Periodic Reporting for period 2 - TranspArEEnS (MAINSTREAMING TRANSPARENT ASSESSMENT OF ENERGY EFFICIENCY IN ENVIRONMENTAL SOCIAL GOVERNANCE RATINGS )
Reporting period: 2022-12-01 to 2024-05-31
Improving access to long-term finance for EE projects and more in general for projects related to sustainability is key to the EU’s 2030 Green Deal targets. However, the lack of standardized disclosure of EE and ESG investments limits firms’ access to financing and especially to long-term financing. Further, poor understanding of EE information in ESG ratings may increase the risk of greenwashing, thus preventing a smooth development of the sustainable finance market. In this context, the TranspArEEnS project addresses these barriers by mainstreaming a quali-quantitative framework for standardized collection and analysis of firms’ EE and ESG information and the development of a standardized EE-ESG rating. This serves as an EE-ESG filter to inform investment and financial policy decisions about portfolios’ alignment to sustainability. A unique added value of this project is to cover non-listed SMEs, meeting an important market need. TranspArEEnS’ EE-ESG rating has been tested in pilot cases and capacity building sessions both with SMEs, leading representatives of the financial industry and supervisors. This allows the understanding of barriers and opportunities for its operationalization in: i) credit risk assessment, ii) development of long-term EE-financing via securitization (covered bonds, European Secured Notes), and iii) introduction of EE-ESG considerations into monetary policies and prudential regulations. By enhancing standardized disclosure of EE investing, TranspArEEnS will decrease uncertainty in the EE and ESG markets, thus promoting the scaling up of new EE financing and investment opportunities in the EU. Moreover, it will help to mitigate the risk of greenwashing, improving financial stability.
WP1 Development of a large scale EE-ESG database
- Development of a database model (D1.1) to support the collection of quantitative and qualitative information about EE, ESG and financial performances at firm level from different data providers and from the SMEs’ survey
- Implementation of a database of listed companies (D1.2)
- Extension of database to include the WP2 survey data (D 1.3).
WP2 Standardized EE-ESG SMEs’ survey
- Definition of a standardized questionnaire to collect SMEs information on EE and ESG factors (D2.1)
- Implementation of the survey on the Italian SMEs through a dedicated platform. Over 5000 companies completed the questionnaire
- Implementation of a descriptive analysis of the survey (D2.2)
WP3 Standardized EE-ESG rating
- SMEs’ EE-ESG credit risk evaluation has been performed (D 3.1)
- Construction of a EE-ESG rating (D3.2) and implementation of a demo platform to execute the EE-ESG model (D3.3).
- The platform supported the in-depth analyses on the performance and sustainability practices of corporate entities located in the Veneto Region
WP 4. Long term financing instruments for the “green recovery”
The main objective was to support the development of long-term funding instruments linked to SME loan portfolios by: (1) promoting the integration of the TranspArEEnS EE-ESG rating system into banks’ operating procedures on both the asset and liabilities sides of the balance sheet, (2) exploring the concept of an EE-ESG ESN and developing the structural aspects of the product and (3) detailing the key ingredients needed, drawing on best practice in the Covered Bond space, and making subsequent recommendations to financial institutions to secure robustness, transparency, quality and therefore confidence in the EE-ESG ESN asset class.
4 Reports have been delivered: D4.1 on key opportunities to enhance standardised disclosure of EE-ESG products, D4.2 on market needs for EE-ESG covered bond disclosure, D4.3 on EE relevant ESN business case, D4.4 on the potential uptake and exploitation of EE-ESG rating.
WP5 Dissemination and capacity building
Many capacity building initiatives dedicated to different key stakeholders have been organized. The outcomes of the stakeholders’ workshops have been included in the Protocol on greenwashing detection (D5.4) and in the Policy report for integration of EE-ESG consideration into financial risk assessment tools and policy (D.5.5).
Dissemination initiatives and communication formats targeted to SMEs have been implemented to maximize results in terms of participation and awareness of SMEs (see FOCUS ESG on www.transpareens.eu).
Two pilot cases have been implemented with two banks and a White Paper has been delivered including guidelines and recommendations (D.5.6).
- Development of a database model (D1.1) to support the collection of quantitative and qualitative information about EE, ESG and financial performances at firm level from different data providers and from the SMEs’ survey
- Implementation of a database of listed companies (D1.2)
- Extension of database to include the WP2 survey data (D 1.3).
WP2 Standardized EE-ESG SMEs’ survey
- Definition of a standardized questionnaire to collect SMEs information on EE and ESG factors (D2.1)
- Implementation of the survey on the Italian SMEs through a dedicated platform. Over 5000 companies completed the questionnaire
- Implementation of a descriptive analysis of the survey (D2.2)
WP3 Standardized EE-ESG rating
- SMEs’ EE-ESG credit risk evaluation has been performed (D 3.1)
- Construction of a EE-ESG rating (D3.2) and implementation of a demo platform to execute the EE-ESG model (D3.3).
- The platform supported the in-depth analyses on the performance and sustainability practices of corporate entities located in the Veneto Region
WP 4. Long term financing instruments for the “green recovery”
The main objective was to support the development of long-term funding instruments linked to SME loan portfolios by: (1) promoting the integration of the TranspArEEnS EE-ESG rating system into banks’ operating procedures on both the asset and liabilities sides of the balance sheet, (2) exploring the concept of an EE-ESG ESN and developing the structural aspects of the product and (3) detailing the key ingredients needed, drawing on best practice in the Covered Bond space, and making subsequent recommendations to financial institutions to secure robustness, transparency, quality and therefore confidence in the EE-ESG ESN asset class.
4 Reports have been delivered: D4.1 on key opportunities to enhance standardised disclosure of EE-ESG products, D4.2 on market needs for EE-ESG covered bond disclosure, D4.3 on EE relevant ESN business case, D4.4 on the potential uptake and exploitation of EE-ESG rating.
WP5 Dissemination and capacity building
Many capacity building initiatives dedicated to different key stakeholders have been organized. The outcomes of the stakeholders’ workshops have been included in the Protocol on greenwashing detection (D5.4) and in the Policy report for integration of EE-ESG consideration into financial risk assessment tools and policy (D.5.5).
Dissemination initiatives and communication formats targeted to SMEs have been implemented to maximize results in terms of participation and awareness of SMEs (see FOCUS ESG on www.transpareens.eu).
Two pilot cases have been implemented with two banks and a White Paper has been delivered including guidelines and recommendations (D.5.6).
Achieving the EU2030 climate and energy targets requires additional investments, estimated by the EC in more than 260 billion EUR per year. With the European Green Deal launched in 2019, the EU scales up its sustainability ambition, aiming to be climate neutral by 2050. These targets have been reinforced with two main initiatives: the Renovation Wave and REPowerEU. EE investments have been considered an important tool for addressing climate change mitigation and adaptation.
TranspArEEnS was born to develop a quali-quantitative framework for a standardized collection and analysis of firms’ EE and ESG disclosure and to introduce a standardized EE-ESG rating in accordance with the ESG disclosure and benchmarks’ recommendations of the EU Technical Expert Group on Sustainable Finance, recently enforced with the Corporate Sustainability Reporting Directive and the European Sustainability Reporting Standards.
The EE-ESG rating developed by TranspArEEnS is positioned to make a key contribution to enhance disclosure of firms’ alignment to EU2030 objectives, the EU Taxonomy and ESG benchmarks, focusing on EE investments and SMEs.
TranspArEEnS achieved its goal by 5 objectives: (i) developing a standardized large-scale EE-ESG database; (ii) developing a standardized EE-ESG SMEs survey; (iii) developing a standardized EE-ESG rating; (iv) supporting long term EE-securitization with attention to SMEs access to funding; (v) important dissemination and capacity building activities.
TranspArEEnS results help in overcoming 4 main challenges:
1. To develop a standardised and transparent framework to collect and assess information on EE investments and ESG performances for SMEs. This aspect is crucial to increase market confidence and thus mobilize private capital (including long term EE-financing via securitization).
A survey involving 5000 Italian SMEs has been conducted to collect quantitative and qualitative information on the EE and ESG dimensions.
2. To promote a robust understanding of SMEs’ EE and ESG credentials and therefore enhance banks’ understanding to the extent to which these ESG credentials influence SMEs creditworthiness and the subsequent performance of exposures to these firms over time.
Data collected through the survey along with the listed company database supported the definition and implementation of the EE-ESG rating.
3. To identify securitization instruments for EE-financing with attention to long-term. The lack of data and disclosure of firms - and in particular SMEs – on EE and ESG performances continue to represent an obstacle to the financing of SMEs’ EE and green investments.
TranspArEEnS results support the need to develop long-term EE-financing instruments via securitization (covered bonds, ESN).
4. To develop a protocol for greenwashing detection in EE and ESG products.
TranspArEEnS provided recommendations for detecting greenwashing in the assessment of EE and ESG disclosure.
TranspArEEnS was born to develop a quali-quantitative framework for a standardized collection and analysis of firms’ EE and ESG disclosure and to introduce a standardized EE-ESG rating in accordance with the ESG disclosure and benchmarks’ recommendations of the EU Technical Expert Group on Sustainable Finance, recently enforced with the Corporate Sustainability Reporting Directive and the European Sustainability Reporting Standards.
The EE-ESG rating developed by TranspArEEnS is positioned to make a key contribution to enhance disclosure of firms’ alignment to EU2030 objectives, the EU Taxonomy and ESG benchmarks, focusing on EE investments and SMEs.
TranspArEEnS achieved its goal by 5 objectives: (i) developing a standardized large-scale EE-ESG database; (ii) developing a standardized EE-ESG SMEs survey; (iii) developing a standardized EE-ESG rating; (iv) supporting long term EE-securitization with attention to SMEs access to funding; (v) important dissemination and capacity building activities.
TranspArEEnS results help in overcoming 4 main challenges:
1. To develop a standardised and transparent framework to collect and assess information on EE investments and ESG performances for SMEs. This aspect is crucial to increase market confidence and thus mobilize private capital (including long term EE-financing via securitization).
A survey involving 5000 Italian SMEs has been conducted to collect quantitative and qualitative information on the EE and ESG dimensions.
2. To promote a robust understanding of SMEs’ EE and ESG credentials and therefore enhance banks’ understanding to the extent to which these ESG credentials influence SMEs creditworthiness and the subsequent performance of exposures to these firms over time.
Data collected through the survey along with the listed company database supported the definition and implementation of the EE-ESG rating.
3. To identify securitization instruments for EE-financing with attention to long-term. The lack of data and disclosure of firms - and in particular SMEs – on EE and ESG performances continue to represent an obstacle to the financing of SMEs’ EE and green investments.
TranspArEEnS results support the need to develop long-term EE-financing instruments via securitization (covered bonds, ESN).
4. To develop a protocol for greenwashing detection in EE and ESG products.
TranspArEEnS provided recommendations for detecting greenwashing in the assessment of EE and ESG disclosure.