SustainaWeekly - Gas-to-coal switch…bitter but necessary
In this edition of the SustainaWeekly, we start off by assessing the impact of Europe’s steps to compensate for lower Russian gas exports. The shift from gas-to-coal will lead to higher emissions in the near term. However, it is important to note this will be compensated for by the EU ETS mechanism over time, while the energy crisis has also pushed Europe to step up its renewable ambitions. We make the case that the gas-to-coal switch is more of an issue in emerging markets, where the policy frameworks are less favourable. We then go on to present our updated analysis on the relevance of ESG risks scores in the pricing of credit spreads on secondary market bonds. Finally, we review Gasunie’s second sustainability-linked bond, which was the only corporate issue in the ESG market this week.
Economics Theme
The shift from gas-to-coal to compensate for the lower Russian gas exports towards Europe will come with higher emissions. However, the EU ETS will ensure that the impact on the carbon budget is compensated for in later years, while climate ambitions are also being stepped up. The real emission issue is in emerging markets.
Strategy Theme
We have updated our analysis on the relevance of ESG risks scores in the pricing of credit spreads on secondary market bonds. Our results show that the Sustainalytics ESG risk score keeps its statistical significance, despite challenging credit conditions caused by the uncertain macroeconomic backdrop.
ESG Bonds
Dutch TSO Gasunie was the only corporate bond issuer in the ESG market this week with its second SLB. Given tough market conditions, the company had to pay a whopping 25bps of new issuance premium. Gasunie’s strong energy transition strategy, as also shown by its improving ESG ratings, should be supportive going forward.
ESG in figures
In a regular section of our weekly, we present a chart book on some of the key indicators for ESG financing and the energy transition.