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00:00This week the rise of green finance. What we're trying to do isto have a positive impact in every investment and to future proof those investments. 2021 is the year of sustainablefinance. But how do we make sure that all of this money is as green as it's supposed to beno matter how you look at it. It is inevitable. We know the direction is clear. But the roads will be bumpy. The EuropeanUnion lays out the green standard for bonds tightening up rules for banks on climate changeand turning money into motion. The story of how one small activist investor took on an oil giant. We see a real linkbetween the impacts a company makes on workers and society and the community but also on climate and the environment on thelong term financial value of these companies. I'm Dani Burger in London and this is Bloomberg Green. The rapid rise of green finance has been one of the definingtrends of the past few years. There are now more than six hundred eighty F's that claim to follow ESG principles butquestions remain as to how many really promotes sustainability. And with murky definitions wildly differing strategies and noglobal benchmark it's well worth asking just how green is green finance. Our reporter Alister Marsh broke it down for us. Giventhe science that climate change requires immediate action. This isn't the decade and so we wanted to start by saying let's makesome good commitments. These issues have moved very swiftly from being to corporatesocial responsibility issues or more niche issues within finance to fundamental value drivers who will ultimately divest thecompany if we really think we're not getting the traction that we need. Following a record 305 billion dollars of green bondissuance in 2020 and another 500 billion slated for this year 2021 could be called the year of Sustainable Finance.Governments and corporates are all in on the act and every continent has seen green issuance in the last 12 months. Andthat's just bonds. Almost 300 billion dollars of green loans were issued in 2020 and there are now more than 600environmentally positioned ETF. Amid this explosion in green finance you'd be forgiven forthinking we were experiencing a revolution in money markets. Some believe we are and that green finance is capitalism'sanswer to the climate crisis. Well there are a lot of positives when it comes to green finance and the fact that nearly everybank insurance company pension fund asset manager has now made commitments either under sort of in response to societalpressure or perhaps because they've done their own research and they see the writing on the wall when it comes to the issuesassociated with climate change. But amongst the jubilant. There are also downsides. Accusations of greenwashing are common. Andan investigation by Bloomberg Intelligence revealed that many supposedly environmental funds barely differ from their non ESGcounterparts. Regulators are scrambling to keep up with the trend includingthe EU which released its green bond taxonomy last year. But there are no agreed upon standards in the US or internationallyand the growth in green bonds issued by steelmakers and oil companies have raised some eyebrows.The question is how can money flowing into a company or government be green if that company or government continues withother actions that are distinctly anti environmental. Spanish oil company Repsol issued a 500 million euro green bond in 2020.The company ring fence the funds for efficiency savings which were covered under its green bond framework. But meanwhile theypumped more and more oil out of the ground. This market is growing rapidly.There are no common standards and definitions. And therefore one man's green finance is another man's greenwashing.People have compared the ESG or green finance market to a bubble hype. And this is the kind of thing that happens when you haveloads of money flowing in one direction at the same time. And you can imagine there being incidents of mis selling. You couldimagine people losing a lot of money and you can imagine people buying things where they thought it was one thing and it wasactually something else. That the blackout across the whole market is this idea of greenwashing that people are exaggeratingor misstating the greenness of what it is that they're selling and what it is that doing away from tackling climate change.There's another motivation behind green finance. Even if global emissions were cut to zero tomorrow the climateis undergoing rapid warming with average surface temperature up by a degree in the last century. The impacts are already beingfelt with extreme temperatures in the US. Sea level rise in the Pacific and droughts across much of Asia alongside humansuffering. These changes are adding risk to assets such as farmland or residential property putting them at risk ofbecoming stranded. Bloomberg Markets green finance is evolving as a more climate smart place to store capital away from therisks posed by climate change. If we're going to have a low carbon future coal immediately we have to rule that out. Lots ofoil and gas will no longer be kind of relevant or accepted or appropriate either. And if you're a bank with a lot of that kindof exposure on your loan boat while you have a big potential risk coming at you. So there will come a moment a crunch momentwhere funding will be withdrawn from these kinds of projects and companies where you can imagine insurance being withdrawn whereyou have these stranded assets and you don't want to be kind of there holding the baby at the end as hundreds of billions pourinto green finance. The question seems to be not whether it's already good or bad but what its impacts will be going forward.Is it just the flavor of the month. Believer's promise everything from a green tech renaissance to higher and moreresilient returns whilst detractors level accusations of greenwashing and more wasted years not tackling the root causesof climate change rising from obscurity in just a few years. The green finance craze shows no signs of stopping Jonathan Ferrofrom policing products to products that police themselves. A.T. one of Europe's biggest private equity funds is diving headfirstinto green. Finance it's issued six hundred million dollars worth of sustainability linked bonds. But importantly this debtis tied to specific ESG goals. So if a company Ekiti owns misses a diversity or emissions target it will penalize itself and givemore money to bondholders. That's a first in green finance. And I'm joined now by EU Teeth CEO Christian Sinding. Christian firstoff thanks so much for joining us. And what really was the thinking behind issuing these sustainability linked bonds.The thinking was we wanted to to actually give an additional incentive to our teams and the boards of the portfolio companiesand the management of the portfolio companies to really drive measurable change. And that's not so easy to do these daysbecause that means measuring impact is quite complicated. And connecting that directly to financial results is alsocomplicated. But with these sustainability linked bonds we can actually connect targets to for example diversity and also theenvironment. So all of our funds and all of our companies are now committing to the science based targets initiative forexample. And the third element is transparency a level of transparency that we can deliver if I can tease out this idea ofhaving those financial incentives to it obviously. Kuti very active in the sustainability space. Why do you need thepotential of a financial penalty is why not just do it for the sake of improving these companies and improving the returnyou'll get out of them. Yeah I like the challenge and we actually don't think of it aspenalties although there is there's both upside and downside. So we're going for the upside. So we're actually going for you knowlowering the financing costs. So it's something like 10 basis points a year that that the financing can actually improve by interms of its interest rate. And where we've also issued actually the Ekiti levels we have bonds of the equity level. We multiplebonds now at a different fund levels. And and what it gives us just an extra incentive.Of course internally we also have our compensation systems are linked to sustainability goals as well. So there are multiplelayers of this. And of course from a philosophical point of view we actually have in our articles of association that we're hereto future proof companies and make a positive impact. So all these things together that's contributing to more acceleratedaction. When it comes to investing in companies there does seem to bethis debate that often unfolds that says OK. It's either you want to stay away from any of the sort of sitting companies youwant to invest in RTS sustainable companies or you want to invest and buy companies that you can actually enact change.Obviously there are a lot of different industries that AQ T is involved with. Where do you come down on that debate. What isyour experience been. What we're trying to do is to have a positive impact in everyinvestment and to future proof. Those those investments and what what we do then is what we which are right to focus on ourcompanies that can either become much more sustainable. One example of those is we just invested in A.C. mix again afterowning it for a long time. And you see Mix is a big pest control provider. And in the past what they were doing was drivingaround in trucks and spraying chemicals. We're doing with that company is actually digitizing it both making the product muchmore sustainable and actually upskilling the workforce to add more digital solutions. So really driving a sustainabilitychange in the company and hopefully also the industry. You can also have you know really sustainable companies like renewableyou know infrastructure providers that we own several of and are actually working on a public private right now in Spain. Andthose are already very sustainable. And our job then is to accelerate that sustainability transformation or or ourdevelopment. What we do though is of course we stay away from things that are let's say very very black like coal or you knowcertain parts of the carbon industry or you know gambling and other kinds of things. That's kind of the easy decision. Theharder ones are the ones in the middle where we have to drive a positive transformation. Christian thank you so much. Reallyappreciate it. That's Christian Sinding CEO of EQT. The EU has released its green bond standard which outlines whatis sustainable debt and what's plain old greenwashing. Our Europe correspondent Maria Tadeo. We'll have the details next.This is Bloomberg Green. In New York I'm Jennifer Zabasajja and here's everything youneed to know in green this week. Japan says individuals will need to make the greatest changes to energy consumption to meetthe country's climate targets. Households will need to curb greenhouse gas emissions by two thirds over the next decade from2013 levels. That's the deepest percentage cut of any sector. Japan strengthened its 2030 climate goals earlier this year astep towards net zero emissions by 2050. Also Fidelity International has warned companies if they don'ttake sufficient action to combat climate change the asset manager will vote against management at shareholder meetings.Seven hundred and eighty seven billion dollar investment firm has announced new policies requiring companies to manage theirenvironmental impacts reduce their greenhouse gas output and make disclosures about their emissions.China didn't finance any coal projects through its belt and road initiative in the first half of this year the first time that'shappened since the plan was launched in 2013. And according to the International Institute of Green Finance more than 70percent of all coal plants and built today rely on Chinese money followed by investment from Japan and South Korea. However beltand road funding for green projects was also hit during the pandemic. And that's your green brief.Jen thank you so much. Now the EU has set out a green bond standard and tighter measures on banks to better reflect therisk climate change poses to the financial system. The aim is to bring the world of finance in line with its ambitious goal tomake the region carbon neutral by 2050. For more Bloomberg's Maria Tadeo joins us in Brussels. Maria thank you so much forjoining. Now what is the EU exactly trying to achieve when it comes to green financing.Right. Danny so on paper they say this is a new type of green financing for a new greener economy. Of course a lot of thisgoes into this big push as you mentioned to cut down emissions and become climate neutral. Now there's two pillars to this. Oneof course is just the practical aspect of this. The European Union is really trying to scale up this market to make it biggerto make it more liquid because they will have to issue so much money in the next few years. You know Danny from next year until2026 we have the European Commission tapping markets for about one hundred and fifty billion euros a year. 30 percent of thatwill have to be green bonds. So clearly they do have an interest in making this an attractive liquid market. The other issuecoming to play here of course is this global competition that we're seeing to get money from me. Know we've seen a lot ofinvestor appetite into that market. The European Union does believe that if they're able to get the legislation first ifthey're able to make the rules very clear move away. The risk of greenwashing which is the biggest concern for investors they'llbe able to dominate this market. And I would argue you know they do have a good argument here because if you look at the figuresfrom 2020 half of the money that was issued for green bonds was issued in euros. So there clearly are trying to completelydominate this market. But as you know Danny there's been also good pitches coming from the U.K. and to the United States onthat front. OK. So do we have any sense as to what these products will looklike. Exactly and who's going to be issuing them. Well Danny there's two things here. One is if you're an issueissuer the European Union will allow you to tap into the European green bond space. If you're based in the EU but alsoyou're not based in the EU as you can see that they really are trying to make this global. Now secondly they do say that thisis going to be an option for every type of issuers who are looking at financial companies but also non-financial companiesgovernments and institutions and may want to finance himself through green. And what is also interesting here is that they'recoming up with what they call the European Green Bonds standard. Now this is a document that companies will have to inform andwill have to provide. It's voluntary. But again the thinking is that you do want to be super transparent to attract money. Andessentially what you do is that you prove that there is no risk of greenwashing and that the money really is going to financegreen projects that will be in line with European goals. Maria thank you so much for this. That's our Bloomberg Brusselsreporter Maria Tadeo. Now one asset manager which has built a strategy for investingin green bonds is Rob Eco. It invests in bonds issued by governments as well as corporates with aims to create a positiveenvironmental impact. At the same time as returns for investors across all of its investment it has 160 billion euros in ESGintegrated assets. We're joined now by Lucien Pep Lesbos Rebecca's climate strategist. Alisa on first off thank you somuch for joining. And when it comes to green bonds I mean there's been exclude blows of growth. The markets worth now morethan two trillion dollars. How do you account for all of that appetite.Indeed. Clearly there is a strong appetite in the markets for investing in green bonds and that has to do with climate changeand the low carbon transition being a long term trend that no matter how you look at it it is inevitable that we know thedirection is clear. But the road will be bumpy. There will be disruptive changes. But long term the low carbon transition toenergy transition will take place. Now green bonds is a relatively easy place to start with because they arewell-structured package products that that investors seek exposure to.OK so it's an easy place to start. But how of an effective place is it to start. Can it really make a difference.It can. And of course there's a lot of debate about it. There's concerns about greenwashing and I think those risks are real.And that's exactly why there are standards being developed in the market. So when an investor is buying this or really anysort of investing strategy that has to do with sustainability what sort of returns should they expect. Or is it more aboutjust doing good and maybe the alpha comes later down in the road.No. Alpha is and continues to be part of our fiduciary responsibility. So it comes at first place. However we thinkthat if you define it cleverly it can be really combined with sustainability. Take for example carbon footprint reduction. Youcan go a long way in reducing footprints of portfolios without any significant impact on risk return. So it's really about aclever approach to combining these different elements. And then of course we also believe that certainly on the longer term butalso already on the shorter term if you integrate sustainability data in your investment decisions you actually make betterinformed decisions. So actually it can also be a source of alpha. So. OK. Company has one side of it incorporates. Whatrole do investors have in pressuring governments to be less reliant on things like coal.Government policy is key. Luckily in the last year we have seen a huge step up from several governments when it comes to netzero commitments. Now we're at a stage so we can say 70 percent of global emissions and 70 percent of global GDP are committedto net zero. However that's by 2050. The key gap is action now because when we look at 2030 the United Nations concludes intheir stocktaking that all the government policies together around the world will only lead to a half percent of emissionreduction by 2030 whereas we need a halving of emissions. So so the ambition gap is huge now and this is where governments needto step up. Prior to 2030 operationalize their long term commitments into real policy action.We'll see an interesting stuff. Thank you so much for joining us. That's Lucy and Peppe Len both climate strategist at RopeEco as companies experience increasing green demands from the outside. Some are also feeling the pressure from within. Youcan't talk about green finance without activist investors. And we'll be discussing their rise next. This is Bloomberg Green. From Bloomberg's headquarters in the city of London I'm DaniBurger and this is Bloomberg Green. Now we've heard from the people making finance greener.But what about the people using their money to change companies for the better. The story of sustainability has also been thestory of the rise of the activist investor. One such firm engine number one says a company's performance is greatly enhanced bythe investment it makes in workers communities and the environment. And this year they took on one of the biggestpolluters in the world. The firm became known for taking three board seats in Exxon to speed up the company's transition. SarahRappaport has the inside story on a small fund with 272 million dollars in assets under management and how it took on the oilgiant with a market cap of more than two hundred sixty seven billion dollars.It was the David versus Goliath story. Activist investor engine number one waged a war with oil and gas giant Exxon Mobile andwon. It gained three board seats something that would not have happened without the support of big investors BlackRock Vanguardand State Street. In the statement BlackRock said We believe more needs to be done in DAX long term strategy and reducingclimate risk. At the same time Exxon was particularly vulnerable to this sort of pressure. Excellent. Has this vision of theworld where fossil fuels are profitable in the long term and it sort of has refused to commit to zero out emissions.But that really stands in contrast to European rivals and other companies that are moving in a different direction moving in adifferent direction towards not zero as the main goal of engine number one. Where other bigger hedge funds had failed enginenumber one managed to effect change with capital worth just fifty million dollars.We spoke to CEO Jennifer Grancio about the campaign from an Exxon perspective. Our campaign at Exxon led by Charlie Pennerat engine number one was about making sure the board had the right capabilities to understand how to manage every aspect ofthe company including how the company remains a great company through the energy transition. So I guess I would say about thecurrent news cycle that we look forward to the new directors joining the board and the company managing for the future.Acknowledging some of the changes and transformations that have to happen there. And if I step back we built engine number onespecifically because we see a real link between the impacts the company makes on workers and society and the community but alsoon climate and the environment on the long term financial value of these companies.But it's not just DAX on fresh off the firm's successful campaign. They're launching a new ETF to keep pressure on bigpublic companies on ESG. One thing that we can do in engine number one is we can do aneconomic and impact oriented proxy campaign an activist campaign like what we did with Exxon and we launched the vote ETF.There's a little clue in the name there and we gave it the ticker vote. We launched this ETF because it's a way for peopleto stay invested in these big public companies over time. And then we as the manager will vote very actively.Shareholder activism may be increasingly a way for investors to turn up the heat on companies and engine number one founderCharlie Penner told Bloomberg. If you can get Exxon to change everybody else my industry has to listen.That's it for this week's edition. But keep the conversation going. Follow us on Twitter at Climate. I'm Dani Burger and thisis Bloomberg Green.

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Bloomberg Green: Making Finance Sustainable

Money is flooding into sustainable finance at a pace that has never been seen before. But, as companies and countries pump cash into climate projects, how can we differentiate the change-makers from the profit-takers? In this edition of "Bloomberg Green" we break down the institutions trying to define what makes sustainable investments 'green'. Plus, we talk to the CEO of European private equity house EQT about a world-first: a bond issuance linked to sustainable goals where failure to meet targets means a bigger payout for investors. (Source: Bloomberg)

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