CIBC drives the sustainability agenda
Welcome to the fifth edition of the CIBC Capital Markets Sustainability newsletter.
At CIBC, we are committed to making sustainability a reality for our clients and the communities we serve. We have built a market-leading Renewables franchise to provide our clients with expert advice, capital and access to capital markets in this important sector. Whether through greening your balance sheet or providing sustainability advisory services, our objective is to help our clients become global leaders in environmental stewardship and sustainability. Our bank is committed to supporting $150 billion in environmental and sustainable finance activities by 2027 to support clients in transitioning to a lower carbon economy, and we’re well on our way to achieving this target.
CIBC hosts discussion on climate change targets in pension funds
CIBC hosted Jennifer Coulson, who leads the ESG in Public Markets at British Columbia Investment Management Corp (BCI) with $170 bn assets under management.
In mid-February, BCI announced it was setting climate-related targets for public markets. The announcement comprised two main categories: for equities, a reduction of 30% carbon exposure in its portfolio by 2025 (baseline 2019) and in fixed income, investing a cumulative $5 billion in sustainability bonds by 2025.
During the discussion, the topic of gender diversity was also covered, as Ms. Coulson leads the 30% Club Investor Group in Canada. The 30% Club mission is to achieve a minimum 30% women on boards and in C-suites.
To listen to the discussion, you can access the replay by dialling:
Toll Free Line (In North America): 1 855 859-2056
Conference ID: 2818549#
Floating offshore wind (FLOW) continues to gain ground globally
Floating wind turbines open up offshore wind opportunities to regions where the waters are too deep, and/or the seabed is unsuitable for bottom-fixed foundations to be economically viable.
Estimates suggest that 80% of the potential offshore wind resource in Europe (4,000GW) and Japan (500GW) and 60% of potential offshore wind resource in the USA (2,450GW) are in waters of 60 metres or deeper so floating wind turbines are crucial to tap into these resources.
Focus on FLOW grew in 2020 as an increasing number of companies and governments kept noticing the emerging technology’s full potential; 11 projects; US$1.3bn volume. According to IRENA, by 2030 around 5GW to 30GW of floating offshore wind capacity could be installed worldwide.
Floating offshore wind deal flow, 2013-2020
Most of the activity in 2020 was concentrated in the UK and Norway with the financial close of the 50MW Kinkardine floating wind farm in Aberdeen (developed by the Cobra Group), a significant milestone in the sector. Natixis acted as sole green loan coordinator, and was one of the lead arrangers, underwriters and bookrunners for the transaction. The project will consist of one 2-MW wind turbine and five 9.5-MW turbines in water depths ranging between 60 meters and 80 meters. The project financing is a “Certified Climate Bond” under the Climate Bonds Initiative. Once completed (2021) it will be the largest commercial FLOW in the world.
Currently, floating wind turbines are significantly more expensive (LCOE of US$121-146 per MWH) v. bottom-fixed turbines (LCOE US$69-104 per MWh). Once the technology matures, we can expect floating wind to be cost-competitive with estimates suggesting that costs could fall to US$49-72 per MWh by 2030.
Coming full circle, the Dolphyn wind-to-hydrogen project plans to deploy a 2MW prototype system at the Kincardine site from 2024, producing renewable H2 that will be pumped back to the city that made its name as the capital of the UK oil and gas industry.
China prioritizes ‘green development’
Last year, Chinese leader Xí Jìnpíng made the unexpected announcement that China would aim to peak emissions by 2030 and reach net zero emissions by 2060. Regional grid firms must buy at least 40% of power from non-fossil fuel sources by 2030. Power procured from non-hydropower renewable sources will reach a minimum of 25.9% by 2030, up from 10.8% last year. More information on the approach and China’s clean energy power consumption targets, can be found here.
On February 1, new carbon trading rules came into effect to drive forward the establishment of a unified national emissions trading system (ETS), amid the all-out push to meet 2060 carbon neutral targets. A total of over two thousand power firms can trade emissions quotas via the system.
Chinese regulators are also currently updating standards on what qualifies as a green bond in the hopes of encouraging the finance industry to fund environmentally friendly projects. An initiative is underway to develop online trading in its national carbon market before the end of June. We see this as an opportunity for western technology and capital to participate in a massive energy supply and infrastructure overhaul.
UK Chancellor introduced the UK’s first National Infrastructure Bank to boost climate investment
Chancellor Rishi Sunak pledged an initial £12bn (with another £10bn in government guarantees) to set up the UK’s first National Infrastructure Bank, saying it would “accelerate investment” in projects to help Britain reach its ambitious climate goals.
The Government hopes to attract £40bn of private investment into projects that can help it meet its target of net zero carbon emissions by 2050 (please see overview of UK Ten Point Plan which highlights that at least £40bn of investment will be required each year to 2030 to maintain trajectory to Net Zero).
The initial £12bn funding — consisting of £5bn equity and £7bn debt — also fell short of the £20bn called for by the National Infrastructure Commission.
The opposition said the bank was much smaller than similar banks in Germany and other countries, and contrasted its capital with the £5bn a year the UK gained from the European Investment Bank before Brexit.
Read the industry’s take on the UK’s first National Infrastructure Bank to boost climate investment.
Surge in sustainability frameworks across North American issuers
Over the past several weeks, there has been a notable surge in US issuers releasing Sustainability Frameworks. This comes as a result of board level initiatives to support Green, Social or Sustainable issuance. In all cases, sustainability issuance proceeds may finance or refinance a combination of projects and assets and align with the ICMA guidelines. The latest issuers to publish frameworks with an immediate follow on bond deal include:
- JPMorgan framework released in Feb 2021 – completed a US$1bn social bond shortly thereafter
- Goldman Sachs framework released in Feb 2021 – completed a US$800M sustainability bond shortly thereafter
- Mastercard Inc. framework released in March 2021 – completed a US$600MM sustainability bond shortly thereafter
- Aflac Inc. framework released in March 2021 – completed a US$400MM sustainability bond shortly thereafter
- Truist Financial Corporation is the 1st regional bank in the US to issue a social bond – completed a US$1.25bn bond in Feb 2021
- Deutsche Bank AG framework released September 2020 – has mandated US banks in March 2021 to issue their inaugural green bond
Installations of Solar Photovoltaic (PV) on the rise globally
PV new build, historical and forecast
Tier 1 module capacity, 1Q 2021: 253GW
- Up to 209GW of solar PV to be installed in 2021, BloombergNEF forecasts.
- Annual deployment is also expected to continue to climb over the coming years, with forecasts expecting 221GW to be installed in 2022 and 240GW in 2023.
- Even the lower end of guidance would constitute a 13% jump on 2020’s installation figure of around 141GW, with the 209GW figure amounting to a near 50% increase in installations.
- BNEF expects China to have installed around 52GWdc of solar last year, with this set to increase to between 65 – 75GW this year.
Read the full article here on Installations of Solar Photovoltaic (PV) on the rise globally.
Hydrogen Council and McKinsey publish report on the global hydrogen market
On February 17, 2021 the Hydrogen Council and McKinsey & Co issued a report on the state of development of the global hydrogen economy. The report noted that projects with a projected spend of around USD 300 billion have been announced for development by 2030, with 85% of those projects announced in Asia, Europe and Australia.
Read the report here on the global hydrogen market.
Delta airlines signs agreement with Deloitte for sustainable aviation fuel
The agreement is to initially purchase enough SAF to “represent a lifecycle emissions reduction of approximately 1,000 metric tons of carbon dioxide”. The airline says this is “equivalent to carbon sequestered by 1,306 acres of U.S. forests or 756 football fields in one year.”
The agreement covers only a portion of Deloitte’s business travel, but Delta sees the collaboration with Deloitte as “one of the first of what the airline hopes will be many significant achievements” for both “carbon reduction and removal and stakeholder engagement.”
Deloitte has committed to an ambitious target of being net zero by 2030.
CIBC related events
Upcoming events
‘Sustainable Finance: Planting the seeds of ESG for your business, with Sid Samarth’ Monday March 22, 2:00 pm EST
Dial-In Details: Toll-free (Canada/US): 1 833 502-0479; Conference ID: 1989665#
Encore Replay Dial-in: 1 855 859-2056; Conference ID: 1989665#
‘Carbon Capture Utilization and Storage (CCUS) and Hydrogen, United Kingdom’
Tuesday April 20, 9:30 am EST / 2:30 pm GMT
The event will feature a focus on UK and European developments with CCUS, following our successful North American CCUS conference, February 23. We will also be adding hydrogen as a topic to our UK conference.
