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WEF's Global Risks, Air France-KLM, 'Virtual' Power Plants, Debt-for-Nature Swaps, and the North Sea

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Here are 5 ESG insights you might have missed this week:

1. WEF's Global Risks Report 2023-

  • The Global Risks Report 2023 presents the results of the latest Global Risks Perception Survey (GRPS).

  • The world faces a set of risks that feel both wholly new and eerily familiar. The Global Risks Report 2023 explores some of the most severe risks we may face over the next decade. As we stand on the edge of a low-growth and low-cooperation era, tougher trade-offs risk eroding climate action, human development and future resilience.

  • Cost of living dominates global risks in the next two years while climate action failure dominates the next decade.

  • Link to Source:

2. Can the North Sea Become Europe’s New Economic Powerhouse?-

  • The continent’s most turbulent body of water is finding fresh uses.

  • The biggest bet is on a resource of which the sea has an infinite amount—awful weather. With average wind speeds of ten metres per second, the basin is one of the gustiest in the world. The day your correspondent visited Esbjerg speeds were twice that, enough to push the wholesale price of electricity down to nearly zero.

  • With a dose of strategic thinking, and a bit of luck, a string of Esbjergs could scale up into a new North Sea economy. This would help Europe meet its ambitious climate goals and rebalance its energy sources away from countries ruled by tyrants such as Russia’s Vladimir Putin. Its newly minted corporate champions could offer Europe’s best, and perhaps last, chance to stay globally relevant. And it could alter the continent’s political and economic balance by creating an alternative to the sputtering Franco-German engine.

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3. Air France-KLM: Come Fly with SLBs-

  • The Anthropocene Fixed Income Institute analysis on Air France-KLM's inaugural Sustainability-Linked Bonds (SLBs).

  • The Key Performance Indicators (KPIs) included in the SLB are intensity measures and baselined to 2019, i.e. before the pandemic when volumes were high. Emissions dropped in 2020 in absolute terms, but increased on intensity measures. Setting the reduction from 2019 is therefore more ambitious, and the probability of pay-outs in the SLB structure commensurately higher. We estimate it at around 50%.

  • Examining the public information on this deal, we find several positive elements of use of this product in the aviation sector. Using the AFII option pricing model, we estimate the value for the 5y bond SLB premium to be 7.5bp.

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4. GM, Ford, Google Partner to Promote 'Virtual' Power Plants-

  • Virtual power plants pool together thousands of decentralized energy resources like electric vehicles or electric heaters controlled by smart thermostats.

  • VPPs are positioned for explosive growth in the United States, where the 2021 Inflation Reduction Act has created or enlarged tax incentives for electric cars, electric water heaters, solar panels and other devices whose output and consumption can be coordinated to smooth grid load.

  • RMI estimates that by 2030, VPPs could reduce U.S. peak demand by 60 gigawatts, the average consumption of 50 million households, and by more than 200 GW by 2050.

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5. Wall Street's New ESG Money-Maker Promises Nature Conservation — With a Catch-

  • Belize is home to a threatened coral reef and a mountain of sovereign debt. It’s become a test case for a new kind of finance that mixes debt relief and environmental protection.

  • Called “debt-for-nature swaps,” they present a tempting solution for the rising number of nations in distress, particularly those with ecosystems to protect. A country gets to avoid default and lower its debt burden, as long as it’s willing to earmark some of the savings to salvage a coral reef, preserve a forest or build a wind farm, for example. Global investors get better returns and enhanced green credentials. Wall Street takes a cut.

  • “Debt-for-nature swaps have been popular for the wrong reasons. And the main wrong reason is that they generate the impression that you can kill two birds with one stone, that you can address a debt problem and you can improve nature conservation,” said Jeromin Zettelmeyer, director of Belgian think tank Bruegel and a former sovereign debt expert at the International Monetary Fund.

  • Link to Source:

One more thing: Novel database on existing, planned renewables, solar projects in Africa.

Find the database here:

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The Anthropocene Fixed Income Institute analysis on Air France-KLM's inaugural Sustainability-Linked Bonds (SLBs). The Key Performance Indicators (KPIs) included in the SLB are intensity measures and

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