Sustainaweekly - How are companies coping with higher energy costs?
In our first edition of the SustainaWeekly after the summer break, we cover a wide range of topics. We first have updated our analysis on how surging energy costs have impacted company margins. Companies have so far been quite successful in protecting their margins, though we judge that this is unlikely to be the case going forward. We go on to review impact reporting from utility companies in Europe, look at decarbonisation of the steel sector and assess the impact of the green label on bond new issue premiums.
Economics Theme:
The theoretical profit margin impact for rated corporates of soaring energy prices would have been large, yet so far energy-hungry companies have been very adept in passing higher costs to their customers. However, we argue that given the downturn in demand and the persistence of cost rises, that a margin crunch is on the cards.
Strategy Theme:
We assess whether the green bonds of utility generators have contributed to the decarbonization of Europe. Our analysis shows a clear relationship between green bond issuance by utility companies and the increase in renewable energy capacity in Europe. We highlight differences in impact between companies.
Sectors:
The transition towards a less polluting way of producing steel is gaining traction. High electricity prices are currently hurting many EAF steel producers in particular, and this is harming their competitiveness. In the long run, a more sustainable production process will be decisive for business continuity and will ultimately shape competitiveness.
ESG Bonds:
New issuance premiums (NIP) for corporates and financial institutions have been on the rise in the past few months. We investigate whether the green label might have assisted issuers in securing a lower NIP . Following the outbreak of the Russia-Ukraine war, this was not the case, though more recently there are better signs for corporates than FIs.