(Editor's Note: We have revised this report to include our opinion on GEB's Sustainable Financing Framework alignment to the EU taxonomy. )
SÃO PAULO (S&P Global Ratings) Oct. 30, 2023--S&P Global Ratings said today that Grupo Energía Bogotá (GEB) S.A. ESP's Sustainable Financing Framework is aligned with the following:
- Green Bond Principles (GBP), ICMA, 2021 (with June 2022 Appendix 1)
- Green Loan Principles, LMA/LSTA/APLMA, 2023
- Social Bond Principles (SBP), ICMA, 2023
- Social Loan Principles, LMA/LSTA/APLMA, 2023
- Sustainability Bond Guidelines ICMA, 2021
The Second Party Opinion (SPO) report "Grupo Energía Bogotá (GEB) S.A. ESP's Sustainable Financing Framework," is available on RatingsDirect and on spglobal.com. This report now includes our opinion on GEB's Sustainable Financing Framework alignment to the EU taxonomy. This report supersedes the SPO originally published on Oct. 30, 2023.
In our SPO, we do not assess the alignment of any individual transaction with ICMA's GBP and SBP.
Strengths:
- Robust human rights due diligence process and disclosure. Despite operating in regions (Colombia, Peru, Guatemala, and North of Brazil) with high social risks, GEB has a robust human rights screening process to ensure its activities and value chain are not linked with human rights breaches.
- Issuer commits to have climate risk and vulnerability assessments to all financed assets under the framework. This involves, in the near future, performing a quantitative climate scenario analysis using the best available science to inform each assets' adaptation plan.
Weaknesses:
- Emissions lock-in risk in pollution prevention and access to basic infrastructure project categories because of its emphasis on natural gas. While for the green category the company commits to retrofitting pipelines to blend green hydrogen with natural gas in the future, the social category considers natural gas infrastructure. While there is a social benefit from creating new natural gas connections to replace the use of firewood for communities in an underdeveloped region, perpetuating natural gas infrastructure introduces high obsolescence risk. Still, the affordability of natural gas versus electricity in Colombia and Peru as well as the public health benefits of transitioning the targeted households from firewood and coal to natural gas support the social contribution of the investments.
- Emission reduction targets do not include Scope 3 emissions. Indirect emissions account for a big portion of the midstream gas operators total GHG emissions.
Areas to watch:
- The availability of green hydrogen for GEB to transport is uncertain. Green hydrogen and low carbon gases should become relevant clean fuel sources in a low carbon and climate resilient future (LCCR). However, there is still uncertainty relating to their increased production and use in Colombia. If there is insufficient supply and demand for these gases, GEB's gas distribution network could perpetuate the use of natural gas, which we do not consider aligned to a LCCR future. We note that Colombia is expected to phase out the use of natural gas in electricity by 2040. The sector represented about 20% of natural gas demand in Colombia over the last four years (SEGAS, 2023).
- Electric grid projects financed under the framework may supply electricity to high carbon intensive sectors such as oil and gas, through direct connections. Although these represent a somewhat low proportion of the total electricity delivered.
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