CIBC drives the sustainability agenda
Welcome to the next 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 mobilizing $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 Investment Banking Creates a Global Energy, Infrastructure and Transition Franchise
CIBC recognizes the shift in how the world produces and consumes energy, as well as how it develops infrastructure for a rapidly evolving global economy. To align with these fundamental changes and accelerate leadership with our clients, CIBC has announced the creation of a new Energy, Infrastructure and Transition (EIT) investment banking group.
EIT will be co-headed by Mike Freeborn and David Williams. With team members located in Toronto, Calgary, New York, Houston, London, Luxembourg, Hong Kong, Sydney, Bogotá, Singapore, and Tokyo, we will have a global focus on delivering industry-leading advice and capital markets solutions to clients across the full infrastructure and energy spectrum.
We remain committed to our Energy and Infrastructure clients, and as the landscape evolves, our clients’ ambitions are changing. As part of this group, Kelsen Vallee will take on the role of Head of Energy Transition within the EIT team, reporting to Mike and David. He will lead and coordinate our energy transition-related advisory and capital raising activities across our client base. Our team will continue to develop the combined expertise, scale and reach to deliver purpose-driven growth for our clients.
CIBC hosts carbon capture and hydrogen conference
As part of Earth Week, on 20 April, CIBC Europe hosted its first virtual sustainability conference with over 600 clients in attendance.
Key takeaways include:
- CCUS and hydrogen are critical to achieve Net Zero; 2020s will be pivotal in developing commercial models to support both CCUS and green hydrogen
- UK following “clusters” approach for CCUS; levering its strong oil and gas heritage. Potential market of £10bn/year
- c.150-450TWh of hydrogen needed by 2050; up by ~15x; used to decarbonize power, industry, heating and transport
- Notable projects: Essar and Progressive Energy (HyNet cluster:Essar and Progressive Energy set up JV to produce low carbon hydrogen in UK), BP (Net Zero Teesside; bp plans UK’s largest hydrogen project), Equinor and SSE Thermal (first-of-a-kind hydrogen and carbon capture projects in the Humber: SSE Thermal and Equinor join forces on plans for first-of-a-kind hydrogen and carbon capture projects in the Humber)
Net-Zero Banking Alliance – 43 banks across 23 countries
The United Nations Environment Programme Finance Initiative (UNEP FI) announced this week that the Net-Zero Banking Alliance (NZBA). will be joining The Glasgow Financial Alliance for Net Zero (GFANZ), creating one sector-wide strategic forum and will serve as an umbrella organization for the various net-zero coalitions. GFANZ currently brings together 160 firms across the financial system, and aims to accelerate transition to net-zero by 2050 to deliver the goals of the Paris Climate Agreement. All accredited members must use science-based guidelines to reach its emission targets, cover all emission scopes with interim target setting, and commit to transparent reporting/accounting methodologies in line with UN’s Race to Zero criteria. The NZBA is hosted by the UNEP FI and co-launched with the Financial Services Taskforce of the Prince of Wales Sustainability Markets Initiative, which brings together 43 of the largest banks globally across 23 countries committed to lending and investment portfolio pathways to net-zero.
Also highlighted in this announcement is the anticipated establishment of the United Nations-convened Net-Zero Insurance Alliance (NZIA), consisting of 7 global insurers. The NZIA has also submitted a statement of intent to join GFANZ.
Basel Committee highlights climate related financial risks in recent reports
On April 14, the Basel Committee on Banking Supervision published two analytical reports: ‘Climate-related risk drivers and their transmission channels’ and ‘Climate-related financial risks – measurement methodologies’. In combination, the reports form a basis for the Basel Committee to identify changes required in the existing Basel Framework, in order to better monitor and address the risks of climate change in the banking industry.
‘Climate-related Risk Drivers and their Transmission Channels’ highlights two main climate-related risk drivers that may impact banks and the banking system: physical risk drivers (financial and economic losses from physical climate change) and transition risk drivers (costs associated with adapting to changes due to changes in policy and investor/consumer sentiment). Analysis strongly suggests that climate impacts can be translated and be observed through traditional financial risk categories (i.e. Credit, Market, Liquidity and Operational risk), indicating that incremental risk categories may not need to be developed in order to monitor and address a bank’s climate risks.
However, as outlined in the companion report ’Climate-related Financial Risks – Measurement Methodologies’, there are conceptual challenges associated with measuring these climate risks. To date, measurement of climate related financial risks have centered on mapping near-term transition risk inherent in bank counterparty and investment portfolios. Focus has predominantly been on assessing credit risk, and to a lesser extent, market risk. Additional effort and investment is required to develop methodologies which can reliably estimate and measure these risks, with challenges currently residing in the unpredictability of climate change and the lack of suitable data required for correlations and back-testing.
Nuclear may be considered green in the EU
On April 21, the European Commission announced its decision to include nuclear energy in a complementary Delegated Act of the EU Taxonomy Regulation, which will allow for the source of energy to be considered as part of the EU Taxonomy subject to an assessment of external expert groups which is expected to be published in three months. The decision follows the recent publication of the Joint Research Centre’s report confirming nuclear is as sustainable as other taxonomy-compliant energy technologies. This is an important development for the nuclear industry. We believe that nuclear energy is necessary in order to achieve global and Canadian net zero targets.
EU Commission Publishes Final Version of Two Delegated Acts
Ahead of earth day, the EU Commission published the final versions of the first two Delegated Acts (out of 6 in total), which define technical screening criteria for economic activities that make substantial contributions for Climate Change Mitigation and Climate Change Adaption.
The remaining Delegated Acts are expected to be published in 2022. Below are highlights of several key changes noted in the final versions relative to the drafts:
- Energy – Bioenergy is no longer labelled as transitional, while hydropower has been made more context-specific and aligned with existing EU law. The assessment on nuclear energy is still ongoing
- Buildings– Buildings within the top 15% in terms of energy performance on a national or regional scale have been included. Technical adjustments were introduced for water consumption and efficiency.
- Agriculture – Category has been removed pending further negotiations on the Common Agriculture policy.
- Manufacturing– Use of EU emissions trading scheme benchmarks were confirmed; future revisions will examine other relevant standards considering life-cycle emissions and technological developments.
- Forestry – Revisions were made to reduce complexity and burdens for smaller forest holdings, extend timeframe for demonstrating benefits of forestry, and rely more on existing sustainability criteria under the recast Renewable Energy Directive.
Canadian GHG emissions are up – back to levels seen in 2005
The annual National Inventory Report, which reports number up to 2019, shows that Canada’s emissions in Canada have not improved and are currently at 2005 levels (3rd year in a row that emissions did not go down). The main culprits were oil and gas and transportation (cars).
Canada’s GHGs by Economic Sector 1990 – 2019
China and US agreed to cooperate on climate change initiatives
On April 19th, the United States and China -the world’s top two carbon emitters- issued a joint statement where they agreed to combat the climate crisis with “seriousness and urgency”. The agreement includes few specific commitments, the countries vowed to discuss further emissions reductions and help poorer countries develop low-carbon energy sources. This sends an unequivocal message that on the particular issue of climate change, China and the United States will cooperate. We see this as encouraging for the wider investment community as we will see government clarity in terms of taxonomy and support for investment into green initiatives from the world’s two largest economies.
CIBC related events and publications
Upcoming events
‘Sustainable Finance – A View From the Thought Leaders’
Wednesday June 9, 2021
Listen to the perspectives on sustainable finance from Principles of Responsible Investing (PRI), Rocky Mountain Institute’s Center for Climate-Aligned Finance and the Institute for Sustainable Finance (Canada).
Publications
New Podcast: ‘The Sustainability Agenda’
CIBC Capital Markets latest podcast series focusing on the evolving complexities of the sustainability landscape – with a view on addressing current issues in a concise format to help you navigate and take action.
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