherwise revise, any of such information. In particular, no liability is accepted whatsoever by HSBC for any direct, indirect or consequential loss arising from the use of or reliance on this presentation or any information contained herein by the recipient or any third party. The information, analysis and opinions contained herein constitute our present judgment which is subject to change at any time without notice. This presentation does not constitute an offer or solicitation for, or advice that you should enter into, the purchase or sale of any foreign exchange, derivative, security or other investment product or investment agreement, or commitment to provide any financing, or any other contract, agreement or structure whatsoever and is intended for institutional, professional or sophisticated customers and is not intended for the use of private individual or retail customers. Nothing contained herein should be construed as tax, investment, accounting or legal advice. No consideration has been given to the particular service needs, investment objectives, financial situation or particular needs of any recipient. Recipients should not rely on this document in making any investment decision and should make their own independent appraisal of and investigations into the information and any investment, product or transaction described in this presentation. 2 PUBLIC
Green Bonds: Insurers as investors and issuers Case study: Manulife Green Bonds Issued General account investments in renewable energy and energy efficiency projects MFC 3.0% SGD 500 million subordinated debt due 21 November 2029 Wind 52,700 tons/year 44% Est. CO2e avoided Solar 56% Example projects: • Rivière-du-Moulins Wind Project, Quebec, Canada • Grand Renewable Solar Project, Ontario, Canada MFC 3.317% CAD 600 million subordinated debt due 9 May 2028 7% Wind 24% 11% Solar 258,400 tons/year Est. CO2e avoided Energy Efficiency Responsible Investment at Manulife - highlights • Manulife Investment Management is a UNPRI signatory Sustainably- • By 2018 nearly 49.5 million square feet (80% of real 58% managed forestry estate portfolio) had been certified under a sustainable building certification program such as LEED, ENERGY Example projects: STAR or BOMA BEST • Campo Palomas Wind Project B-bond, Salto, Uruguay • John Hancock Investments manages almost $241 million • Acquisition of Axium Infinity Solar portfolio, Ontario, Canada in assets through four ESG funds • Financing of Hannon Armstrong energy efficiency projects, Washington, DC • Hancock Agricultural Investment Group started working • Vinegar Bend Timber, Alabama & Mississippi with consultants on an agricultural sustainability framework for measuring and managing the sustainability performance of its U.S. farmland 3 PUBLIC
Unpacking the terms: Sustainable Finance – Impact Investing – ESG Investing Financial materiality and/or impact considerations Three investments with the same risk-return profile Same three investments, but with real-world impact plotted • Investments that are not differentiable on risk or return can be differentiated along the real economy impact axis • Some investors are trying to balance real-world impact alongside risk and returns considerations • ESG data contributes to both traditional risk-return analysis (e.g. PD-LGD) and impact analysis Source: PRI An evolving industry: future-proofing the investment strategy 4 PUBLIC
Sustainable Financing Landscape ‘Labeled’ Bonds and Loans Use of Proceeds - focused Margin/coupon - focused Green, Social & Sustainability Bonds ~ $750bn Sustainability Linked Loans ~ $87bn Green Loans ~ $25bn Other structured transactions: - Equity-index linked bonds - ‘Green Coupon’ bond NEW – ‘Transition’ Bonds SNAM Climate CLP Holdings Action Bond Energy Transition Bond Source: Environmental Finance articles 5 PUBLIC
Green Bond Market Organic growth driven by investor demand Global Green Bonds (USD596bn eq. to date) By issuer type USDbn 7% 14% 200 20% 150 13% 100 7% 50 19% 0 20% 2013 2014 2015 2016 2017 2018 2019 Government-Backed Entity ABS Europe North America Supranationals Development Bank Financial Corporate Asia-Pacific Africa Latin America Local Government Non-Financial Corporate Sovereign By use of proceeds category 4%3% 2% 1% Energy 11% Buildings 35% Transport Water Waste Land Use 17% Adaptation Industry 25% Source: Climate Bonds Initiative 6 PUBLIC
ESG Ratings ESG performance: managing risks and opportunities Which ESG ratings do you consider to be of NEW - ESG analysis from rating agencies highest quality i.e. excellence, robustness and accuracy of evaluation? On-request ESG evaluation service Proposed on-request corporate governance assessment and carbon transition risk assessment Source: SustainAbility 2018 Rate the Raters survey of corporate sustainability practitioners; n=319 (Investor survey to come in 2019) 7 PUBLIC
Formalizing ESG Risk Analysis Rating Agencies 2018 Environmental Risks ESG Risk Atlas: Sector And Regional Global Heatmap Rationales And Scores Source: Moody’s, S&P 8 PUBLIC
Formalizing ESG Risk Analysis Investors Looking ahead, our view is that ESG-based analysis should be a natural part of bond investing, along with the assessment of credit, duration, and other risk factors. We are committed to putting this into practice across our portfolios both from a top-down perspective, where we see ESG analysis as consistent with our annual Secular Forum process, and from a bottom-up perspective, where ESG is integrated into our fundamental research across fixed income sectors. Understanding ESG in Bonds - PIMCO Secular Outlook, May 2019 Source: PIMCO June 2019 9 PUBLIC
Emerging Green Taxonomies Defining ‘Green’ and what’s better than Business -As-Usual Proposed EU Sustainable Finance Taxonomy Other taxonomies To be included, economic activities must • make a substantial contribution to one environmental objective meet any specified technical screening criteria: 1. climate change mitigation 2. climate change adaptation 3. sustainable use and protection of water and marine resources 4. transition to a circular economy, waste prevention and recycling 5. pollution prevention and control 6. protection of healthy ecosystems • do no significant harm to the other environmental objectives, and • meet minimum social safeguards (compliance with International Labour Organisation (ILO) core labour conventions) 67 economic activities have been classified as: • Green activities: Activities that are already low-carbon and compatible with a 2050 net zero carbon economy • ‘ Greening of’ activities: Activities that contribute to a transition to a net-zero emissions economy in 2050 but are not currently close to a net-zero carbon emissions level • ‘ Greening by’ activities: Activities that enable low carbon performance or enable substantial emissions reductions Source: EU Technical Expert Group 10 PUBLIC
Recommend
More recommend
