ESG Data and Investments PDF

ESG data ESG DATA IMPACT IS MAPPED TO SDGS ESG DATA IS ABOUT BUSINESS VALUE RESILENCE ESG DATA IS MATERIAL TO FINANCIAL PERFORMANCE MSCI ESG Ratings take into consideration a company’s management measures relative to their aggregate ESG risks and opportunities. Management measures are generally...

ESG data ESG DATA IMPACT IS MAPPED TO SDGS ESG DATA IS ABOUT BUSINESS VALUE RESILENCE ESG DATA IS MATERIAL TO FINANCIAL PERFORMANCE MSCI ESG Ratings take into consideration a company’s management measures relative to their aggregate ESG risks and opportunities. Management measures are generally evaluated through companies’ governance structures, policies and targets, quantitative performance metrics, and relevant controversies. Environmental data KEY “E”INDICATORS FOLLOWED BY ESG ANALYSTS RISKS OF NOT TAKING GLOBAL WARMING INTO ACCOUNT ❑ Physical risks Employee safety, transportation, premises, raw material supply chains. ❑ Market risk The move towards a low-carbon economy affects the demand for products and services ❑ Transition risks Cost of adaptation and investments (energy producer, automotive sector) ❑ Reputation risks An unclear or unambitious strategy will be penalized by investors and unattractive to talent. ❑ The risks of litigation Water pollution, dieselgate, cancellation of projects not consistent with decarbonization Case study : biodiversity factors to biodiversity loss and potential mitigating actions factors to biodiversity loss and potential mitigating actions  DATA IS GOVERNED BY REPORTING REQUIREMENTS biodiversity disclosure initiatives Regulatory European Sustainability Reporting Standard (ESRS) E4 on biodiversity and ecosystems, part of the Corporate Sustainability Reporting Directive (CSRD) Sustainable Finance Disclosure Regulation (SFDR) French Energy and Climate Law, in particular Art 29 Voluntary Disclosure recommendations and additional guidance of the Taskforce on Nature-related Financial Disclosures (TNFD) Biodiversity Standard of the Global Reporting Initiative (GRI) Biodiversity disclosure requirements by CDP (the former Carbon Disclosure Project DATA IS GOVERNED BY REPORTING REQUIREMENTS (SFDR) Extract from Kering 2023 DPEF Extract from Unilever NFS INVESTORS NEED CONSULTANTS TO INTEGRATE METRICS Iceberg Data Lab is a Fintech specialised in ESG Data Solutions for Financial Institutions which is headquartered in Paris, France. Iceberg Data Lab developed the Corporate Biodiversity Footprint to model the impact of corporates on biodiversity and enlarged the scope of its environmental data solutions in July 2020 through the asset contribution of I Care data branch. Founded by experienced professionals of Environmental Science, Data Analytics and Finance, Iceberg Data Lab data are used by leading international financial institutions to report and manage their impact on Climate, Biodiversity and the Environment. Iceberg Data Lab’s Biodiversity Positive Contribution product assesses how companies reduce and avoid negative impacts on biodiversity but also how companies actively contribute to restoring biodiversity. The Biodiversity Positive Contribution empowers financial institutions willing to go the extra mile by leveraging the growing opportunities biodiversity presents.  Case study : Water depletion Companies are already experiencing risks in their manufacturing due to water depletion, which has been aggravated by acute impacts of climate change. Water has largely been considered a free raw material and therefore used inefficiently, but many companies are now experiencing the higher costs of using the resource. ❑ Coca-Cola Company faced a water shortage in India that forced it to shut down one of its plants in 2004. The company has since invested US$2bn (£1.4bn) to reduce water use and improve water quality in the communities in which it operates. ❑ In the summer of 2023, an unprecedented water crisis in Uruguay is set to be exacerbated by a Google project. More than half of the country's 3.5 million inhabitants have had no access to drinking water since May due to a severe drought. Faced with these supply difficulties, the announcement that the American giant is to build a data centre requiring millions of litres of water every day is being widely contested by the local population. ❑ In extreme cases, assets can become stranded, in other words, obsolete due to regulatory, environmental or market constraints. In Peru, for example, social conflict related to disruptions to water supplies resulted in the indefinite suspension of US$21.5bn (£15.5bn) in mining projects since 2010. Case study : Water depletion Case Study : Global mining sector The global mining and metals sector has a considerable impact on the environment and the community in which it operates. In January 2019, Brazil’s iron ore producer, Vale, experienced a deadly dam disaster, which resulted in the deaths of more than 250 people. The disaster followed a similar incident in 2015, with the industry’s use of a particular structure for the storage of waste – tailings dams – being thrown into the spotlight. Credit (and ESG) ratings agencies downgraded Vale, with a number of funds selling out of the company, Recognising the lack of transparency over the location and safety of such dams, a coalition of investors now representing over US$13tn (£9.3tn) in assets, has written to over 700 extractive companies to call on investigations and reporting into this issue Case study Forest-risk commodities Commodity production – mostly beef, palm oil, soy and timber or pulp – is the leading cause of deforestation around the world, with significant amounts of financing devoted to these ‘forest risk commodities’. Trase Finance estimate that circa US$1tn of investments are linked to deforestation, which are facing increased scrutiny from governments and civil society, bolstered by new data and tools (such as satellite monitoring). In 2020, the UK Government announced companies may face fines if they cannot demonstrate their supply chains are free from illegal deforestation. Investors have increased their engagement with relevant actors, and begun to take action to address these risks. The Norwegian sovereign wealth fund has divested from over 30 palm oil companies, and a coalition of over 30 investors with over US$4tn (£2.9tn) in assets under management has threatened divestment from commodity producers Financial opportunities related to environmental issues FTSE Russell estimate the green economy (the total market capitalisation of the companies generating revenues from activities providing environmental benefits) is equivalent to 10% of the total listed equity market, growing much faster than the overall market. ▪ The winners of the low-carbon transition will be the ▪ Climate Pledgers who fulfill their mission to contribute to the pursuit of the Paris agreements. ▪ Climate Champions who provide innovative solutions to combat global warming. Financial opportunities related to environmental issues Transformative change is needed now in how we build our cities, produce and use energy, transport people and goods, and manage our landscapes”. It is therefore no surprise that there is an increasing number of investment strategies in sectors such as technology and resource efficiency, waste management, circular economy and sustainable agriculture and forestry are just some of the investment opportunities available relating to climate change and environmental issues. Case Study : Circular economy Stora Enso the company provides renewable solutions in packaging, biomaterials, wooden constructions and paper. Reducing waste operates at the heart of the “bioeconomy and contributes to a circular economy Close the Loop This Australian company works to turn old printer cartridges and soft plastics into roads by mixing them with asphalt and recycled glass, resulting in a road surface that is estimated to be up to 65% more durable than traditional asphalt. For a kilometre of road, the equivalent of 530,000 plastic bags, 168,000 glass bottles and the waste toner from 12,500 printer cartridges is used.20 Social and Societal data Social data inside and outside the company KEY “S”INDICATORS FOLLOWED BY ESG ANALYSTS Benefits of Working on human capital 26 Risks of not Working on human capital + Lack of innovation, inability to attract talent, lack of team motivation, etc… + Huge costs for absenteeism, turnover, etc.. Risks of not working and health and safety : the Rana Plaza disaster On 24 April 2013, a structural failure resulted in the collapse of the Rana Plaza, an eight-story commercial building, in Dhaka, Bangladesh. This resulted in a death toll of 1,134 people. Approximately 2,500 injured people were rescued from the building alive. It is considered the deadliest structural failure accident in modern human history. The building's owners ignored warnings to avoid using the building after cracks had appeared the day before. Garment workers were ordered to return the following day, and the building collapsed during the morning rush-hour. This massive tragedy drew attention to pervasive human rights abuses in the garment sector, as well as the failure of the Bangladesh government and corporations sourcing there to create workplaces that respect and protect the lives of workers, and mitigate the risk to companies and their investors. As a result of the Rana Plaza disaster, over 175 brands, such as adidas, Marks and Spencer and H&M, have signed the Bangladesh Accord, where they pledge to commit to higher fire and health and safety standards in Bangladesh.  Case study social issues : Amazon ❑ Some workers who travel the buildings with a trolley and a handheld scanner ‘picking’ customer orders, can walk up to 15 miles during their workday. If they fall behind on their targets, they can be reprimanded. ❑ In March 2019, it was reported that emergency services responded to 189 calls from 46 Amazon warehouses in 17 US states between 2013 and 2018, all relating to suicidal employees. ❑ In response to criticism that Amazon does not pay its workers a liveable wage, the CEO, Jeff Bezos, announced that from 1 November 2018, all US and UK Amazon employees will earn a minimum of US$15 or £10.78 per hour. ❑ Although it might seem that by paying lower wages or applying other strict labour conditions has a positive effect on profitability from an investor perspective, analysts should take into account the possibility that legislation, social unrest or higher than expected employee turnover/low morale will likely at some point result in disruptions and increased costs. Environmental and Social Factors https://www.youtube.com/watch?v=ZKzK4xFJTVo What is corporate governance ? ▪ It is the structure within which the company makes its decisions, establishes its strategy, assigns powers and responsibilities. ▪ It brings together the company's executive officers and independent persons who represent the interests of the shareholders. ▪ The governance represented by its board of directors is expected to ensure the sustainability of the company: ✓ by fighting against the risk of controversy, ✓ by integrating the skills required to adapt its model to technological challenges and changes in demand.  Expectations and supervision ▪ The conditions of remuneration of executives must be aligned with the interests of the company's long-term development. ▪ The composition of the board of directors must be reviewed frequently and the conditions of appointment of the elected members must be described in transparency to ensure their legitimacy ▪ The Board of Directors ensures : ▪ that the ethical codes within the company are well defined and are properly deployed within the company and with stakeholders. ▪ that risk control is in line with the best standards and that independent audits are carried out with sufficient intensity. vigilance for the composition of the board of directors ▪ the chairperson must be an independent director, ▪ In general, independent directors should be in the majority. ▪ The proportion of women should be close to half. ▪ Cultural diversity should be encouraged ▪ Expertise on risk, CSR and digitalization issues must be properly represented. ▪ Voting rights: one Share = one vote, minority rights must be respected. ▪ The duration of mandates must not be excessive Top corporate governance issues to consider SUSTAINABLE INVESTMENTS UNPRECEDENTED LEVELS OF INVESTMENTS ARE NEEDED The world may have enough technologies to reduce greenhouse gas emissions, such as renewable fuels, carbon capture and energy storage. What it lacks is capital. According to the International Energy Agency, investment in clean energy alone will need to rise to $4 trillion a year by the end of this decade to control global warming. Only the financial markets will be able to provide such a volume of financing, and particularly the bond market. UNPRECEDENTED LEVELS OF INVESTMENTS ARE NEEDED UNPRECEDENTED LEVELS OF INVESTMENTS ARE NEEDED Investment in the Low-Carbon Energy https://www.youtube.com/watch?v=f7fHmSRYHyw WHERE DO WE NEED INVESTMENTS ? This is the projection by the IAE of needed investments to meet the objectives of the net zero Pathway CLEAN ENERGY INVESTMENTS ARE FOCUSED ON ELECTRIFYING THE ECONOMY CLEAN ENERGY INVESTMENTS ARE FOCUSED ON ELECTRIFYING THE ECONOMY Battery storage investments Battery storage are devices that enable energy from renewables, to be stored and then released Behind the meter refer to the energy system on the customer side used for own consumption. Utility scale is used to supply the grid and distributed to various customers. INVESTMENTS TO FINANCE THE STEEL PRODUCTION TRANSITION INVESTMENTS TO FINANCE THE CEMENT PRODUCTION TRANSITION  COSTS NEEDS TO BE SUPPORTED Green state aid for steelmaker in Europe (jan-aug 2023) July 20 2023 (Reuters) The European Commission cleared 2.85 billion euros in aid to support the continent's two biggest steelmakers, ArcelorMittal and Thyssenkrupp in their efforts to reduce carbon emissions. The move highlights Brussels' efforts to help local industry decarbonise production and remain competitive with global rivals, aware that heavy industries are unable to fund the transition on their own. Linkedin Post (Jancovici) Slowly (and surely?), Europe seems to be arbitrating more and more issues in favor of decarbonization, and against "free and undistorted competition". For example, public subsidies have just been approved for the two major steelmakers in France and Germany, Arcelor Mittal and ThyssenKrupp, to help them switch from their current coal-fired blast furnaces for making cast iron (which is then transformed into steel) to a hydrogen-fired process. INVESTMENTS TO FINANCE THE AUTOMOBILE TRANSITION Based on the NGFS net zero 2050 scenario Within the auto industry, a move toward a net-zero economy and a new future for mobility is well underway: manufacturers are accelerating the development of electric, connected, autonomous, and shared mobility. The industry has attracted $400 billions investments between 2012 and 2022—and around $100 billion 2012 and 2022. At the same time, governments and cities have introduced regulations and incentives to support the decarbonization of road transport. AUTO SALES GLOBAL EVOLUTION Electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs) fuel cell vehicles (FCVs). Internal combustion engine (ICE) AUTO SALES PER CATEGORY BY 2030 Investments are not profitability ignorant Investments are not profitability ignorant Investments are not profitability ignorant Profitability in wind turbines have been affected by supply chain costs in 2020 and in 2022. Investments in energy transition IEA https://www.youtube.com/watch?v=i0XTQ8gQtMc  ESG BONDS  Green bonds Green bonds are fixed-income financial instruments used to raise capital to fund projects that benefit the environment, such as projects relating to renewable energy, energy efficiency, clean transportation, and green buildings. These activities, directly or indirectly, help support the energy transition —the global energy sector’s transition from fossil-based energy sources to renewable energy sources. Because the debt raised in a green bond offering is earmarked for specified purposes, green bonds are known as “use-of- proceeds” bonds. Green bond risk for investors is company solvency GSS bonds ▪ Green, social, and sustainability bonds fall in the category of ‘use of proceeds’ bonds. Their purpose is to provide full transparency on the allocation of funds raised. According to the principles implemented by the ICMA, green and social bonds are those whose proceeds are used exclusively to finance or refinance new or existing eligible projects. This high level of transparency is attractive to investors who can measure the impact of their investments and provide clear and powerful communication. ▪ These bonds can be seen as an improver feature for issuers that would not otherwise be eligible for ESG reasons. For example, an issuer that is prohibited due to high carbon emissions could become eligible in the case of a ‘use of proceeds’ issuance that has a goal of improving carbon reduction. Blue bond ▪ is a bond designed to finance projects to protect the seas and oceans. These bonds are part of the blue economyand are committed to MDG 14 "Life under water", one of the the least attractive for investment. ▪ The first blue bond was issued in 2018 by the government of Seychelles, for a value of $15 million The island nature of the Seychelles and, indeed, its economic system are dependent on the ocean and fishing. The decided to issue this bond to finance its transition to sustainable management of fisheries and fish stocks. Sukuk bond A sukuk bond or Islamic bond is an investment certificate that respects Islamic religious law, Sharia. The traditional bond structure interest not being permitted in religion Muslim, the issuer of a sukuk bond sells a certificate to a group of investors, then uses the proceeds for a project determined. Sukuk bonds are common financial products in Muslim countries, such as Malaysia, Indonesia, Arabia Saudi Arabia, Qatar and the United Arab Emirates. In 2018, the global outstanding amount of sukuk bonds amounted to $434.8 billion, with annual emissions of around 123.2 billion dollars (still in 2018), For issuers, this type of bond helps to comply with Islamic law while enjoying a financial product advantageous. They find success thanks to the relative security and attractiveness of yields they offer on the average and long term. Green bonds main uses  Green bonds main uses CATEGORIES OF PROJECTS ELIGIBLE TO SOCIAL BONDS CATEGORIES OF PROJECTS ELIGIBLE TO SOCIAL BONDS TARGET POPULATIONS ELIGIBLE TO SOCIAL BONDS ▪ Living below the poverty line ▪ Excluded and/or marginalised populations/communities ▪ People with disabilities ▪ Migrants and /or displaced persons ▪ Undereducated ▪ Unemployed ▪ Women and/or sexual and gender minorities ▪ Aging populations and vulnerable youth  Sustainability linked bonds Sustainability-linked bonds are instruments that have been appeared-in 2019 and whose specificity is to vary the borrowing rate based on the achievement of predefined ESG objectives. Unlike green bonds, which target precisely specifically identified projects, SLB finances all the issuer's needs. The KPI is measurable at the company level and if the company fails to achieve it within the time frame, the penalty is an increase in the coupon of the bond. Brazilian paper company Klabin ▪ There is a financial incentive to act and transform SLB have three KPIs, to be achieved by 2025: reduce water the sustainability profile which may seem preferable consumption, increase minimum to an approach of isolating a set of green assets while reuse/recycling of solid waste and reintroduce at least two native continuing as before. animal species in extinction or threatened on the company’s land. Schneider SLB Bond Schneider Electric issued its first sustainability- linked bond in November 2020, in the amount of €650 millions.  Green bond markets https://www.youtube.com/watch?v=-k7D7NV4w6I  Greenwashing ? Given the quantity of new issues under these frameworks (diversification by type of issuer, geographical area, country, etc), the risk of green or social washing that could negatively impact investor reputation is increasing and additional effort to select the best sustainable issuances is essential. The claim for principles, rules and certifications is obvious. In januray 2022 the financing of part of the expansion of Hong Kong International Airport by issuing a green bond structured by HSBC and BNP and approved by Sustainalytics. Green bonds regulation ▪ So far, no single universally accepted standard for issuing green bonds has emerged. The most widely used guidelines may be the Green Bond Principles, which are published by the International Capital Markets Association (ICMA). The Climate Bonds Standard and Certification Scheme from the Climate Bonds Initiative ▪ European Union and the European Parliament which, in February 2024, announced a provisional agreement for the creation of green bond standards, intended to establish transparency, reporting, and external review requirements that align to the existing European Union (EU) taxonomy, Green bond principles As a way to promote integrity and transparency in the green bond market, ICMA introduced the green bond principles a voluntary process that provides guidance to issuers (governments, banks, or corporate entities selling bonds or other debt instruments to raise money) on the key components needed to issue a green bond. In the absence of an ISO standard on the subject, they serve as an international standard for the definition, processes and tools associated with green bonds Issuers who intend to launch a green bond are required to build a green bond framework, which should align to four components as specified under the Green Bond Principles. Source ecoact GREEN BOND PRINCIPLES FOUR COMPONENTS Process for project evaluation and Use of proceeds: At the core, it is imperative that selection: Green bond issuers should clearly the proceeds (associated funds) of a green bond communicate the environmental sustainability of are used to finance or re-finance green projects. the projects to their investors. This includes the The Green Bond Principles explicitly define the environmental objectives of the project, the eligible categories under which projects can be process by which an issuer determines the green labeled green. These projects should contribute to eligibility of the project and the process to environmental objectives such as climate change manage any potential material, environmental or mitigation, natural resource conservation, and associated social risks. A high level of transparency pollution prevention and control. into the issuer’s overall objectives, strategy and policy is also encouraged. Management of proceeds: The Green Bond Principles specify that proceeds (funds) are Reporting: It’s an integral part of an issuer’s green managed properly in a sub-account, a sub- bond framework. Issuers are required to report on portfolio, or the issuer demonstrates this in a the allocation of proceeds to eligible green formal internal process. This process should be projects. This is usually communicated in an linked and aligned to the lending or investment annual report where the issuer can specify the list operations for green projects. The Green Bond of green projects, provide a brief description of Principles recommend a high level of the projects, and stipulate the respective transparency, and an issuer should, to the best of allocations. The issuer may also report on the its ability, articulate the process by which it is expected impact of its green bonds. managing the proceeds. CLIMATE BOND INITIATIVE The Climate Bonds Standard and Certification Scheme is a voluntary labelling scheme for investments – and now entities – that address the challenge of climate change and are consistent with the goals of the Paris Climate Agreement. The Scheme was launched in 2012 by the Climate Bonds Initiative, a not-for-profit organisation working to mobilise global capital for climate action. The proceeds of such instruments are allocated to specific projects, assets, activities, or expenditures which align with the Climate Bonds sector-specific criteria Certification under this expanded Standard confirms that debt instruments meet criteria published under the Climate Bonds Standard. Transparently developed scientific criteria underpin the Standard, and a network of Climate Bonds Approved Verifiers provides independent assessment. EU Green Bond Standard All proceeds from instruments issued under the new EuGB designation will need to be invested in economic activities that are aligned with the EU Taxonomy, although the rules include a flexibility pocket enabling 15% to be invested in economic activities that comply with the taxonomy requirements, but in sectors that don’t yet have established taxonomy criteria, with issuers clearly explaining where these funds will be allocated. Apple information around green bond issuance In 2017, HSBC issued bonds to finance specific projects. HSBC has defined an "SDG Bond Framework " aligned with the ICMA's and principles for green, social and sustainable which describes approach to issuing bonds. to the SDGs. In 2019, Enel issued a general purpose SDG-linked GREEN bond in the amount of 1.5 billion euros. The energy company was already one of the largest issuers of BONDS issuers of green bonds. This SDG bondfocuses on the achievement of SDGs 7, 9, 11 and 13 enabled the ISSUANCE Group to increase its renewable energies. EXAMPLES In December 2020, Amundi, Europe's leading asset manager, launched a social bond fund which will invest in social bonds that meet the highest standards of the of transparency, notably in terms of assessing the social benefits on one or more targeted populations targeted populations ▪ Paris, June 21, 2023 - Bpifrance, (EMTN program rated Aa2 (Moody's) / AA- (Fitch)) has successfully issued its third green benchmark bond of up to €1 billion maturing on May 25, 2033, offering a yield of 3.243%. The issue was concluded with a credit margin of +29bps against the benchmark OAT ▪ The proceeds of the bond will be used to finance g medium- and long-term loans to finance Renewable Energies projects (wind and solar), Green Buildings projects and greentech loans. ▪ As a long-standing player in the green transition, Bpifrance plays a key role in the ecological and energy transition of French companies. This issue is therefore an integral part of the long-term strategy of Bpifrance, the climate bank for French entrepreneurs. ▪ EDF is one of the benchmark issuers in the on the green bond market. EDF's various green issues have enabled it to support wind and solar projects. To reinforce the robustness of its issues, EDF published its Green Bond Framework in order to clarify the criteria and commitments. The Group extended its emissions to the modernization of its hydroelectric infrastructures. This Green Bond Framework was updated in 2020, extending emissions emissions to include energy efficiency and biodiversity preservation. Green bonds issuers and buyers  Green bonds issuers by type Source climate bond initiative green bonds by region Up to mid 2023 Source climate bond initiative ESG bonds by type Source climate bond initiative ESG bonds share Source s&p ESG in fixed income asset management ▪ It is increasingly recognized that companies with the highest ESG scores are the least likely to fail. ▪ ESG analysis can reveal exposure to long-term risks such as climate risk that may take years to materialize. ▪ The analysis of environmental and social policies allows for a better assessment of the quality of governance and the sustainability of the business model.  ESG in fixed income asset management Source CFA institute  ESG in fixed income asset management  Can ESG ratings coexist with credit ratings ? ESG analysis has the potential to anticipate deteriorating credit conditions even before financial indicators deteriorate. Credit agencies are ESG ratings, such as the MSCI ratings, are not designed to measure the risk increasingly communicating of default - they are not directly comparable with sovereign credit ratings - but that they already take ESG the ESG risks they identify may have implications for a country’s or risks into account in their company’s financial strength. rating systems  Can ESG ratings coexist with credit ratings ? In 2021, S&P Global Ratings began publishing alphanumeric ESG credit indicators for publicly rated entities in some sectors and asset classes. These indicators were intended to illustrate and summarize the relevance of ESG credit factors on our rating analysis through the use of an alphanumerical scale. They supplemented the narrative paragraphs in our credit rating reports where we describe the impact of ESG credit factors on creditworthiness. After further review, we have determined that the dedicated analytical narrative paragraphs in our credit rating reports are most effective at providing detail and transparency on ESG credit factors material to our rating analysis, and these will remain integral to our reports. Source S&P  ANALYSIS OF A GREEN BOND INVESTMENT BY AN IMPACT PORTFOLIO MANAGER (1/2) Evern Trent is a water company that provides water management and wastewater treatment services to residential and industrial customers in the United Kingdom. Our Global Impact Bond Fund has invested in the £400 million Severn Trent 2.625% 2033 sustainable bond since its issuance in early 2022. The funds raised from this bond will be deployed towards projects with positive environmental and social impact, such as enhancing water quality, increasing biodiversity, generating renewable energy, and ensuring water services are affordable. ▪ Intentionality – Severn Trent states clear positive impact objectives within its annual sustainability report and as part of the sustainaible debt framework it uses to determine the allocation of its bond proceeds. ▪ As a company responsible for wastewater treatment and distributing clean water to 4.6 million households per day, Severn Trent identifies SDG 6 (Clean Water and Sanitation), SDG 7 (Affordable and Clean Energy) and SDG 13 (Climate Action) as core outcomes its business can drive. ▪ Alongside its adoption of the icma Green and social bond principles and associated product categories for its sustainable debt issuance programme, we believe this demonstrates above average intentionality.  ANALYSIS OF A GREEN BOND INVESTMENT BY AN IMPACT PORTFOLIO MANAGER (2/2) ▪ Contribution – The company has made multiple, material green and social outcome-focused commitments, including working with farmers to reduce agricultural discharges and pollution; reducing leakages by 15% over the next three years; supporting affordability by increasing the number of customers on social tariffs; and offering 1000 jobs in social mobility cold spots. ▪ It also boasts an exemplary record in minimising pollution incidents, scoring a sector-leading 18 out of a possible 20 Environmental Protection Agency stars, compared to an average of 13 for its water utility peers. ▪ Measurement – The instrument’s positive impact KPI targets are clearly defined, measurable and ambitious, with company targets revisited annually to determine progress: ▪ Responsibility – As an entity, Severn Trent does not generate revenue in any of the business areas captured under our ethics / values screens. We also scored it favourably in our responsibility analysis, notably on environment and climate change and corporate governance. GREEN BOND PREMIUM ▪ A negative premium may stem from the presence of excess demand for sustainable bonds and/or an analysis that a commitment to sustainability improves creditworthiness. ▪ As the growing sustainable bond market still represents only a fraction of the broader fixed income market, these investments may carry more liquidity risks and overconcentration risks to certain issuers, sectors or regions. Enel from Green Bond to SDG-Linked https://www.youtube.com/watch?v=FiOPOxkkVcI