For a quick summary of a year's worth of finance and environmental news, check out the following news bites.
July 2007
HSBC offers eco-friendly financing in Hong Kong
HSBC launches its green equipment financing programme to encourage business customers to invest in environmentally friendly equipment.
The product gives customers interest rebates and a principal repayment moratorium when taking out a new loan for purchasing equipment that complies with environmental protection regulations. Plus, for every HK$2,000 ($256) of the loan amount, HSBC donates HK$1 to WWF Hong Kong, the environmental conservation organisation.
At the time of announcing this programme, Margaret Leung, HSBCÆs group general manager, global co-head of commercial banking, said: ôWe see huge potential in equipment financing with ChinaÆs rapidly developing economy. For the first half of 2007, the total loan amount for machinery was HK$6.7 billion, of which 90% was used in the mainland.ö
The deal stated that from its start until July 18, 2008, customers who apply for green equipment financing and complete the drawdown on or before October 31, 2008, will enjoy up to two months of interest rebate and an initial six-month loan principal repayment moratorium.
August 2007
Morgan Stanley launches its Carbon Bank
Morgan Stanley partners with Det Norske Veritas (DNV), which is an international provider of emissions data certification to launch this programme. It provides both integrated carbon verification and offsetting capabilities in the voluntary market that are billed to be underpinned by standards as rigorous as any in the regulated market.
ôAlthough the regulated carbon market is based on environmentally effective and standardised procedures, it has been difficult for companies to find a high-quality, standards-based service to offset their emissions in the voluntary market,ö explained David Yarnold, executive vice president for Environmental Defence.
Hence, Morgan Stanley sees an opportunity. HereÆs how the programme works. Clients can compile their emissions inventory and calculate their carbon footprint by applying the monitoring standards of the Greenhouse Gas Protocol Initiative, which provides the accounting framework for many mandatory greenhouse gas programmes globally, including the EU Emissions Trading Scheme. The next step is that DNV verifies these emissions inventories and calculated carbon footprints. Morgan StanleyÆs commodities group then procures and cancels carbon credits equivalent to a clientÆs verified carbon footprint, according to the standards of the Kyoto Protocol.
If youÆre inclined to stay active in the process, you can select your preferred sources of carbon credits, which can be procured from various sources including from Morgan StanleyÆs own direct investments in emission reductions as well as those of MGM International, one of the carbon marketÆs largest developers of emission reduction projects. (In 2006, Morgan Stanley acquired a 38% stake in MGM, so itÆs a logical partner.) However, Morgan Stanley doesnÆt invest in forestry products, due to outstanding technical and legal problems.
September 2007
HSBC launches a benchmark index that tracks the performance of companies likely to profit from climate change
HSBCÆs corporate and investment banking division launches a Global Climate Change Benchmark Index, together with a family of four global climate change sub-indices, which it bills as a comprehensive range of climate change indices.
The bank says the global reference index is designed to reflect and track the stockmarket performance of key companies that are best placed to profit from the challenges presented by climate change.
Based on this benchmark, HSBC has developed four investable climate change indices that can be used to create portfolios for the likes of long-only funds, hedge funds, exchange-traded funds, discretionary funds and structured products. The indices include: an HSBC climate change index; the HSBC low carbon energy production index (including solar, wind, biofuels and geothermals); the HSBC energy efficiency and energy management index (including fuel efficiency autos, energy efficient solutions and fuel cells); and the HSBC water, waste and pollution control index (including water recycling, waste technologies and environmental pollution control).
ôClimate change is set to be one of the defining investment opportunities in the years ahead,ö said Nick Robins, head of HSBCÆs climate change centre of excellence. ôThis index series captures both the imperative of reducing greenhouse gas emissions and the need to adapt to the physical impact of climate change.ö
Standard Chartered pledges between $8 billion and $10 billion to renewable energy at the Clinton Global Initiative
Standard Chartered commits to financing of new renewable and clean energy projects in Asia, Africa and the Middle East, with the biggest pledge in the bankÆs history at the Clinton Global Initiative.
The pledge, which amounts to $8 billion to $10 billion, will involve a five-year commitment, and will focus on energy projects such as wind, hydro, geothermal, solar, bio mass and coal bed methane in Asia, Africa and the Middle East. The development of renewable energy projects will help achieve the goal of containing the growth of greenhouse gas emissions û a stated objective of a number of countries in which Standard Chartered operates. Standard CharteredÆs role may be as lead arranger of debt, financial adviser, or as equity investor.
January 2008
Deutsche Bank gives the all clear
Deutsche Bank initiates a custody clearing and settlement service for carbon credits. The service facilitates the exchange of carbon credits among carbon investors and other participants in the carbon trading market and provides an integrated custody and safekeeping service. It will cover carbon credit instruments issued under both the European Union Emissions Trade scheme and the Clean Development Mechanism set up under the Kyoto Protocol.
Deutsche BankÆs service offers advantages for energy and industrial firms, financial institutions and others active in the carbon trading market. It significantly reduces the settlement risk associated with current carbon trading practices by settling carbon credits simultaneously against cash and relieves investors and traders of operational responsibility for the settlement process. It facilitates rapid settlement by providing a single platform for holdings across multiple currencies and markets. It manages the limit on credits that can be transferred from a country other than the clientÆs host country under the EU Emissions Trading Scheme by tracking a clientÆs carbon credit holdings and allocating them to the different national carbon registries. And it offers custody as well as settlement and clearing, thus providing clients with a streamlined process similar to that of more traditional asset classes.
ôWe believe the provision of a single professionally managed platform will significantly increase activity in this market and provide additional capacity for the expected growth in the trading and banking of carbon credit instruments,ö said Dinkar Jetley, global head of trust and securities services/cash management financial institutions at Deutsche Bank.
Hong KongÆs stock exchange and pollution
Hong KongÆs stock exchange announces it is planning to establish a market in one of the cityÆs most abundant commodities: pollution.
Following the recommendations of a team of consultants, the exchange will partner with an overseas exchange to set up a trading and clearing platform for emissions-related structured products and exchange-traded funds (ETFs). Paul Chow, chief executive of The Hong Kong Exchanges and Clearing (which operates he stock exchange), said he expects to reach an agreement before the end of the year. He also said that the exchange will consider setting up an auction for certified emissions reduction units, similar to the scheme already running in Europe.
The study û carried out by Mallesons Stephen Jaques, Climate Focus and International Environmental Trading Group û also considered the idea of trading derivatives, structured products and ETFs linked to gold. As a result, the exchange has said that it will send a proposal on trading cash-settled gold futures and options to the Securities and Futures Commission.
For the most part, the infrastructure needed to put these initiatives into practice is already in place. ôOur market systems can support the trading of the products that are part of these initiatives so any IT-related investment will be insignificant,ö said Chow. Even so, the chief executive clearly has no plans to rush things. ôInitiatives like these tend to have lengthy timeframes so we are taking a long-term view,ö he added.
HSBC launches climate change fund
HSBC kicks off its global investment funds (GIF) û climate change. Managed by Sinopia Asset Management, the bank's quantitative investment specialist, the fund, which calls for a minimum investment of $1,000, uses the HSBC Global Climate Change Benchmark Index to define the investment universe. The benchmark index represents 19 themes and three key sectors, namely low carbon energy production; energy efficiency and energy management; and waste, water and pollution control. (See: September 2007).
ôWe use our active quantitative stock selection models to select around 50-70 stocks out of the 300 plus from 34 countries covered in the benchmark index, based on a multi-criteria scoring methodology that takes momentum (price, sales or/and earnings), valuation and growth into consideration,ö explained Patrice Conxicoeur, chief executive of Sinopia Asset Management, Asia Pacific.
UBS unveils Greenhouse Index
UBS bills its Greenhouse Index as the first tradable investment benchmark tracking the greenhouse effect. It comprises a combination of weather and emissions asset classes and, as such, is the first integrated index that allows market participants to obtain an exposure to greenhouse gas emissions and their impact on the weather, recognised as the greenhouse effect.
The UBS-GHI is constructed using liquid, actively traded futures contracts. Weather exposure is derived from so-called heating degree day and cooling degree day futures contracts traded on the Chicago Mercantile Exchange. Emissions exposure is provided by carbon credits associated with the EU Emission Trading Scheme traded on the European Climate Exchange (and the Kyoto Clean Development Mechanism traded on Nord Pool).
The UBS-GHI governance committee will meet annually to determine the composition and the weighting of the UBS-GHI and its family of sub-indices. This currently comprises three sub-indices tracking the performance of a weighted average of EU Allowances and Certified Emission Reductions futures, reflecting the obligation of carbon dioxide (CO2) emitters to comply with their annual emission targets until 2012.
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