Sustainaweekly - IPCC reports clock is ticking on 1.5 degrees
In the latest edition of the SustainaWeekly, we start by setting out some of the key results of the third report in the IPCC trilogy. The IPCC once again made a call for action and underlined that the window is closing to limit global warming to 1.5 degrees. However, the latest report stands out in that the IPCC also analyses mitigation options, as well the cost of various options. We go on to show that better ESG risk scores lead to relatively lower funding costs for financial institution issuers. Furthermore, we looked into whether SBTi validation lowers greeniums in the green bond market, but we found no evidence of that. Finally, we look at announcements from the German and UK governments, which are the latest to step up their renewable energy ambitions.
Economics Theme
The IPCC shows that immediate and deep GHG emission reductions are needed to limit warming to 1.5 degrees. Mitigation options costing USD100/Gton CO2-eq or less could reduce global GHG emissions by at least half the 2019 level, and options costing less than USD20/Gton CO2-eq are estimated to make up more than half of this potential.
Strategy Theme
We assess the impact of ESG risk metrics on new issue premia in the euro FIG debt market over the period 2019-2022. We find that in general it pays off to have a lower ESG Risk Rating (better score) as this results in lower new issue premia according to our model.
ESG Bonds
We evaluated whether SBTi validation – which should increase the credibility of an issuer’s overall sustainability strategy - results in higher greeniums in the secondary green bond market. Our results indicate that this is not the case yet.
Policy and Regulation
European countries have been stepping up their renewable energy ambitions triggered by the desire to reduce dependence on Russian gas. In the latest announcements, Germany has announced a higher target for its renewable energy share for 2030. The UK also stepped up ambitions, though targets are soft rather than hard.
ESG in figures
In a regular section of our weekly, we present a chart book on some of the key indicators for ESG financing and the energy transition.