ISTAT Learning Lab ESG & Sustainable Financing - International Society of Transport Aircraft Trading
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ISTAT Learning Lab
ESG & Sustainable Financing
13 April 2021
Jonathan Drew,
Managing Director, ESG Solutions, Global Banking, HSBC
PUBLIC
Anthropogenic impact on climate ? Probability of limiting warming to 1.5ºC
Observed global temperature change and modelled responses to stylized anthropogenic emission and forcing
pathways
Cumulative net CO2 emissions
Billion tonnes CO2 (GtCO2)
Stylized net global CO2 emission pathways
Billion tonnes CO2 per year (GtCO2/yr)
Source: Intergovernmental Panel on Climate Change Special Report on Global Warming of 1.5°C
PUBLIC 2
Net Zero Targets
Over 100 countries have set decarbonisation goals contributing to 50% of global emissions
Target under discussion
In policy document
Achieved
Proposed legislation
In law
Source: Climate Action Tracker, Bloomberg Green
PUBLIC 3
Achieving Net Zero requires transformation of the global economy
The global challenge $100trn investment required to 2030 globally across sectors2
% of global GtCO2 emissions, top 51
Middle East
Other emgerging Asia
China Europe
26% 5%
India 6% 16% US and Canada
US 13% 6% Latin America
Africa
EU 8%
$100trn
22%
India 7%
29% Asia and emerging markets will lead this
China
Russia 5% transformation, requiring >50% of
7% required infrastructure investment
7% 2%
Developed Asia
Electricity & Heat 30%
Transport 16%
16%
Agriculture 12% Transport
Water and sanitation
Land Use and Forestry 7% 9% 39%
Telecoms
$100trn
Industrial Processes 6% Power transmission and distribution
Primary energy supply chain
14%
Energy efficiency
9% 13%
Notes:
1. World Resources Institute WRI
2. OECD and IEA
PUBLIC 4
Progress in the Aviation Sector
In 2009, the aviation industry, through the International Air Transport Association (IATA) and the Air Transport
Action Group (ATAG) committed to keep total aviation emissions flat at the 2005 level from 2020 onwards, and
to achieve a 50% reduction by 2050
Corporate members of the Clean Skies for Tomorrow initiative (CST) have developed a joint strategy for
accelerating the transition to carbon neutrality in aviation in Europe by increasing uptake of sustainable
aviation fuels (SAFs) over the next decade
International Air Transport Association (IATA) Schematic CO2 emissions reduction roadmap
Source: Energy Transitions Commission, International Air Transport Association Aircraft Technology Roadmap to 2050
PUBLIC 5
HSBC sets our ambition to build a net zero economy
The transition to net zero carbon emissions presents a clear opportunity to set the global economy on a more sustainable, resilient and inclusive path.
Finance, with its focus on risk and reward, is key to building a future that prioritises resilience, social mobility and the environment alongside economic growth.
Achieving the scale of change needed to meet the Paris Agreement goal to achieve net zero by 2050 or sooner will require significant extra effort, at a faster pace.
For the financial sectors, this means aligning the financed emission - the carbon emissions of the portfolio of customers - to the Paris Agreement goal.
By the end of Climate Week NYC (21-25 Sep): 22 regions, 452 cities, 1,101 businesses, 549 universities and 45 of the biggest investors have now joined the Race to Zero, the United Nations Framework Convention on Climate Change (UNFCCC) global campaign for a
zero-carbon world1.
HSBC’s ambition is to be the leading bank for the transition to net zero through a three-part plan
Becoming a net zero bank Supporting our customers Unlocking new climate solutions
Align our financed emissions2 to achieve net zero by 2050 or sooner Dedicated ESG Solutions Unit to support customers on their journey to HSBC Pollination Climate Asset Management – in order to build world’s
lower carbon emissions leading natural capital managers
Use the Paris Agreement Capital Transition Assessment Tool (PACTA)
Provide between USD750bn and USD1trn of financing and investment over Target $100m CleanTech investment within our technology venture debt
Make regular, transparent TCFD disclosures to communicate progress the next 10 years fund to support CleanTech innovation
Collaborate with stakeholders for globally consistent standard for Increase our portfolio of transition finance solutions to help even heavy- Launch $100m philanthropic programme to scale climate innovation
financed emissions and carbon offset market. emitting sectors to decarbonise ventures between now
and 2025
Be net zero in our operations and supply chain by 2030 or sooner. Apply a climate lens to our financing decisions across developed and
developing economies Help transform sustainable infrastructure into a global asset class, and
create a pipeline of bankable projects
1. New York Climate Week announcements (link)
2. The carbon emissions of its portfolio of our customers
PUBLIC 6
Global Sustainable Bond Market Snapshot
Issuance progression (USD bn) Issuance by sector (FY2020)
USD bn
600
500 CAGR 2015-2020: 100
Global: 64%
Corporate(27%) Financial(17%)
400 Asia-Pacific: 76% 132
EMEA: 62%
300 Americas: 62% 86
$573bn
200 80
64 341
48 49 SSA(56%)
100 26 169
6 46
12 17 81 94
0 31 39
2015 2016 2017 2018 2019 2020
EMEA Americas Asia-Pacific
GSS Bond supply: +185% 2021YTD YoY at USD210bn eq. More than +320% increase in Europe and 160% in APAC
Issuance by bond type (FY2020)
USD bn HSBC market
250 $210bn share
America
s: 5.8%
Green(50%)
200
38
Asia Pacific
Social(28%)
150 41
9.0%
#1
2021 YoY $573bn
$74bn EMEA: +327% Sustainability(19%)
100
APAC: +161% EMEA
15 Americas: +44% 131 6.1%
50 28
#2 SLB(3%)
31
0
2020 - Mar 2021 - Mar
EMEA Americas Asia-Pacific
Source: HSBC Green, Social, Sustainability Bond database – based on Dealogic, CBI, Bloomberg, as of 20th Mar 2021
The data presented above is to the best of our knowledge and may not be fully representative of the SRI market
PUBLIC 7
Global Sustainable Loan Market Snapshot
Global Green and Sustainability Linked Loan (SLL) Volumes by Region Green & SLL Borrowers by Sector (FY2020)
USD bn
240
250
194
200
150 15% Utilities
100 72 Oil and Gas
50 34% General Manufacturing
12 9% Financial Services
0
2017 2018 2019 2020 Retail & Supermarkets
Asia Pacific EMEA N. America Others
Healthcare
9%
Telecommunications
Global Green and Sustainability Linked Loan (SLL) Volumes by Type 4% 7%
Automotive
USD bn 5% Business Services
240 5% 6%
250 6% Others
194
200
150
100 72
50
12
0
2017 2018 2019 2020
Green Loan SLL
Source: Loanconnecter, 5 Jan 2021
PUBLIC 8
Green / Social / Sustainability Bonds and Green Loans
External Review
Use of Proceeds Evaluation Process Funds Tracking Reporting
PUBLIC 9
Green, Social and Sustainability
Use of Proceeds
Support of Green projects including, but not limited to...
Renewable energy Green buildings Climate change adaptation
Sustainable water /
Pollution prevention and control Eco-efficient / circular economy
wastewater management
Waste prevention, reduction;
Clean transportation Sustainable management of living / natural resources
waste to energy
Energy efficiency Terrestrial / aquatic biodiversity conservation Sustainable animal husbandry
Support of Social projects including, but not limited to...
Food security Affordable Housing
Access to essential services Affordable basic infrastructure
Employment generation via SME lending Socioeconomic advancement and empowerment
PUBLIC 10Potential Use of Proceeds
Aviation
Project Categories Description
Air transport (passenger and freighter aircraft) and aircraft manufacturing, maintenance and
Aircraft
technology development
Fuel production, storage and distribution Sustainable aviation fuels (SAFs) including advanced biofuels and electrofuels
Performance improvements through reduction of fuel consumption in airport ground
Air traffic management (ATM)
operations
Airport Airport operations and ground handling and construction of airport infrastructure
Sustainable water and wastewater
Sustainable use and protection of water and marine resources
management
Infrastructure to adapt to extreme weather / climate conditions, information support systems
Climate change adaptation
such as climate observation / early warning systems
Circular economy Improve aircraft decommissioning practices
Pollution prevention and control Noise / air pollution
Terrestrial and aquatic biodiversity
Protection of biodiversity and ecosystems
conservation
PUBLIC 11Green / Social / Sustainability Bonds and Green Loans
External Review
Better recognition by international investors Popular among Asian/China issuers
1 Second party opinion 2 Limited assurance report
Most popular option Assurance performed on internal procedures and policies
Based on GBP / SBP /SBG recommendations aligning with Green/Social/Sustainability Bond Framework
Framew
ork Review performed on issuers Green/Social/Sustainability Bond Framework Can express opinion based on GBP / SBP / SBG
recommendations
based
Popular among Asian/China issuers Systematic approach to achieve a rating
Hong Kong Quality Assurance Agency
3 Climate bond certification 4 (HKQAA)
5 5 S&P
Bond by Based on Climate Bonds Standard that Based on HKQAA proprietary Assessment Based on S&P’s proprietary Green Bond Assessment
bond focuses on projects that deliver GHG- Scorecard and methodology Scorecard and methodology
emissions reduction For Green Bonds and Green Loans Only for Green Bonds
based
Only for Green Bonds / Loans Potential subsidies from HK Government
Code:
Green text = advantage of this option
PUBLIC 12Cliffton Limited / Delhi International Airport Limited
USD450m 144A/RegS Senior Green Bond
Transaction Highlights
On 18th March 2021, Cliffton Limited (“the issuer”)/Delhi International
Airport Limited (“DIAL”) priced US$450mio 4years and 7months
Landmark deal for the company as well as for the market in general given the multiple structuring aspects
senior green bond issuance under 144A/RegS format.
involved in the transaction including a consent solicitation exercise across 3 existing bonds, an any and all tender
On the back of a conducive market backdrop post FOMC and a strong on 1 bond and a new issuance which was labelled green and used an offshore SPV issuance structure and all
investor feedback/indications of interest post the global investor overlaid with a sector deeply impacted by the pandemic which required intensive investor engagement. HSBC acted
calls, the issuer announced the transaction at an Initial Price as a Joint Global Coordinator and played a pivotal role in the structuring of the transaction. HSBC also acted as the
Guidance (“IPG”) of 6.50% area. Strong support from the investors Joint Green Structuring Agent on this trade. The proceeds will be allocated to an Eligible Green Project Portfolio
helped orderbook reach over US$1.5bn (c.3.75x oversubscription)
under DIAL’s Green Finance Framework which has been reviewed by CICERO which has issued a Second Party
ahead of the Final Pricing Guidance (“FPG”) announcement which
allowed the issuer to announce the FPG at 6.25% (#), representing a Opinion
pricing compression of 25bps from the IPG. The company eventually The execution had to navigate significant volatility in the market caused by large and swift moves in US
priced US$450m at 6.25% upsized from initial expectation of
US$300m.
Treasuries but issuer was able to pick a constructive market window immediately after the FOMC rates decision on
17Mar
HSBC acted as a Joint Global Coordinator and played a pivotal
Investor demand was quite robust from the time the transaction was announced with orders reaching more than
role in the structuring of the transaction. HSBC also acted as
the Joint Green Structuring Agent on this trade US$1.5bn ahead of the final price guidance announcement representing a c.3.75x oversubscription. The orderbook
was very well diversified across the geography and in terms of investor type. The deal attracted significant
HSBC also acted as a Dealer Manager & Solicitation Agent on interest from top global real money accounts demonstrating the confidence these investors have in the
DIAL’s tender offer to buyback any-and-all of its outstanding DIAL credit. Limited price sensitivity seen in the book as it continued to grow in US hours with final books at
US$288.75mn 6.125% senior secured notes due 2022 and c.$1.28bn (oversubscription of c.2.8x) despite intra-day volatility in treasuries and price tightening of 25bps from the
consent solicitation on all the existing bonds to approve certain
initial price guidance which allowed the issuer to upsize the transaction to US$450m from earlier expectation of
proposed amendments
US$300m
The transaction achieved multiple objectives for the issuer including refinancing their upcoming bond
maturity, increasing future financing flexibility, and also fully tying up their funding needs for the capex
under the Phase 3A expansion plan of Delhi Airport
Final orderbook over US$1.28bn (including US$20m JLM interest) across 123 accounts at reoffer
By Geography (%) By Investors (%)
Asia 5%
7% 6%
27% FM
US
Banks
36% EU
30% 89% PB/Corp
Middle East
PUBLIC 13Airport Issuers Precedents
Select Framework Examples
Selection & Evaluation/ Management of
Issuer Use of Proceeds Proceeds Reporting/ External Review Bonds issued
Eligible Categories: No ring-fencing; proceeds earmarked Quarterly reporting
USD1bn 10.6yr and USD3bn
- Sustainable buildings GACM has established a NAICM Green Second party opinion from Sustainalytics
29.9yr
Bond Committee with responsibility for Moody’s Green Bond Assessment score of
- Renewable energy Sept-17
governing the NAICM Green Bond GB1 (‘Excellent’) and S&P Green Evaluation
- Energy efficiency Framework score of E1/77
- Water and wastewater management USD1bn 10yr and USD1bn
Mexico City Airport Trust
- Pollution prevention and control 30yr
Sept-16
- Conservation and biodiversity
Eligible Categories: No ring-fencing; proceeds earmarked Annual reporting
- Green Buildings Green Bond proceeds will be evaluated and Second party opinion from Sustainalytics
selected by Schiphol’s Sustainability EUR500m 12yr
- Clean Transportation
Committee. Oct-18
Royal Schiphol Group (Amsterdam
Airport)
Eligible Categories: Ring-fenced; portfolio based Annual reporting
- Green buildings and infrastructure The selection of Eligible Green Assets is Second party opinion from CICERO
managed by a dedicated group consisting of
- Energy efficiency SEK1bn 5.25yr
senior management members including
- Renewable energy Dec-19
CEO, CFO and responsible for Sustainability
Swedavia Airports - Pollution prevention and control among others.
- Clean transportation
Eligible Categories: No ring-fencing; proceeds earmarked Annual reporting
- Green buildings Second party opinion from CICERO
- Renewable energy
USD450m 4yr and 7m
- Energy efficiency Mar-21
Delhi International Airport - Clean transportation
- Pollution prevention and control
- Sustainable Water Management
DENOTES HSBC AS LEAD MANAGER PUBLIC 14
Source: Climate Bonds Initiative, Issuers’ public documents, HSBC AnalysisSustainability-Linked Bonds and Loans
Sustainability-Linked Bonds (“SLBs”) and Sustainability-Linked Loans (“SLLs”) are any type of instrument for which the financial and/or structural characteristics can vary depending on whether the issuer / borrower achieves predefined Sustainability / ESG
objectives
The Principles have five core components:
1 2 3 4 5
Selection of KPIs Calibration of SPTs Bond characteristics Reporting Verification
• KPIs should be: SPTs should be: • Should include a financial and/or structural impact • Issuers should make readily available and • Issuers should seek independent and external
• relevant, core and material to the issuer’s overall • ambitious and represent a material improvement involving trigger event(s) accessible: verification of their performance level against each
business, and of high strategic significance to the • consistent with the issuers’ overall sustainability / • Variation of the bond financial and/or structural • up-to-date information on the performance of the SPT for each KPI by a qualified external reviewer
issuer’s current and/or future operations ESG strategy characteristics should be commensurate and selected KPI(s) with relevant expertise
• measurable or quantifiable • be determined on a predefined timeline meaningful • a verification assurance report • At least once a year, and in any case for any
• externally verifiable Target setting exercise should be based on a • Fallback mechanisms in case the SPTs cannot be • any information enabling investors to monitor the date/period relevant for assessing the SPT
• able to be benchmarked combination of benchmarking approaches: calculated or observed should be explained level of ambition of the SPTs performance leading to a potential adjustment of
• Issuers should communicate clearly to investors • issuer’s historical performance for a minimum of • KPI(s) definition and SPT(s) (including calculation • Reporting should be published regularly, at least the SLB financial and/or structural characteristics,
the rationale and process according to which the 3 years methodologies) and the potential variation of the annually until after the last SPT trigger event of the bond has
KPI(s) have been selected and how the KPI(s) fit into SLB’s financial and/or structural characteristics been reached
• relative positioning versus peers, where available
their sustainability strategy should be included in the bond documentation • Verification should be made publicly available
• reference to science or absolute levels or
• Clear definition of the KPI(s) should be provided and regional/international targets or proxies • Pre-issuance external review is recommended,
include the applicable scope or perimeter; as well however post issuance verification is a necessary
as the calculation methodology element of the SLBP
KPI: Key Performance Indicator
SPT: Sustainability Performance Target
PUBLIC 15Sydney Airport
AUD1,400m multi-tranche Sustainability Linked Loan
Deal highlights
I. Relationship to Sydney Airport’s overall sustainability strategy
On 23 May 2019, HSBC acted as the Lender for Sydney Kingsford Smith Airport’s
Reporting on objectives against their flagship initiatives and on progress towards achieving them. Primarily, the company
AUD1.4 billion Sustainability Linked Loan (SLL) where the interest rate of the loan is tied
Transaction
to an external Sustainability Performance Target (SPT) which is proposed to be
aims to be Carbon Neutral by 2025. One of the key related objectives is to reduce carbon emissions per passenger by 50%
summary from 2010 baseline levels by 2025 and they had been reduced 30.9% by 2018
Sustainalytics ESG Risk Rating. This represents the 1st Syndicated Sustainability
Linked Loan In Australia
Ongoing performance benchmarking to further assess progress on ESG issues. These include consideration of independent
ESG ratings, inclusion on sustainability indices, and quantitative third-party assessments
Alignment with the Sustainability Linked Loan Principles 2019
I. Relationship to Sydney Airport’s overall sustainability strategy II. Delivering the commitment
1 2 3 4 5 Target Setting - Sustainalytics ESG Risk Rating
Reporting on The final ESG Risk Rating that Sydney Airport is targeting to achieve would place the borrower in the top 5 th
Identifying 3 Creating a Ongoing ESG
material areas of
Implementing 3
Governance
Objectives and to
performance 2 percentile of the Airports sub-industry. Therefore, Sustainalytics is of the opinion that targeting to achieve a
flagship initiatives be Carbon Neutral placement in the top 5th percentile of the Airports sub-industry is ambitious, since it would ensure that the
commitment framework benchmarking
by 2025 borrower is a top performer as compared to its peers.
Reporting
Identifying three material areas of commitment: responsible business, planning for the future, and supporting
The SLLP recommends that borrower’s make and keep readily available up-to-date information relating to their
communities. The process to define material areas included engagement with key stakeholders, such as
3 SPTs. Sydney Airport is demonstrating good practice by intending to make their ESG Risk Rating publicly available.
employees, community members, local government, and industry associations. Within each of these pillars,
Rating with its sustainability strategy, and its progress towards achieving the top 5th percentile in the Airports sub-
specific performance targets have been set
industry.
Implementing three flagship initiatives which have been determined to be most relevant to advancing
sustainability performance across the organization. These initiatives aim to: Review
1) increase the climate resilience of its assets and operations; 4 Sydney Airport’s performance against its SPT will be verified by virtue of the ESG Risk Rating being updated
annually by Sustainalytics. In addition, Sydney Airport is demonstrating good practice by intending to make publicly
2) achieve the electrification of vehicles and equipment, and available their ESG Risk Rating.
3) increase airspace and airfield efficiency
Sustainalytics is of the opinion that Sydney Airport’s SLL will support the company’s overall
Describing the governance framework which will support the progress towards meeting the sustainability goals sustainability strategy. In addition, the use of an ESG rating as a basis for target-setting is
and plans described. This structure involves the creation of three working groups or committees focused on the recognized as credible by the Sustainability Linked Loan Principles, and the borrower has
implementation of various aspects of the sustainability strategy; all three bodies report to the Executive committed to disclosing their ESG Risk Rating on an annual basis. Based on the above
Committee and Safety Steering Committee, which in turn reports to the Board Safety, Security and Sustainability considerations, Sustainalytics is of the opinion that Sydney Airport’s SLL is aligned with the
Committee SLLP
PUBLIC 16Climate Transition Finance Handbook – at a glance
Handbook to be used when raising funds in debt markets for climate transition-related purposes, whether this be in Use of Proceeds format or Sustainability-Linked
01 02
Financing purpose should be for enabling an issuer’s climate Climate trajectory should be materially relevant to business
change strategy model
Science-based targets and pathways Transparency of underlying investment program
03 04
PUBLIC 17Transition
ICMA Climate Transition Finance Handbook
Transition happens at the issuer level, not the instrument level, hence issuer-level disclosures need to be demonstrated for a credible instrument.
Climate Transition Finance can be Use of Proceeds or Sustainability-Linked
Transition bond issuances to date
Date Issuer Size Use of Proceeds
Based on the two principles of “Avoidance of Carbon Lock-in” and “Do No Significant Harm” and the list of “Explicitly Excluded Projects”, eligible projects include: Projects in the Public Utility,
Cement, Aluminium, Steel and Fertilizer Manufacturing industries which are in line with strategic pathways of carbon neutrality goals and strategies of the countries or regions the projects are
USD500m
Jan 2021 located in.
CNH 1.8bn
Aligned to ICMA Climate Transition Finance Handbook (2020), as well as in consideration of the climate change mitigation transition activities classification as defined in the TEG Final Report on
the EU Taxonomy
USD600m
Oct 2020 Financing of energy efficient projects, including both aircraft upgrades and R&D into sustainable aviation fuel.
Building of natural gas fired power plants, and associated enabling infrastructure including facilities required for the receipt and delivery of gas to the plants, where the opportunities to develop
Feb 2021 USD300m
renewable energy is limited;
Jun 2020 USD350m
Conversion of coal fired power plants, and the facilities or modifications associated with such conversion, which, in both cases, will result in carbon emission no more than 450gCO2/kWh2 at
Jul 2017 USD500m
baseload.
Infrastructure, equipment, technology, systems and processes that demonstrate a reduction in energy use/losses and reduction in emissions in industrial facilities.
Jun 2020 EUR500m Acquisition and development of biomethane plants and upgrading of existing biogas plants
Activities and projects carried out with the aim to adapt Snam’s gas network to be ready to transport a certain increasing percentage of hydrogen and/or other low-carbon gases
Replacement of pipeline to facilitate the integration of hydrogen and other low-carbon gases, and reduce methane leakage
Feb 2020 EUR500m
Repair and replacement of existing gas pipeline that is already hydrogen-ready in order to reduce methane leakage
PUBLIC 18Etihad Airways
The World’s First Transition Sukuk and First USD Issuance from the Aviation Sector
Summary Terms:
On 28th October 2020, Etihad Airways priced the first
ever transition sukuk globally and the first ever Issuer Unity 1 Sukuk Limited
transition bond or sukuk issued by an airline in the Obligor Etihad Airways P.J.S.C.
USD market. Issue Ratings A by Fitch
Status and
Etihad established its Transition Finance Framework in Senior Unsecured RegS only Unlisted Transition Sukuk
Format
order to issue a Sukuk with a use of proceeds
commitment and a sustainability linked carbon Sukuk Structure Rights to travel based structure
emissions metric to demonstrate its commitment to Issue Size US$ 600,000,000
reducing the emissions intensity of its business. Pricing Date 28 October 2020
Tenor 5 years bullet
Etihad combined its new issue of USD 600mn with a Maturity 3 November 2025
tender offer of USD 300mn in order to partially Re-offer Spread 200bps
refinance its USD Sukuk maturing in 2021. Re-Offer Yield 0.394%
HSBC acted as a Global Coordinator, Joint Re-Offer Price 2.394%
Structuring agent, Joint Lead Manager and Governing Law English Law
Bookrunner on the transaction. Denominations USD 200,000 and integral multiples of USD 1,000 in excess thereof
SPO Provider: Vigeo Eiris
An amount equal to the proceeds will be allocated to finance and/or
Use of Proceeds: refinance new and/or existing projects from in accordance with the
Transition Finance Framework.
Listing Unlisted
Global Coordinator, Joint Structuring Agent, Joint Lead Manager
HSBC Role
and Bookrunner
2019 sustainability initiatives overview Sustainability commitments
• Etihad’s biofuel flight in Jan-19, operated by a Boeing 787-9 from Abu Dhabi to Amsterdam, • Etihad continues to be a leader, together with its partners in the UAE and around the world, in pioneering
represented the maiden flight of an aircraft partly powered by fuel derived from the seeds of the new and effective ways of mitigating aviation’s environmental impact
Salicornia plant home grown in the UAE
• The sustainability strategy of the Etihad Aviation Group is aligned to the 17 Sustainable Development
• In Apr-19, Etihad flew a single-use plastic-free flight between Abu Dhabi and Brisbane and in Goals of the United Nations
doing so made a commitment to reduce single-use plastics company-wide by 80% by 2022
• In Jan-20, in the presence of the EU Commission Etihad announced our commitment of zero net carbon
• At the Dubai Airshow in Nov-19, Etihad launched the Greenliner Programme in a strategic, global Emissions by 2050 and halving of 2019 emissions by 2035
eco-partnership with Boeing and GE
• The company remains at the forefront of efforts to pioneer new and effective ways of mitigating aviation’s
• In Dec-2019, Etihad became the first airline to secure funding for a project based on our environmental impact, to reduce carbon emissions and to create cleaner and more sustainable
compatibility with the Sustainable Development Goals of the United Nations. Etihad borrowed transportation for future generations
100 million Euros (AED 404.2 million) to support expansion of the Etihad Eco-Residence, a
sustainable apartment complex for our Cabin Crew PUBLIC 19Etihad Airways
Transition Finance Framework – Use of Proceeds Framework
Etihad established a Transition Finance Framework (the “Framework”) to demonstrate how the Group and its other entities intend to transition the
business in alignment with the goals of the Paris Agreement.
The Transition Finance Framework has two component frameworks: 1) A use of proceeds framework and 2) A sustainability linked finance
framework:
1) Use of proceeds framework
Eligible
Eligibility criteria Example Green Assets Exclusions UN SDGs
Category
Investments in next generation
Development, manufacture and/or installation of Investments in next Aviation
aircraft to replace old fleet (such as
energy efficiency aviation technologies and fuels derived from non-
Boeing 787-9 and Boeing 787-10)
products with a view to improving energy efficiency. RSPO certified palm oil
Research and development into
Eligible Assets should have an energy efficiency Non-waste biofuels that
Sustainable Aviation Fuels (These
Energy (weighted average) that leads to energy savings of compete with food
include the development of
Efficiency at least 15% against previous technologies. production
sustainable alternative fuels, which
R&D in sustainable aviation fuels, including Biofuels that negatively
can be produced in commercial
biofuels, for improved fuel efficiency. Direct impact biodiversity, e.g.
quantities for use not only within the
emissions from the production of biofuels will be at habitat loss or displacement
Emirates, but also nationally and
least 80% lower than fossil fuel counterfactual. of natural ecosystems
internationally.)
• Etihad has established an Environmental Performance Taskforce with responsibility for governing and implementing the initiatives set out in the Framework.
• The respective project team will identify potential eligible projects based on the eligibility criteria outlined in the Use of Proceeds section.
Governance • Once identified, all transition assets will be subject to an extensive due diligence process that will examine all aspects of the projects including, but not limited to:
- Selection validation of selected target group, confirmation of alignment with SDGs, financial analysis of project costs, assessment of project feasibility, scrutiny around the stated
Process and benefits and their measurement.
Management of • The proceeds of each issuance under the Framework will be deposited in the general funding accounts and to be earmarked to eligible projects, with management of
Proceeds proceeds overseen by the Treasury, Tax and Finance department.
• Etihad has established a Sustainable Financing Register to record the allocations and track the use of proceeds of issuances under this framework.
Allocation Reporting: Impact Reporting – Energy Efficiency:
The amount or percentage of allocation to the Eligible Transition Portfolio Reduced and/or avoided GHG emissions (in t. CO2e /year)
Examples of Eligible Assets invested in from the proceeds an issuance CO2 / Revenue Tonne Kilometre
Reporting The geographic distribution of assets funded Use of sustainable aviation fuel (adjusted distance travelled using biofuels)
The portion of the proceeds from each issuance that is for new financing vs. Number of research programs funded
refinancing, and Types of research studies launched
The balance of the unallocated proceeds of each issuance under the Framework Qualitative case studies on R&D projects
PUBLIC 20Etihad Airways
Transition Finance Framework – Sustainability Linked Framework
Etihad established a Transition Finance Framework (the “Framework”) to demonstrate how the Group and its other entities intend to transition the
business in alignment with the goals of the Paris Agreement.
The Transition Finance Framework has two component frameworks: 1) A use of proceeds framework and 2) A sustainability linked finance
framework:
2) Sustainability Linked Finance Framework
Key Performance Indicator (KPI) Sustainability-Performance Targets (SPTs)
Etihad selected the Carbon-dioxide emissions to Revenue tonne kilometres (Co2e/RTK) metric to measure the
emissions intensity of its fleet over the short, medium and long term. The KPI selected is consistent with The Sustainability Performance Target is set at 714 kg
Etihad’s strategic priority to reduce its carbon emissions as part of its sustainability strategy. CO2/RTK for the passenger fleet, which results in a total
o Commitment to Net Zero Carbon emissions as per Etihad Aviation Group (EAG)’s 2050 target CO2/RTK of 574, with a Target Observation Date of 31
o 50% reduction in net emissions by 2035, based on CORSIA established baseline (2019) and a 20% December 2024. This is an aggregate reduction of 17.8%
reduction in emissions intensity (CO2/RTK) in Etihad’s passenger fleet by 2025, based on EAG fleet over the 2017 baseline of 869 g CO2/RTK
transformation plan initiated in 2017
In issuing a Sustainability-Linked Sukuk, Etihad is voluntarily adding to its existing commitments under CORSIA, committing to also invest in additional climate
Sukuk
reduction projects to promote its target to reduce carbon emissions intensity by over 20% from the 2017 baseline (based on Fleet Transformation efforts).
Characteristics
However, if the target is not met, Etihad commit to purchasing additional offsets
On an annual basis until the Observation Date, Etihad will disclose performance on fuel burn, RTK, and CO2/RTK for the passenger fleet and across the entire fleet
on its website as part of its annual press release on performance.
This reporting will be made available within six months of each calendar year end and will also include information on the efforts made to improve emissions intensity,
Reporting
and any other relevant information to enable progress on the SPT.
Reporting on fuel burn and RTKs is also submitted on an annual basis to ICAO as part of Etihad’s reporting under the CORSIA agreement. Etihad will provide a final
report on the performance of the KPI against the predefined SPT within six months of the Target Observation Date.
Etihad will obtain annual verification of performance on fuel burn, RTK and CO2/RTK from an External Verifier. The External Verifier means KPMG Lower Gulf or any
such other qualified provider of third party assurance or attestation services appointed by Etihad.
Verification Fuel burn and RTK reporting is also audited for Etihad’s submissions to ICAO. This verification will be confirmed in the company’s annual results disclosure.
Etihad’s performance on the KPI at the Target Observation Date will be verified by an External Verifier, who will provide reasonable assurance on the performance of
the company under the ISAE 3000 and AA1000 2008 AS Standards (or equivalent).
This verification will be included on the company’s website within six months of financial year end.
PUBLIC 21Pricing Analysis of GSS Bonds - APAC
Over-Subscription Analysis Price tightening Analysis NIP Analysis
20.00 100.00
80.00
80.00
70.00
15.00 60.00
60.00
40.00
50.00
20.00
10.00 40.00
-
30.00
(20.00)
5.00 20.00
(40.00)
10.00
(60.00)
- - May-18 Nov-18 May-19 Nov-19 May-20 Nov-20 May-21
Apr-18 Oct-18 Apr-19 Oct-19 Mar-20 Sep-20 Mar-21 May-18 Nov-18 May-19 Nov-19 May-20 Nov-20 May-21
Conventional GSS Conventional GSS Conventional
Linear (Conventional) Linear (GSS) Linear (Conventional) Linear (GSS) GSS
GSS Conventional Bond GSS/Conve
GSS Bond Conventional Bond GSS/Conventi GSS Bond Conventional Bond GSS/Conventi (average) (average) ntional
(median) (median) onal (average) (average) onal 2018 2H 9.50 16.07 0.59
2018 2H 2.60 x 2.23 x 1.17 x 2018 2H 21.50 20.63 1.04 x
2019 1H (1.62) 3.15 (0.51)
2019 1H 4.00 x 3.79 x 1.05 x 2019 1H 29.50 30.79 0.96 x
2019 2H (0.83) (0.21) 3.94
2019 2H 3.80 x 4.18 x 0.91 x 2019 2H 28.33 28.80 0.98 x
2020 (1.36) 2.15 (0.63)
2020 5.51 x 5.10 x 1.08 x 2020 43.00 38.12 1.12 x
2021ytd (2.89) (0.89) 3.24
2021ytd 6.18 x 5.45 x 1.13 x 2021ytd 43.82 40.71 1.08 x
Overall 0.41 2.01 0.20
Overall 4.68 x 4.25 x 1.10 x Overall 35.84 33.37 1.04 x
The analysis compares the Price Tightening in bps of USD The analysis compares the New Issuance
The analysis compares the Over-Subscription multiple of
GSS bonds and conventional bonds issued in APAC since Premium (NIP) in bps of USD GSS bonds and
USD GSS bonds and Conventional bonds in APAC since
20182H* conventional bonds in APAC since 20182H*
20182H*
GSS bonds on average have larger Price Tightening than GSS bonds achieved negative NIPs in 2020 and
GSS bonds generally achieved higher Over-Subscription
conventional bonds, and this trend becomes more and more 2021ytd, generally showed significantly lower NIP
multiples
significant in recent periods than conventional bonds
* Deals which HSBC led PUBLIC 22Growth and outperformance of ESG / Green
Outperformance over 12 months of COVID-19 crisis
Source: HSBC Research: ESG and Climate - Strong price momentum in 2020 (18 December 2020), FTSE Russell, Refinitiv Datastream, HSBC
PUBLIC 23Key Climate Change Regulation for Financial Services
Growing focus on how FIs manage climate change risks by international bodies and regulators
Joint Committee on Climate Change (JC3) set up to support the financial Climate stress test by 2021
industry’s response to climate-related risks Climate stress test by 2022 Partners with IFC to lead Asia Chapter of the Alliance for Green
Discussion paper on “Climate Change and Principle-based Taxonomy” issued in Commercial Banks
Convened the Green Finance Industry Taskforce (GFIT), and issued a
2019 proposed taxonomy for Singapore-based FIs to identify green or
transition activities
To launch Climate Biennial Exploratory Scenario exercise to explore financial Announced plans to have banks undertake stress tests to measure their
risks from climate change by 2021 resilience to a broad range of scenarios, including “climate change
financial risks”
Launched pilot climate stress test in 2020 (voluntary)
83 members and 13 observers of global Central Banks and Supervisors
Published in 2020 the NGFS climate scenarios for central banks and supervisors To implement mandatory climate risk reporting for the
and the accompanying Guide to scenario analysis for central banks and supervisors financial sector in line with TCFD recommendations
PUBLIC 24The Task Force on Climate Related Financial Disclosure (TCFD)
Transition Risks Opportunities Governance: The organization’s governance around climate-related risks and
Policy and Legal Resource Efficiency opportunities
Technology Energy Source Governance
Market Products/Services Strategy: The actual and potential impacts of climate related risks and
Risks Opportunities Strategy
Reputation Markets opportunities on the organization’s businesses, strategy, and financial
Physical Risks Resilience
planning
Strategic Planning Risk
Acute Management
Risk Management
Chronic
Risk Management: The processes used by the organization to identify, assess,
and manage climate related risks
Metrics and
Financial Impact
Targets
Metrics and Targets: The metrics and targets used to assess and manage
relevant climate related risks and opportunities
Revenues Balance Assets & Liabilities
Income Statement Cash Flow Statement
Expenditures Sheet Capital & Financing
Climate-Related Metrics and Associated Risk Types Network of Central Banks and Supervisors for Greening the Financial System (NGFS)
Emissions Level
HGH emissions Emissions Intensity
Embedded Emissions The NGFS have outlined 3 scenarios (Orderly, Disorderly and Hot House World) – mapped to RCP scenarios1 below
Transitional Risks
Energy Usage
Energy/Fuel Energy Intensity
Energy Mix
Water Usage
Water Water Intensity
Water Source
Locations within a Coastal Zone
Location
Locations within a Flood Zone
Physical Risks
Land Cover Type
Land Use
Land use Practices
R&D into low carbon products, services, technology
Risk Adaption/ Mitigation
CapEx into deployment of low carbon products, services, technology
1. Source for NGFS / RCP overlap diagram: IIASA NGFS Climate Scenarios Database. 90% uncertainty range based on the MAGICC6 model for each Representative Concentration Pathway (RCP)
PUBLIC 25What’s Next?
Key themes
Fuels
Technology Operations
Regulations Consumer
Behaviour
PUBLIC 26Disclaimer
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