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SUSTAINABILITY & CLIMATE CHANGE

Responding to the Call for Sustainable Capital

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Capital markets have long been a bellwether for near- and longer-term economic and societal sentiment. The rise of ESG (Environment, Social and Governance) focused transactions among business, government and the public is no exception.

Across the globe, capital market issuers, investors and financial institutions are responding to increased demand with solutions that satisfy the complex but complementary goals of financing business investments and helping to address important social and environmental issues, including climate change.

While numbers are just one view of this phenomena, they paint an impressive picture. In the most recent quarters, we have experienced dramatic growth in the sustainable debt markets with record issuances of more than US$915 billion in 2021, up by almost $500 billion from YTD2020 volumes.1 Growth has been particularly high for specific instruments, including growth of more than 4x in the sustainability-linked bond market this year compared to issuance in all of 2020, and growth of 3x in social bond issuance compared to this point last year.2

Behind the data, from our own ‘playing field’ perspective, this activity is rooted in a widespread mindset movement among business leaders and their diverse stakeholders. Increasingly, companies are grounding their decisions in how they raise and invest capital to align not only with their strategic objectives, but also with their sustainability objectives. Companies are increasingly adjusting their business models and seeking financing to support this transformation. And, their actions are matched by a very receptive investment community that wants to participate in this drive to a more sustainable economy.

ESG momentum is no longer centred on a few vertical sectors or early adopter industries. Today, interest in sustainable finance is enjoying strong horizontal growth across sectors, across the spectrum of corporate and institutional clients, and it cuts across every geography, including very active Latin American markets.

In the early days, there was a strong commitment to the green bond market supporting renewable energy and climate change goals. Most recently, we see the emergence of sustainability-linked products geared to issuers and investors with more diverse ESG objectives, including the many social, health and inequality issues amplified during the pandemic.

As participants in this dynamic marketplace, we have helped develop the Canadian sustainable finance market, including supporting notable social bonds, sustainability bonds, and sustainability-linked products. Our Sustainable Finance Group is helping a wide range of clients access sustainability-linked products that connect pricing and pre-established sustainability targets. This enables a greater range of organizations and sectors to get involved, and set ambitious targets to reduce their greenhouse gas emissions or meet other material sustainability objectives.

Finding solutions to new market challenges

Naturally, amid the opportunities, the field of sustainable finance faces challenges. Among them, investors want to measure the impact of their investments, including their effectiveness at meeting their stated goals, and their longer-term influence on ESG issues. They must access appropriate data that is relevant, accurate and comparable. On the company side, organizations must gather and transparently disclose information on their activities to meet investor and stakeholder expectations.

To do so, organizations must design and execute a very individualized corporate sustainability strategy that balances their business objectives and stakeholder priorities with the need to address their most material social and environmental issues. They must also set meaningful goals and establish the processes to compile the necessary data, so they can share a compelling narrative with the capital markets. This requires specialized advice and support to build a sustainable finance program, tailored to an organization’s mandate, or evolving market trends, such as the current shift away from a focus on individual financings (e.g., a green bond to fund a single green project) to sustainable financing strategies that reflect a company’s longer-term sustainability journey.

Seeing success

At Scotiabank, we are leveraging our organizational experience in the sustainability space, as a respected provider of financing and advisory solutions. We are steadily evolving our offerings, ranging from green products (e.g., green bonds and loans) that help clients transition to a low-emissions economy to diverse social instruments (e.g., social bonds and sustainability-linked loans with social KPIs) that help organizations meet other milestones towards a sustainable economy.

In lockstep with client demand, we established our Sustainable Finance Group in June 2020. The team, comprising talented professionals who bring together robust capital markets expertise and leading-edge sustainability backgrounds, builds on Scotiabank’s longstanding ESG leadership and works closely with partners across the Bank, including the Social Impact and Sustainability team, among others.

With the mandate to provide leading ESG and sustainable finance advice and solutions to corporate, financial, public sector, and institutional clients across the Bank’s global presence, the Group also supports Scotiabank’s own climate change initiatives, including the Bank’s commitment to mobilize $100 billion to reduce the impacts of climate change by 2025.3

Today, in a short timespan since the team’s inception, we are very proud to have doubled our Sustainable Finance Group size, increased the range of financing products and advisory services we provide, and significantly grown our transaction volumes. A few noteworthy transactions across our global network illustrate our own journey in the space:

In Canada, we recently served as Joint Bookrunner and Co-Sustainability Structuring Advisor on TELUS’ C$750 million inaugural sustainability-linked bond, the first of its kind in the Canadian market.

In the US, we served as Joint Lead Arranger and Joint Bookrunner on Dominion Energy’s US$6.0 billion sustainability-linked facility, and their US$900 million sustainability-linked club revolver, in addition to acting as Joint Bookrunner on NextEra Energy’s US$1.5 billion 7-year green bond issuance.

In Latin America, we were named Joint Bookrunner on Suzano’s US$1 billion 10-year sustainability-linked bond, the company’s third SLB transaction. And, we were Sole Agent and Sole Sustainability Structuring Advisor on Telefonica Colombia’s US$53 million equivalent 3-year nonrevolving credit facility, its first sustainability-linked loan.

In Europe, we served as Joint Bookrunner on VMED O2’s inaugural US$850 million 10-year green bond transaction.

And, in Asia, Scotiabank provided a US$150 million green loan to Singapore-based Ascendas REIT to finance the acquisition of U.S.-based technology assets, where we additionally advised on a bespoke structure for their inaugural green interest rate swap to hedge the facility.

These and many other innovative solutions have helped distinguish Scotiabank in rankings and league tables managed among independent third parties. They include Bloomberg, who for 2020-21 has highlighted Scotiabank as the current #2 Bookrunner of labelled CAD-denominated ESG Bonds issued by Corporates, Governments and SSAs, and Thomson Reuters Loan Connector, who ranked Scotiabank 7th in their 1H 2021 Green and ESG Loan League Table of Top Tier Lenders in the Americas.4

While these accolades highlight our dedication to delivering client-centric, holistic coverage to our clients, they also speak to the way that capital markets can help business and society reach bigger picture solutions to our shared opportunities and challenges. Since we expect client interest in ESG and sustainable finance products will continue to build in the coming years, from issuers, buyers, and across all geographies, Scotiabank is committed to responding to the call for sustainable capital.

1.BloombergNEF and Scotiabank, as at July 31, 2021.

2 BloombergNEF and Scotiabank, as at July 31, 2021.

3 Scotiabank’s Climate Commitments.

4 As at June 30, 2021


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SUSTAINABILITY & CLIMATE CHANGE

EARTH DAY 2024: Packaging Is the Biggest Driver of Global Plastics Use

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Earth Day, celebrated annually on April 22, marks a global commitment to environmental protection and sustainability. The first Earth Day took place in 1970, ignited by U.S. Senator Gaylord Nelson of Wisconsin, who aimed to raise awareness about environmental issues and mobilize action to address them. Since then, Earth Day has evolved into a worldwide movement, engaging millions of people across the globe in activities such as tree planting, clean-up campaigns and advocacy for environmental policies. Its organizer is EARTHDAY.ORG, a non-profit organization dedicated to promoting environmental conservation and mobilizing communities to take action for a healthier planet.

The theme of this year’s Earth Day is “Planet vs. Plastics” – a theme chosen to raise awareness of the damage done by plastic to humans, animals and the planet and to promote policies aiming to reduce global plastic production by 60 percent by 2040.

As our chart shows, global plastics use has increased rapidly over the past few decades, growing 250 percent since 1990 to reach 460 million tonnes in 2019, according to the OECD’s Global Plastics Outlook, which projects another 67-percent increase in global plastics use by 2040 and for the world’s annual plastic use to exceed one billion tonnes by 2052. As our chart shows, packaging is the largest driver of global plastics use, which is why a rapid phasing out of all single use plastics by 2030 is one of the policy measures proposed under EARTHDAY.ORG’s 60X40 framework.

Other major applications of plastics include building and construction, transportation as well as textiles, with the fast fashion industry particularly guilty of adding to the world’s plastic footprint. “The fast fashion industry annually produces over 100 billion garments,” the Earth Day organizers write. “Overproduction and overconsumption have transformed the industry, leading to the disposability of fashion. People now buy 60 percent more clothing than 15 years ago, but each item is kept for only half as long.” Most importantly, the organization points out that 85 percent of disposed garments end up in landfills or incinerators, while just 1 percent are being recycled.

  1. Infographic: Packaging Is the Biggest Driver of Global Plastics Use | Statista

Felix Richter is a Data Journalist


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SUSTAINABILITY & CLIMATE CHANGE

The Sahara Desert used to be a Green Savannah – New Research Explains Why

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By Edward Armstrong

Algeria’s Tassili N’Ajjer plateau is Africa’s largest national park. Among its vast sandstone formations is perhaps the world’s largest art museum. Over 15,000 etchings and paintings are exhibited there, some as much as 11,000 years old according to scientific dating techniques, representing a unique ethnological and climatological record of the region.

Curiously, however, these images do not depict the arid, barren landscape that is present in the Tassili N’Ajjer today. Instead, they portray a vibrant savannah inhabited by elephants, giraffes, rhinos and hippos. This rock art is an important record of the past environmental conditions that prevailed in the Sahara, the world’s largest hot desert.

These images depict a period approximately 6,000-11,000 years ago called the Green Sahara or North African Humid Period. There is widespread climatological evidence that during this period the Sahara supported wooded savannah ecosystems and numerous rivers and lakes in what are now Libya, Niger, Chad and Mali.

This greening of the Sahara didn’t happen once. Using marine and lake sediments, scientists have identified over 230 of these greenings occurring about every 21,000 years over the past eight million years. These greening events provided vegetated corridors which influenced species’ distribution and evolution, including the out-of-Africa migrations of ancient humans.

These dramatic greenings would have required a large-scale reorganisation of the atmospheric system to bring rains to this hyper arid region. But most climate models haven’t been able to simulate how dramatic these events were.

As a team of climate modellers and anthropologists, we have overcome this obstacle. We developed a climate model that more accurately simulates atmospheric circulation over the Sahara and the impacts of vegetation on rainfall.

We identified why north Africa greened approximately every 21,000 years over the past eight million years. It was caused by changes in the Earth’s orbital precession – the slight wobbling of the planet while rotating. This moves the Northern Hemisphere closer to the sun during the summer months.

This caused warmer summers in the Northern Hemisphere, and warmer air is able to hold more moisture. This intensified the strength of the West African Monsoon system and shifted the African rainbelt northwards. This increased Saharan rainfall, resulting in the spread of savannah and wooded grassland across the desert from the tropics to the Mediterranean, providing a vast habitat for plants and animals.

Our results demonstrate the sensitivity of the Sahara Desert to changes in past climate. They explain how this sensitivity affects rainfall across north Africa. This is important for understanding the implications of present-day climate change (driven by human activities). Warmer temperatures in the future may also enhance monsoon strength, with both local and global impacts.

Earth’s changing orbit

The fact that the wetter periods in north Africa have recurred every 21,000 years or so is a big clue about what causes them: variations in Earth’s orbit. Due to gravitational influences from the moon and other planets in our solar system, the orbit of the Earth around the sun is not constant. It has cyclic variations on multi-thousand year timescales. These orbital cycles are termed Milankovitch cycles; they influence the amount of energy the Earth receives from the sun.

On 100,000-year cycles, the shape of Earth’s orbit (or eccentricity) shifts between circular and oval, and on 41,000 year cycles the tilt of Earth’s axis varies (termed obliquity). Eccentricity and obliquity cycles are responsible for driving the ice ages of the past 2.4 million years.

The third Milankovitch cycle is precession. This concerns Earth’s wobble on its axis, which varies on a 21,000 year timescale. The similarity between the precession cycle and the timing of the humid periods indicates that precession is their dominant driver. Precession influences seasonal contrasts, increasing them in one hemisphere and reducing them in another. During warmer Northern Hemisphere summers, a consequent increase in north African summer rainfall would have initiated a humid phase, resulting in the spread of vegetation across the region.

Eccentricity and the ice sheets

In our study we also identified that the humid periods did not occur during the ice ages, when large glacial ice sheets covered much of the polar regions. This is because these vast ice sheets cooled the atmosphere. The cooling countered the influence of precession and suppressed the expansion of the African monsoon system.

The ice ages are driven by the eccentricity cycle, which determines how circular Earth’s orbit is around the sun. So our findings show that eccentricity indirectly influences the magnitude of the humid periods via its influence on the ice sheets. This highlights, for the first time, a major connection between these distant high latitude and tropical regions.

The Sahara acts as a gate. It controls the dispersal of species between north and sub-Saharan Africa, and in and out of the continent. The gate was open when the Sahara was green and closed when deserts prevailed. Our results reveal the sensitivity of this gate to Earth’s orbit around the sun. They also show that high latitude ice sheets may have restricted the dispersal of species during the glacial periods of the last 800,000 years.

Trucks driving through the desert.
The Sahara desert. Getty Images

Our ability to model the African humid periods helps us understand the alternation of humid and arid phases. This had major consequences for the dispersal and evolution of species, including humans, within and out of Africa. Furthermore, it provides a tool for understanding future greening in response to climate change and its environmental impact.

Refined models may, in the future, be able to identify how climate warming will influence rainfall and vegetation in the Sahara region, and the wider implications for society.

Edward Armstrong is a postdoctoral research fellow, University of Helsinki

Courtesy: The Conversation


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SUSTAINABILITY & CLIMATE CHANGE

COP28: New Draft Text on Climate Deal Published; Calls for Transitioning away from Fossil Fuels

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By Imogen Lillywhite,

A new draft text on global stocktake has been published at the UN climate summit, COP28 UAE, on Wednesday morning. While the draft text does not contain the words “phase out”, it includes reference to transitioning away from all fossil fuels to enable the world to reach net zero by 2050.

The text published by the UN’s climate body calls on parties to accelerate and substantially reduce non-carbon dioxide emissions worldwide with a focus on reducing methane emissions by 2030. “We all want to get the most ambitious outcome possible,” Majid Al Suwaidi, COP28 Director-General, said on Tuesday.

The text, published early Wednesday, does not specifically refer to oil, but mentions the need to ‘phase-down’ coal.  It says that it recognises the need for ‘deep, rapid and sustained reductions in greenhouse gas emissions in line with 1.5C pathways and calls on Parties to contribute to global efforts.

Among those efforts it recognises the need to triple renewable energy capacity by 2030 and doubling the annual rate of energy efficiency improvements by the same date. It also recognises the need to accelerate the phase-down of coal and accelerate towards net zero energy systems, utilising zero or low carbon fuels by mid century.

While the document does not mention oil or combustion engines, it does recognises the need for accelerating the reduction of emissions from road transport on a range of pathways, including through development of infrastructure and rapid deployment of zero and low-emission vehicles. It also recognises the need to phase out inefficient fossil fuel subsidies that do not address energy poverty or just transitions, as soon as possible.

Finance specifics

On the subject of finance, the document said developed countries should continue to take the lead in mobilising climate finance from a wide variety of sources, instruments and channels, noting the significant role of public funds, through a variety of actions, including supporting country-driven strategies, and taking into account the needs and priorities of developing countries.

Such mobilisation of climate finance should represent a progression beyond previous efforts, the text said. It may provide small comfort to campaigners from developing countries who implored Parties to begin the phase out of fossil fuels and provide vastly improved access to funding for renewables.

The document highlights the persistent gap and challenges in technology development and transfer and the uneven pace of adoption of climate technologies around the world.

It further urges Parties to address these barriers and strengthen cooperative action, including with non-Party stakeholders, particularly with the private sector, to rapidly scale up the deployment of existing technologies, the fostering of innovation and the development and transfer of new technologies.

It also emphasizes the ongoing challenges faced by many developing country Parties in accessing climate finance and encourages further efforts, including by the operating entities of the Financial Mechanism, to simplify access to such finance, in particular for those developing country Parties that have significant capacity constraints, such as the least developed countries and small island developing States.


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