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Empower fixed income markets to drive the global climate transition at speed and scale.
Empower fixed income markets to drive the global climate transition at speed and scale.
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AFII analyses market events and trends in a fixed income climate context, and seeks to raise awareness of the fixed income market's climate impact to outside observers.
Fixed income markets are technically complex with poor data and often lack good models linking climate impact and trading. AFII conducts academic style research into the area.
Bond markets are generating fresh capital for coal, gas and oil development. AFII seeks to put an end to the worst transgressions and push for innovative green investment solutions.
AFII is a not-for-profit institute supported by prominent philanthropic climate foundations. The team is ex-industry and drives a markets-focused approach to positive impact in fixed income.
Using industry style argumentation and output, AFII has gained reputation by challenging structural features of bond markets that hinder the success of a rapid climate transition.
AFII research is available and tagged to security tickers on the Bloomberg terminal. Click for the set-up guide.
The option pricing model for SLBs based on a Black-Scholes approach, with KPIs linked to carbon emissions, shows that impactful targets can deliver a lower cost-of-capital to issuers.
Elo Group, owner of Auchan Retail, has issued its first Sustainability-Linked Bond. We analyse its structure, and price the SLB optionality.
We review emissions reporting for JBS, a Brazilian meat producer, who has issued three Sustainability-Linked Bonds.
We examine the critique of callability being a loophole in SLBs to get around sustainability commitments, but find scant empirical support for such structuring.
The AFII net green/fossil fee league table updates proxy indicators on relative tilting of bank counterparties' climate alignment.
New EU regulation has been adopted to remove deforestation from its supply chains.
This will impact bondholders of soy traders.
The first five business days of September were very busy for SLBs.
Here we review the issuance.
PONEIV has been downgraded by S&P and has near term debt maturities, with implications for bond investors and SLL loan holders.
Minerva is in the market with a $1bn 10y BB rated deal, to finance their acquisition of slaughterhouse assets from Marfrig. There are significant sustainability concerns for investors.
Brazilian meat-processor Minerva has agreed to buy sixteen slaughtering plants from competitor Marfrig. The deal holds substantial risks for Minerva investors over deforestation concerns.
Funding to coal mining in Indonesia has mostly stopped from international investors, while only domestic and regional banks still maintain their relationships, impacting their ability to produce.
ConocoPhillips's acquisition of the Surmont oil field will likely bring it in scope of oil sand exclusion policies. We review implications for bond investors.
We review ESG-labelled bond issuance in the airport sector in order to understand its impact, following issuances from Aeroporti di Roma and Heathrow earlier this month.
UK water companies are reporting exceptional costs driven by extreme weather events in 2022, highlighting the need for adaptation investment.
The chemicals sector is significant for both its GHG emissions as well as its impact on nature. We analyse SLB issuance from the sector and outline key recommendations.
Thames Water bonds have been trading poorly on news of its financial difficulties. We analyse the current situation for green bond investors.
In June 2023 Chile became the third largest overall issuer of SLBs, and one of only four issuers borrowing for longer than ten years. We examine the new bonds, compared to the original issuance.
Chile is now the second largest SLB issuer after a CLP issuance, its fourth SLB in a month.
We analyse carbon reporting of green bonds, and ask if current practices incentivise the correct behaviour.
Deutsche Post has issued its first SLB. Our analysis suggests this is an impactful structure.
Japan is looking to finance its decarbonisation program using transition bonds. A sovereign SLB could be a better option.
The merger of agricultural giants Bunge and Viterra has major deforestation implications. This is a great engagement opportunity for ESG-focused investors.
The AFII net green/fossil fee league table updates proxy indicators on relative tilting of bank counterparties' climate alignment.
Carrefour's recently issued SLB, a more impactful structure, has outperformed since pricing.
This supports tighter funding spreads for ambitious SLBs.
APAC continues to generate significant amounts of power from coal. We analyse the potential for debt investors to support transition.
Uruguay's SLB has been outperforming its closest vanilla bond. We use the AFII option pricing model, and new KPI data, to understand recent bond performance.
SLBs have evolved alternative steps paying charitable donations or purchasing carbon offsets when targets are missed. We evaluate these structures for investors.
Nobian has just released its 2022 sustainability report, announcing a 25% reduction in direct emissions, meeting the target on its SLB.
We analyse the change for SLB holders.
In this note we extend the AFII Fixed Income Optimisation for Net zero Alignment (FIONA) framework to consider the iShares JPM EMB ETF, an emerging market sovereign ETF.
Leading Swedish food retail chain ICA Gruppen is issuing its first green bond but concerns remain regarding its deforestation strategy.
We propose to set parameters in SLB structures in order to increase optionality/materiality and with standardised payout terms.
Carrefour is in the market today with a new SLB. We review the structure and pricing of existing SLBs to analyse the new bond.
Arctic oil & gas producers are being excluded from some ESG funds. We explore the potential impact on fixed income issuers.
PIF, the second largest recent issuer of green bonds, now holds 8% of Aramco. We encourage the market to discuss the suitability of those securities for green funds.
In Dec 2022, we analysed the iShares LQD ETF portfolio and created two parallel FIONA portfolios with improved climate impact. This note analyses the relative performance during Q1.
Cargill's first EUR bond in almost a decade, how does it square with new EU deforestation regulation?
We analyse SLB issuance compared to green bonds, and show it to be a complementary product with broader sector and ratings reach.
The Global Biodiversity framework could over time have substantial impact on bond portfolios: we analyse the general GBF implications and specifics arounds US Treasury portfolio weights.
Recent transactions between the Adani Group and the EQT JV AdaniConneX should generate some due diligence work for EQT Infrastructure IV and V GPs and LPs.
Private vehicles are purchasing integrated O&G assets using public bond market funding/ leverage: implications/recommendations for ESG ratings and European regulators.
The AFII net green/fossil fee league table updates proxy indicators on relative tilting of bank counterparties' climate alignment.
The climate wrecking commitments of potential EUR SSA issuer -recently opening a EUR program- should be anathema to climate concerned investors.
A relative ranking of Oil & Gas issuers based on their alignment with climate targets combined with market pricing to analyse how environmental performance drives their funding spreads.
The market is waiting for confirmation that two index-eligible SLBs will miss their Dec 2022 targets.
Mining giant BHP is looking to tap the USD bond market today for the first time in nearly ten years.
We propose an SLB structure which could help achieve coal decommissioning objectives.
The Adani Ports and Green capital stacks are being used to provide credit for the Carmichael mine. Investors should evaluate their exposure.
We highlight the large differential between XOM equity dividend yield and 2yr bonds, suggesting that the bond side can be used to ‘fund’ equity shorts and associated engagement.
The recent exclusion of Adani Enterprises from several equity ESG indices raises the questions: why was the name there in the first place, and what is the YTD P&L effect of that?
We take a closer look at four Exchange Traded Funds using the Paris-Aligned Benchmark (PAB) label, introduced in 2019 by the European Union.
The current trading level of ENELIM £1 27s implies a high probability of the 2022 renewables capacity target being missed. We review recent performance on this bond.
A private consortium led by BlackRock is looking to the bond market to refinance/leverage their investment in Aramco's pipeline subsidiary.
NSANY has been active issuing sustainability bonds. This note suggests using an SLB format to achieve a lower cost-of-capital for the issuer.
Most of Adani's bonds have a BBB- rating but are currently pricing at levels below that.
SLBs offer an option-like pay out tied to sustainability performance. We examine the relationship between sustainability and credit performance/behaviour between SLBs and traditional bonds.
Adani Group dollar bonds fall on average much more than the Group's equities after a Hindenburg report.
Based on the perceived shift in ECB policy on climate exposure in the CSPP, this brief note analyses the size of the CSPP vs market and issuers that might be particularly exposed.
In a recent speech, the ECB outlines a clear shift in its climate policy framework, addressing many of the concerns AFII has raised in earlier research.
Air France-KLM is in the market today (9 Jan 2023) with two Sustainability-Linked Bonds (SLBs).
Examining the public information on this deal, we find several positive elements of use of this product in the aviation sector.
Second year running, this review looks at a list of ten notable fossil funding deals involving fixed income (investors) over the past year.
We apply AFII's portfolio management tool FIONA, to show that LQD's climate impact can be considerably improved without impact on its performance.
This document categorizes and hyperlinks AFII research output for an easy-to-read overview.
The AFII net green/fossil fee league table updates proxy indicators on relative tilting of bank counterparties' climate alignment.
In this note, we review the first known case of a Sustainability-Linked Bond (SLB) that has triggered a sustainability related financial penalty for the issuer.
We examine how Sustainability-Linked Bonds can be expected to behave as they go through their “trigger” dates by analysing two current cases, Enel and PPC.
Sembcorp's sale of thermal coal power in India shifts operational to financial exposure, and should not lead to a de-consolidation of carbon exposure.
We present the highest emitting issuers per sector within the holdings of the CBPS, and their recent performance which shows the impact of QT flows to date.
This technical note analyses SLB structures using a binomial approach and with a particular focus on step-down structures.
Last week (28 Sep 2022) saw unprecedented volatility in the GBP bond market. We examine corporate sterling green bonds amid this extreme volatility in gilts.
The Saudi sovereign wealth fund's new green bond deal does not look convincing in terms of 'green'. We providing alternative suggestions.
We analyse P&L and carbon footprint effects had the ECB decarbonised its portfolio from 2017 rather than commencing it in Oct 2022, as recently announced.
Green vs grey league tables updated ahead of the coming IMM date, to facilitate climate aligned counterparty selection when rolling futures/derivatives.
Ammonia co-firing in coal plants is a key ingredient in Japan's energy transition plan. We case-study Mitsubishi Heavy Industries' transition bond implementation.
The Australian state is revving up new thermal coal: some investors seems misaligned in their exposure to that...
We analyse green bonds in the auto sector, which is an opportunity for bond investors to support transition in a capital-intensive sector..
Brazilian meat producer JBS is at a potentially very impactful juncture of climate change, deforestation and sustainability-linked bonds.
We analyse negative basis packages in terms of green bonds and how they could drive transition, with an example in GM's recent green bonds.
With over USD22bn SLB debt outstanding, Enel is a frontrunner in this new market. We analyse the implications of switching the debt stack to SLB format.
Eni was the first company from the oil sector to issue an SLB: we discuss a potential issuance from the option pricing and climate impact perspective.
On July 4th, the ECB announced further steps to incorporate climate change into their monetary policy operations. We analyse the effect this could have on the CSPP portfolio for high emitters.
Recent commitments to high-carbon companies and financing could be awkward for investors in KfW's green bonds.
Carbon intensive issuers outperform the benchmark portfolio in Mar/Apr 2022, but underperform since mid-May.
Poor performance of Swedish real-estate bonds may have green implications in the domestic market but likely not internationally.
Update on net green/fossil DCM fee generation from key banks, for the Jun22 IMM date.
Inflation is driving reduction of CB support mechanism and it might be tilted green: ECB supported non-Eurozone heavy fossil fuel issuers like Shell, BP, Glencore and Schlumberger bonds look vulnerable.
European regulators clarify that funding vehicles/SPVs should have the same ESG credentials as what they fund.
Russia's #1 thermal coal miner landed bonds in an ESG bond ETF explicitly excluding thermal coal: we analyze the market "process" enabling this.
Low carbon has produced stable excess returns versus traditional credit - we provide an out-of-sample, apples-for-apples examination using S&P indices based on the ECOBAR allocation mode.
Recent underperformance of low carbon credit has been subdued and argument could be made as to this being an opportunity.
The recent Chile sovereign SLB provides robust KPIs: we review the optionality premium(s).
An USD65trn investor coalition is airing its critique of WPLAU: we update on the revlval of WPLAU CDS vs iTraxx Austalia and comment on other news.
iTraxx ESG S35 outperforms strongly in 2022: analysis.
Comment on a number of developments around SUEK after the Russia sanctions.
Recent military developments raise questions around the recently issued SUEK thermal coal bond.
We update on a previous discussion around the potential price/spread impact on Shell bonds after a climate commitment court ruling in 2021.
ADAABB 22s trading distressed 10 months before maturity illustrates diffculties in coal refinancing. Related parties such as ADSEZ should monitor the situation.
New EIGPRL bonds are in the ESG CEMBI index: we expect they align with Aramco on ESG ratings fairly soon, and thus we forecast divestment flow risk.
Bonds are priced for restructuring, and the argument is that there are important biodiversity targets that could be incentivized.
Fossil public to private transaction bank bridges are looking to refi in bond markets.
Extreme price increases in fossil resource prices, low carbon credit relative performance remains robust.
Comments on a >USD500mn loan deal for a Russian oil co and other fossil investments.
Rankings for major banks in terms of their net green vs fossil bond syndication fee revenue.
We highlight themes that are likely to grow stronger and stronger in 2022.
Year-end list of the most notable fixed income fossil funding deals of 2021 from the perspective of AFII.
Significant fossil public-to-private transactions are going through in 2021: we highlight that bridge loan providers "own" the carbon footprint until the deals are consummated.
Seismic O&G exploration is making some noise in South Africa - we look at how this could affect long-dated USD bonds..
News around methane emissions; hedge-fund activist approaching the co: we analyze the situation from an iTraxx investor perspective.
New PON bond implies high funding costs for coal related entities.
This note studies the relationship between green bond funds and rising interest rates.
We analyse recent statements around the private vs public asset divide being "the biggest arbitrage in a lifetime."
Short selling has impact across both fixed income and equities argues this note.
Just a month after its inaugural USD bond deal, coal mine SUEK is calling a force majeure. Bookrunning banks should engage their clients on this potential situation.
Low carbon credit has remained resilient in the face of recent market volatility.
The green Power Finance bond issue in mid-September doubled the number of Indian corp bond in the EUR market. Just two such bonds still seems low.
The Chinese bond market is in focus in the midst of the Evergrande event and commitments to stop non-domestic coal financing. This note provides a practitioner's perspective on the market.
This technical note calculates normalized bond syndication fee revenue league tables based on netting green bond vs fossil bond issuances.
We develop a fee based algorithm to better align fossil focused banks' activities with those of climate focused asset managers, asset owners and bond issuers.
Will recent IMF covid funding be used to bail out Pemex? DV01 neutral flatteners, long convexity, look relatively attractive.
Who wants to run an inaugural bond deal for "one of the largest exporters of seaborne thermal coal globally?" It seems BofA, Citi and CMZB have appetite.
Low carbon credit relative returns have recovered after an extensive oil price rally between 2020Q2 and 2021Q1.
WLPAU is taking over BHP's assets which is strengthening the trend of equity underperformance vs ASX200. WLPAU credit is unch'd: we suggest a relval trade on CDS.
We develop a framework and practical application of leverage and shorting components for driving portfolio carbon footprints down or even below zero.
Moody connects a new coal mine build to Adani Enterprises. Passive investment vehicles from global investment firms should disclose and engage.
Recent statements from Fidelity around climate engagements are important: as a key player in oil sands financing, the asset manager(s) has outsized role to play in GHG emissions impact.
Global coal player Adani is looking to do a sustainability linked bond: would it not be "cool" if the coupon-kicker was linked to the construction of the Carmichael coal mine?
Deal review of some of the sustainabiliy metrics suggested for an upcoming "sustainability linked bond" (SLB) from oil sand key player Enbridge.
Keystone XL has finally been cancelled. This is a supreme opportunity to build credibility for ESG efforts for a lot of market players. If they engaged, that is.
One of the biggest methane flarers in the Permian Basin is effectively funded by Californian public pension funds. Hard to solve fiduciary equation, in our view.
Key stakeholders in Dalrymple Bay, one of the world's biggest coal terminals, are arguing for a socialisation of clean up costs, seemingly in the opposition of other external claims.
Bond spreads, in contrast to equities, moved very little after a raft of actions/decisions against the fossil business model of oil majors such as Exxon, Shell, Chevron and Total.
Buy equity, buy CDS protection/short credit: engage for a leveraging up of the balance sheet but deflation of hydrocarbon capex.
Update on a recent, well-performing CDS relval trade, which should be further supported by the IEA's recents statements on the 'future' of oil and gas exploration.
When credit investors refuse to refinance coal, credit ratings drop and bond yields => cost-of-capital increases. We analyze a recent case.
Petrochemical companies play an important role in benchmark credit as well as in terms of climate mitigation. We analyse general bond exposures, as well as a recent BASF green bond coming out of the sector.
We review the decision of Citigroup to operate as a sole lead on a new bond issue for the world's biggest coal export terminal, and comment on AFR's article on NAB "peak greenwashing."
A review of National Australia Bank's (NAB) decision to finance the world's biggest coal export terminal.
Oil has posted an almost 100% rally in the past twelve months, but low carbon credit still has eked out modest outperformance.
We conclude that new €1bn loan facilities for energy conglomerate EPH constitute coal funding, and discuss details of the deal(s).
Korea National Oil Corporation has fully wiped out its equity. We analyze the credit scenario where the government lets the BlackGold oil sand project go and bets on the Blackpink COP26 trajectory instead.
Comments on a shortly forthcoming new bond issue giving banks and investors opportunity to engage in oil sands through lending to KNOC.
Why fund JICA coal when you could just sell Japan sovereign CDS? And an update on JBIC.
We are perplexed by the choice of PFA Pension to choose to be a top international player (#2) in Province of Alberta oil sand funding.
AFII does an analysis on relative value between two oil majors under the conditions presented by rapid global warming.
Our analysis indicates that investors in certain EQT infrastructure fund(s) will have new coal mine construction exposure.
EQT building data-centers with one of the world's biggest coal players: all good?
Brookfield looks set to launch a multi-billion dollar climate fund and a coal expansion making Dalrymple Bay into the world's biggest coal export facility. If there were a word for such strategies.
We review intensified coal mine engagements, Myanmar coup sanctions, potentially misleading carbon disclosure, and resistance to syndicate new bonds as factors to take into consideration for ADSEZ bond investors.
State Bank of India is using green credentials from multilaterals like KfW, World Bank and EIB to detract from the Carmichael mega-loan. Put a stop to it.
We discuss the nature of short selling: its dangers, its benefits, after a month of extremely interesting developments in the space.
Low carbon has produced stable excess returns versus traditional credit - we provide an out-of-sample, apples-for-apples examination using S&P indices based on the ECOBAR allocation model.
Biden's early decision to cut the Keystone XL pipeline project may have implications for Vanguard's and NBIM's large bond positions in the world's top oil sand producer, Province of Alberta.
With the announcement of the financing of the Vung An II coal plant, the AFII initiates its SSA exclusion list by putting JBIC and KEXIM on it, together with a few of AFII's earlier designated SSA climate destroyers. And we explain what SSA stands for/is.
AFII makes the case for SBI refinaning of the bank's significant USD near term maturities to be conditional on no Carmichael loan, and review parallel lending practices in order to win green bond mandates, with specific focus to SBI's 2018 green bond syndicate by HSBC among others.
The biggest USD bond funder of potential Carmichael coal lender State Bank of India has a dominant private equity owner, top-three firm Apollo Management. What does this mean for (climate concerned) end investors in Apollo funds, and/or the PE manager's engagement opportunity here?
The German coal decommissioning auction shuts 4.8GW of hard coal power, and among them the Vattenfall Moorburg 1.6GW white elephant project. Auction results and some reflections on the history of it.
A green bond market where issuers can directly finance what has been called “the world’s most insane energy project” and still claim credit for refinancing a dozen of windmills deserves to be questioned. Could we avoid it? We look into the State Bank of India potential Carmichael coal loan.
Given a potential Carmichael loan from SBI, we review who are the main banking transaction parties having exposure to such a -in our opinion- greenwash. MUFG and HSBC come out on top.
Media reports indicate that SBI is looking to provide USD650mn of fresh funding to Adani Enterprises and the Carmichael coal mine build. We think traditional bond investors, green bond investors and development banks should consider if the SBI's potential actions are in line with their climate targets.
We suggest an alternative way to get almost identical risk-return exposure but without lining the pockets of Aramco shareholder(s).
The Dalrymple coal terminal is one of the world's biggest pieces of coal infrastructure and is being put up for sale by Canadian asset manager Brookfield. There is a lot to comment on as the process enters the retail marketing stage.
In this joint piece with SSFC/Stockholm School of Economics, we argue for the relevance for and discuss the functionality of bond markets for the climate transition. Non-technical piece.
The ECB is facilitating cheap funding access for the world's premiere tar sand producer, Canadian province of Alberta, who is now using borrowed capital to subsidize its industry. Makes sense? AFII opines that is does not.
The recent AUD1mn contribution on behalf of HSBC and the Queensland government to Great Barrier Reef conservation is not in proportion to QLD's role as a top global player in coal. We call it.
Just 30 bond issuers derived by the proposed HLE2G framework and who sit in the ECB's eligible market asset list have a combined carbon footprint of 3.5 gigatonnes CO2. Decarbonisation of the ECB's exposures could be quick and straightforward (practically speaking).
Low carbon credit robustly outperform a traditional portfolio in an apples-for-apples comparison using the ECOBAR framework and S&P Indices, out-of-sample.
World's third largest coal port is being sold by Canadian real asset house Brookfield to potentially the Government of Queensland. Not a good idea, the AFII opines. At least shut the thermal part of it.
Some of the world's top investors, such as Allianz and Norges Bank Investment Management, have large exposures to Adani Ports. We present indications that the funding is reducing cost-of-capital for the Carmichael coal mega-mine. Investments should be reviewed.
CDS indices are crucial for managing credit portfolio risk. How should ESG tilted CDS indices be used in this context? We draw some conclusions from our own trading.
Vattenfall, Fortum and Engie (all government owned/controlled) are key players in the 1 Sep 2020 German coal decommissioning auction. We suggest that neither company will be making proftis in German thermal coal and thus should offer to shut capacity at €0 compensation.
We review the global top decile ESG ranking of Adani Power, a 99.7% coal based electricity company as well as recent investor losses in the company's stock after a recent delisting announcement.
In this academic paper, we devise two different ways to measure the (risk) premium between green and traditional bonds: through cointegration or through realised volatility analysis.
AFII is a non-profit organization taking a bond market practitioner perspective on real climate impact. We like the buzz of a succesful trade and the P&L it brings with it. We are extremely concerned about climate change, and distrust marketing waffle around "sustainable finance".
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