S&P Global Inc. (SPGI) Earnings Call Transcript

All right. So let's start. Hello, everyone, and welcome to today's webinar. My name is Elizaveta. As part of the Developing Markets, I am the Regional Head of Business Development for S&P Global Market Intelligence within Central and Eastern Europe, Southeast Europe, Israel and CIS region. And I'm pleased to moderate and speak at today's webinar, Climate Disclosure Requirements Are Heating Up, How is Eastern Europe Responding? Next slide, please. Okay. So we recognize that this topic is of great interest to those on today's call. We want this to be an interactive session. So please feel free to submit questions throughout the presentation or during the Q&A session towards the end of the broadcast. Also, check out the cool widgets at the bottom of your screen. We want to highlight the related content widget, filled with valuable content and thought leadership resources, and the survey widget. Please take the time to fill out our short survey as we value your insight. Last but not least, this webinar provides closed captioning in English. Please click on the CC icon on the media player just below the -- to activate it. Before we begin, please note that the activities of S&P Global Market Intelligence are independent and separate from S&P Global Ratings. S&P Global Ratings maintains a separation of analytical and commercial activities. Thank you for joining us. Next slide, please. So I want to introduce my colleagues who will be presenting today. Daniel Ostrowski is the Director of Government Affairs and Public Policy for Germany, Austria and Switzerland, and is part of S&P Global EMEA Government Affairs and Public Policy team. The team monitors and analyzes policy developments of relevance for S&P Global which may affect our businesses, our customers and products. Before joining S&P Global in 2018, Daniel spent 10 years with Deutsche Bank, working from Brussels, Berlin and Frankfurt. I would also like to introduce Soeren Stoeber. Soeren is Head of ESG Solutions, Northern and Eastern Europe, for S&P Global Sustainable1. Sustainable1 is S&P's centralized source for ESG, environmental, social, and governance, and Climate Intelligence. It offers comprehensive coverage across global markets, combined with ESG products, insights and solutions from across all S&P divisions. Prior to joining S&P, Soeren held corporate sustainability and ESG reporting positions in Germany and the U.K., and worked for the Wuppertal Institute for Climate, Energy and Environment. He holds a bachelor's in philosophy and economics from Bayreuth University and an MS in sustainability leadership from the University of Cambridge. Thank you, Daniel and Soeren, for joining us today. Now let's get started. Next slide, please. In the next 60 minutes -- 1 second. Let me just give us -- give you an overview of the agenda. So in the next 60 minutes, Daniel will present an update on the recent developments regarding the EU taxonomies, FDR disclosures and the upcoming Corporate Sustainability Reporting Directive. And Soeren will look more specifically at climate disclosure and how both financial institutions and corporates can approach this topic. And on that note, over to our first presenter, Daniel Ostrowski.

Thank you very much, Liz. Sorry for being a little bit too quick now. Yes, pleasure to be on this webinar and to speak to you all today on the topic. I think, yes, Liz already introduced me. I'm part of the EMEA Government Affairs team at S&P Global. And we've been looking at the EU taxonomy and the other regulations that it kind of interrelates with closely over the past years and months. And today, I first wanted to give a quick refresher on the taxonomy as such because it's basically -- it is the basis of everything we will talk about today. But also then look a little bit at the disclosure regime and the sustainable finance sphere, the topic of today's webinar. And therefore, yes, I'll look at the SFDR and CSRD in a little more detail, and of course, have some time for question and answers. Next slide, please. So yes, this is just a quick graphic visualization of what we will be talking about. I will be talking about in my intro here in the first part of the seminar. So as you can see, we have 3 pillars that form the Sustainable Finance Disclosure framework. For our industries, I think most of us here are, yes, market participants, FMPs, are, to some extent, working in the -- for sure, finance, but also sustainable finance space. And this framework that the European Commission has proposed comprises the EU taxonomy, in a nutshell, the green classification system, but it's certainly more, and I'll come to that. And then a disclosure framework for financial entities and products, the SFDR, and the CSRD, which is the corporate reporting framework, so that would cover the nonfinancials. And all of them together would build our sustainable finance disclosure architecture. Next slide. Thank you. So let's start with the taxonomy. I'm going to elaborate a little bit in the beginning on that, because, yes, this is basically the cornerstone and the most important piece, I think, in the whole context. So first, I'd like to define a little bit what is the taxonomy. And if you ask 5 people, you might get 6 or even more answers on that because it is not so -- it is not just one thing. It's more than that. So it's a classification tool, for sure. So why? Because it is established criteria to determine whether an economic activity is considered environmentally sustainable, but also to establish the degree to which an investment is environmentally sustainable. And it does so to achieve its main policy objectives. And I think there are 4 main [ policy ] objectives for that. First, to provide everyone with a common understanding of the matter so that everyone is kind of on the same page about what we're talking about. But also, to protect investors, in particular, private investors and consumers by avoiding so-called greenwashing. It's also -- intends to facilitate cross-border investments and avoid market fragmentation by providing a single system of classification. And it should also provide a solid basis to identify sustainable investment opportunities, which is why it's also a kind of investment screening tool. And finally, it's a corporate reporting tool because Taxonomy Article 8 is introducing some disclosure obligations for certain companies that are subject to today's NFRD, Nonfinancial Reporting Directives. And I'll come to that later, the NFRD review, which will establish the new CSRD. But for now, so yes, these companies that currently NFRD scope companies would need to disclose information, how and to what extent their activities are associated with qualifying activities under the taxonomy. And they also must disclose the proportion of turnover from taxonomy activities as well as CapEx and OpEx associated with those. Finally, the taxonomy is also financial product reporting tool as well, because it introduces new disclosure obligations for financial market participants, or FMPs, in scope of the SFDR. They need to disclose information on taxonomy alignment for certain financial products. So this is done in Taxonomy Articles 5 and 6, which, sometimes confusingly, govern or relate to SFD Articles 8 and 9. So Article 8 products or light green products are those that promote environmental or social characteristics. And Article 9 products or dark green products are those that have the sustainable investment as their objective. And just for the sake of completeness, if the product in question does not consider the criteria -- new criteria at all on environmentally sustainable activities, then this needs to be disclosed as well. And then in this case, we would be talking Article 7 product. Next slide, please. So having said all that, how does the taxonomy actually work? So important about the taxonomy is that it's not an encyclopedia. It does not create an exhaustive list of environmentally sustainable economic activities. But instead, it tries to define the general framework to define what these activities are and if they are eligible and if they qualify as environmentally sustainable. And in doing so, it defines 6 environmental objectives. And I'm absolutely sure everybody on this call has heard of them, but I would still quickly read them out. So it's climate change mitigation, climate change adaptation, sustainable use of water and marine resources, transition to a circular economy, pollution prevention and control, protection and restoration of biodiversity and ecosystems. So these are the 6. Now how do you make sure that you kind of comply or the economic activity does comply in order to qualify? First of all, they need to make at least a substantial contribution to at least one of these 6 objectives. And at the same time, they must not do or cause any significant harm to any of the other objectives. And clients with robust and science-based technical screening criteria is also required. These are drafted in cooperation with the platform for sustainable finance, which is a multi-stakeholder group made of industry participants, FMPs, academics, European supervisory authorities, NGOs, trade associations, so a large number of stakeholders. And these technical screening criteria are then adopted by the commission as a delegated act, which is also known as Level 2 legislation. Finally, compliance with minimum social and its government safeguards, such as dealing principles on labor and human rights and other international standards are required. Next slide, please. Thank you. So this is a kind of different visualization of the same thing. You see here that only 2 out of the 6 objectives have related technical screening criteria as of today. So 4 others are still missing. They are expected later this year, probably in Q4, and they are still being worked out currently. So that makes the whole process complicated. It makes the whole process time consuming, and of course, create some data gaps as well, and I'll come to that in a minute, that make life not necessarily easier for those who have to comply or those have to report in this space, because, yes, there is a kind of a time difference between the different work streams and between the different regulations that we are talking about. So it's controversial. It's very technical. And then yes, I would say, currently, if you need a good overview slide of the taxonomy and where it stands today, and you're just about to present 1 slide, this one might not be the worst. I think it gives a pretty good overview. But this is a snapshot of where we stand today. And of course, everything is work in progress and subject to change. Therefore, let's take a look at the state of play as of today on the next slide. Next slide, please. Yes. Thank you. So I added one of these slides for each of the 3 files that we're talking about today. And yes, the taxonomy is already in force. As you all know, it has entered into force already 2 years ago in 2020. And Level 1 -- so the taxonomy regulation rules are already applying, which is why some of the reporting requirements are already applying. So in April last year, a year ago, the aforementioned TSC on climate change mitigation adoption has been adopted. Other 4 are missing, I already mentioned it. And already since the beginning of this year, the SFDR product disclosures on the taxonomies Article 5 and 6 have started to apply. Throughout this year, NFRD scope, non-financials have also start to at least report about the eligibility, so eligibility disclosures under Taxonomy Article 8. And from next year, the plan would be to have the full KPIs released from non-financials on all 6 objectives. Of course, this is subject to potential delay because the TSCs are not yet there. And from the year after, financial undertakings would have to start full KPI reporting and alignment disclosures, Article 8 and 9. Next slide, please. Yes. So now let's take a look at SFDR. I mean, I talked about it a little bit already, so I will not necessarily repeat myself. But the important thing is that through the taxonomy regulation, SFDR imposes sustainability-related disclosures and reporting requirements from financial market participants. That apply at the entity, both at the entity, and then at the product level. And it introduces these, I mentioned them earlier, light green, Article 8; or dark green, Article 9 products as they're commonly referred to. The regulatory technical standards, so the Level 2 rules, regarding content and presentation of these disclosures will apply from January next year. So they have just been adopted or published in the OJ, the Official Journal of the European Union earlier this week, just on Monday. Next slide, please. Yes. On this slide, you have an overview of, like, the entity level disclosures and the product level disclosures that are foreseen in the SFDR. I'm not going to read out everything here, but yes, I think we will share the slides later on. So it's a nice overview and can probably be helpful for someone on the call, just as a reminder. Yes. I think we can already go to the next slide. So again, I have the state of play, SFDR. It's also in force. It took effect March '21, last year. So it's a little bit more than 1 year or 1.5 years in force. And then yes, in October last year, the RTS on climate change mitigation adaptation were submitted. Then later in the year, announced to have been delayed until January '23. Further guidance and clarification from the ESA, so the European Supervisory Authorities, was published in June this year. And the Level 2 rules will be applying, I think I mentioned it, from January '23. They were published in the OJ on 25th July 2022. So the thing here why I'm also -- that I want to stress is SFDR scope entities that already have to apply the climate change mitigation and adaptation objectives on how the products align, of course, sometimes struggle to have the data, because there is a data gap because financial market participants, FMPs, need to get some of the data from the corporates. And the corporates, they don't report yet. They don't disclose the data yet because the corporate sustainability reporting directive is still not in force. So it is in the process of being negotiated by European Parliament and European member states. So that makes the whole thing a little more complicated. And that leads us to the next slide which we'll look at, the CSRD. So the CSRD extends the scope of the companies that are currently under the existing NFRD. Not only it extends the scope, so there will be model companies reporting, I think currently about 11,000 or 12,000 in the EU, that will increase to 50,000 because the thresholds are lowered, from 500 employees, for example, to 250 employees, and a EUR 40 million turnover as defined now in the accounting directive. So more companies will be scoped in. That means more data will be available and also more data will need to be processed. It also standardizes the disclosure requirements, and make them mandatory, which is also an important change. It also imposes an external assurance on nonfinancial information. So giving the nonfinancial information thereby kind of a higher quality insurance and obligation, and also requires to digitize the reported information. Because as information will grow, you need to kind of be able to deal with it, to handle it, to manage it. Therefore, you need to have it in a digitized format and kind of standardized format. That's the idea behind. It also affects non-EU companies with different thresholds. So they have to have at least one branch a subsidiary in the European Union and they have -- having that turnover of EUR 450-plus million in the EU, then they would also be required to report under the CSRD if it comes into force as currently planned. And there was a political agreement one month ago. We come to the next slide. Yes. I think some of this I've just already explained here. I think we can actually -- yes, just as a reminder, this would be the Article 8 disclosure under the taxonomy. And then it would -- applying today, under NFRD, of course, apply to more companies under CSRD. Then with that, we can skip the slide. Next slide, please. Yes. Again, a quick overview on where we stand. So the proposal for the CSRD was published April '21. It's not yet in force. And it also envisages the adoption of EU sustainable reporting standards, giving EFRAG, the European Financial Reporting Advisory Group, an important role here. And EFRAG has submitted a draft for the standards back in April, and the draft is currently still under public consultation. This consultation is still running a couple of days until the 8th of August. Last month, 21st June, European Parliament and the Council of the EU, where member states are represented, have reached a provisional agreement on the file. And this agreement would foresee a phased in implementation. So the rules would start to apply from January '24 for those companies that are already required to report on NFRD. And then next year, '25 for all other large undertakings. And only from January '26, for listed SMEs or capital market-oriented SMEs, that would still have the option to opt out for another 2 years. So SMEs, small, medium-sized enterprises, will be the last in line to be scoped in and having this reporting requirements. Okay. Yes. I think that should set the stage for my next speaker. But I have a couple of polling questions for you now. I hope I didn't create any kind of confusion with my talking, but let's see. I have 3 questions for you. And the first one is, how is your organization -- organization that you represent, in your view, affected by the new requirements stemming from the EU's kind of highlights regulation? The options are not affected at all, moderately affected or highly affected. Please, could you cast your vote now? Let me give it a couple of seconds. [Voting]

And I think now we can take a look at the results. Highly affected, yes. I was expecting this a little bit. Not affected, almost no, I mean, 4.4% say that they are not affected. Lucky you, I mean it's, of course, making life easier maybe. But vast majority of people say they are affected, they are either moderately affected or highly -- even highly affected. Next question. How do you think your organization is prepared to meet the requirements stemming from this regulation? So first, we were asking affected. Now it's the question how do you feel you are prepared. Not prepared at all, fairly prepared or very well prepared. I think there is a typo on the third answer option, response option. But I think it should say very well prepared. So not prepared, fairly prepared, very well prepared. Please cast your votes. [Voting]

Let's take a look at the results. Okay. So presuming that fairly prepared means well prepared, we have a majority who think they are pretty well prepared, at least fairly prepared, which is good. And I think it's important. It shows the significance of the topic and that companies, market participants have already started to think about these questions, which -- yes, which is super critical, in my view. Very good. Final question. Do you think new sustainable finance rules are rather a challenge or an opportunity for your industry and for your organization? Rather challenge, opportunity, or both at the same time? Please cast your vote now. [Voting]

Thank you. Let's take a look. Let's take a look at the results. I think we're back on the -- yes, we have a technical problem here, it seems. I, for a second, saw some charts here, but maybe they have -- there we go. Thank you, operator. Yes. I think that was a little bit by jumping back and forth on the slide. Now we have the results. I think it's a very nice result here because we have a majority saying it's rather an opportunity than a challenge or maybe it's both, while as some people say, it's more like kind of a challenge. But yes, I'm hoping that we can at least provide some assistance and help with shedding some lights on the things. I think with that, I would like to thank you for your attention. I'm happy to take any questions later at the end of the seminar. And I see we're already getting a lot of questions through the chat function. But I think the Q&A is in the end. So now I would like, from all this theory, gray theory, hand over to practitioner, to Soeren, who would be best placed to tell you about the practical implications of all of this. Thank you. Soeren, over to you.

Great. Thank you so much, Daniel. Really, really interesting. And I think one thing I always take away when I listen to EU sustainable finance regulation, that it is a fairly complex undertaking and also one that is continuing to be both. So for my part of the session this morning, I want to shift our focus slightly away to look at the climate side of disclosure. So specifically look at what climate means and how financial institutions and also corporates disclose and use data to respond to disclosure requirements. And really, I think, give you a bit of a view of what we as S&P are observing in the market and how our clients respond to the changing requirements. And the first thing I think we see is that we witnessed a lot of climate disclosure and net 0 company announcements running up to and during COP26 and also throughout this year in 2022. And so really, what we see is that large corporations, financial institutions are increasingly pledging to bring their greenhouse gas emissions as close to 0 as possible by the distant deadline of 2050. But as we know, achieving net 0, achieving good climate disclosure is not just a simple matter of setting targets. Companies must also lay out clear pathways to reach those goals, and they need to act with urgency. So scientists, as we know, say the world needs to attain net 0 emissions by 2050 to limit global warming to no more than 1.5 degrees. And the UN's intergovernmental panel on climate change has found that carbon dioxide emissions would need to fall by about 45% from 2010 levels by 2030. So this is -- I think I just want to repeat this because it's important. They would need to fall by about 45% by 2030 so that we can have a chance to achieve net 0 by 2050. And we are here, it's end of July, almost August 2022. 2050 might appear as a distant deadline. But if we think about 2030, that's almost around the corner. And so if we look at this first slide here and against this backdrop of what I just said, we are seeing that regulators are increasingly implementing both compulsory regulation. And there are a lot of industry initiatives, investor-led initiatives that are more on the voluntary side looking at climate disclosure. And we heard from Daniel that the European Union took the lead in 2018 with the launch of its sustainable finance action plan. And we are seeing that climate is a key part of all of those regulatory developments that we are seeing. And a lot of the principles that we're seeing in good climate disclosure are being reflected in the EU taxonomy, in SFDR and other pieces of regulation. But also if we look beyond the EU, so one thing that we are seeing is that countries that are not in the EU are looking at the EU taxonomy, almost taking it as a blueprint, and thinking if we were to implement a taxonomy, a green taxonomy, a sustainable economy, let's look at what the EU is doing. So South Africa is one example where this is happening. If we look further field, U.S. regulators are developing a slew of climate-related disclosure rules. We've seen the announcement of the SEC and the discussions that are going on in the U.S. in relation to mandatory climate disclosures, so certainly for Scope 1 and Scope 2, and to a delimited -- to a limited degree as well, Scope 3. And there's really a growing momentum to roll out and make the principles and the idea of TCFD much more mainstream. So if we look at the U.K. as an example, as of April this year, TCFD has become mandatory for more than 1,300 of the largest U.K. registered companies and financial institutions. Switzerland has said it would make TCFD reporting binding. And we're seeing other countries looking at that very, very closely. And so if we go to the next slide, we are seeing, in the market ,quite a lot of progress, and that's encouraging. But we're also seeing that more needs to be done. So we have now 128 countries that have adopted some form of net 0 pledge, be it a proposal, stated policy or a national law. Our colleagues in S&P Global Commodity Insights found that approximately 80% of today's direct CO2 emissions from energy combustion are covered by some long-term net 0 decarbonization target. However, and I think this is important to note as well, our data also shows that there are major shortfalls in the expected execution of those country-level net 0 targets. And as you know, where governments are not necessarily taking the needed policy steps, the private sector might be expected to take on more of the burden of leadership in action. And there are 2 more numbers here on that slide. The first one, which is encouraging, we have more than EUR 130 trillion of private capital that is now committed to support the economic transition to net 0 through the Glasgow Financial Alliance for Net Zero, of which S&P is a member. So, really, money behind that transition and better disclosure. And we also see that more than 5,000 companies have now published long-term net 0 targets. And that's encouraging, but again, I think there's more that needs to be done. And we're seeing that more companies will probably do better disclosure and target setting going forward. So -- and then another interesting number here. If we look at TCFD, we've seen a tenfold increase in the number of companies that support TCFD reporting, so over 3,000 companies that are backing the framework, and that's as of 2021. And that compares to just 280 companies in 2017 when TCFD reporting started. Now where all of this is heading and what we are seeing is that in order for market participants to make decisions with convictions and to disclose accurately and in line with standards, there's a lot of need for data and transparency around the company's ESG and climate performance. And if we go to the next slide, I just want to show you, give you kind of a flavor of how a company like S&P responds to what it hears from the market and the client. So you're seeing here across the different divisions, what type of data the market requests, and of course, what -- how we respond to that, right? So on the left-hand side, in our Ratings division, we offer services and solutions about green financing. We look at kind of how ESG and climate might impact on Credit Ratings. On the index side or our index business, S&P Dow Jones Indices, we offer a number of benchmarks that specifically talk to climate and ESG issues, Paris-aligned benchmarks, climate transition benchmarks. And of course, as I guess most of you are aware, also our Dow Jones Sustainability Index. We offer a lot of data around energy transition out of our Commodity Insights business. And a bit more focus, if we go to the next slide briefly, I want to spend on the data and the analytics that clients use out of Market Intelligence unit, so -- that's we speak to today. And if we go to the next slide here -- sorry, that's the right slide. If we stick with that slide here. This is how we, at S&P, think about and structure the data that the market and our clients are demanding. So the first one is very much around kind of holistic ESG performance of a company. And so we have S&P ESG scores. We have data that helps with negative and positive screening and norm-based screening. So it's a revenue-based screen. Then we think about kind of not an ESG score or an assessment, but actually to say kind of what is the underlying data that our clients need to, say, produce a carbon footprint at the loan book level or for a portfolio or for a supply chain footprint. And so here, we provide very granular emissions data to the market. We cover around 15,500 listed companies and around 2.5 million private companies for which we have these data points. And then we go kind of more into a line of what's going to happen in the future, what are forward-looking data needs in the market. So we think about kind of transition risk. We think about physical risk at the asset level. And we also think about kind of Paris alignment, so to what extent are the emissions of a company aligned with the agreement and commitments under Paris. And then the fourth broad bucket, and this very much goes back to what Daniel was talking about, the market also needs data to understand EU taxonomy alignment, both from a -- going through all of the different steps that Daniel explained, do no significant harm, minimum social safeguards, and equally, SFDR. So we have these very specific regulatory pieces of data that we can provide to the market. And the last one is interesting as well, where we're looking through our Climate Credit Analytics, looking to understand how climate risk could impact on PD, so probability of default of an issue. So I think this -- I just wanted to share this so to give you an idea of our, if you like, S&P ecosystem and what kind of ESG and climate issues we touch on and also what our clients are interested in and looking at. So if we go to the next slide, please. I wanted to kind of provide a bit more kind of practical examples on this. So I want to show you 1 or 2 examples of how we have worked with a bank. Before I do that, I wanted to have a polling question as well. If we could bring that up, that would be great because that would set us up nicely here. So -- and it might be targeted, I think, for everyone on the call, but maybe more specifically on the kind of financial institutions that are listening. So what is the biggest challenge when disclosing on climate? Lack of data, complexity of calculations at the portfolio or the loan book level, or the complexity and the amount of regulation. So if you could cast your vote, that would be great. We'll give it a few seconds. [Voting]

And then I think when we have the results, if we could see them. Great. Excellent. Great. So this is -- I think this is really interesting and very much reflective as well of the feedback that we have from the market. So lack of data is a big, big issue, in particular because not every company is disclosing or is not disclosing comprehensively. And certainly, we see that with the more stringent reporting requirements that are coming out of the CSID and also EU taxonomy, CapEx, OpEx alignment. I think that will change over time, but we are also seeing that there is a lack of data. And then, of course, I think if we listen to, and we all keep abreast of what's happening in terms of regulation, there's a lot happening. And I think it requires a level of detail to understand what is required and what we need to do as an institution to report. Perfect. Thank you very much for responding and providing your insights here. If we go to the next slide, we can see -- I think I just wanted to give you a flavor of how we have worked or how we do work with banks and what banks are doing or investors are doing as well. And so the first step that we see is -- often is about conducting some form of baseline assessment. So if you think about net 0 and target-setting and more complex climate disclosures, that all is fine. But the most important piece and the step 1 in an institution's climate disclosure journey, in our view, is very much around understanding your carbon footprint. And so that can be a loan book carbon footprint, but that can also be a portfolio-level footprint. And so we are seeing that companies, banks in this case, can really understand in their loan book kind of what kind of what sectors are we most exposed to, which companies are driving a particular side of the footprint, which scopes are we mostly exposed to, Scope 1, 2, 3. So really across different asset classes, a combined understanding where your exposure lies. And so here's an example of a piece we did for a bank. So we talked about the data that we have. But we also do these type of reports regularly for banks that might not have the tools and the teams in-house to do that. So that is one example, and we can go very detailed. We can look at exposure to fossil fuels, exposure to stranded assets. And as I said, different metrics that are recommended by UNPI, by PCAF. So we are aligning with that data point. So that's really the baseline. Think about the carbon footprint as a starting point. Now if we look at the next slide, then of course, it gets interesting because you can then say, okay, now we know where we are today, today's footprint, today's exposure. But what's actually going to happen going forward if we look at 2030, '40, '50, or even further out in the future. And here, a case, a piece we did together with BNP, supporting their TCFD disclosures, to really understand the exposure in their loan book, looking at customer assets that are located all over the world and what's the exposure to different types of physical risks are. On that slide, we show the example for water stress by 2050. But we look at wildfires, flooding, sea level rises, cold waves, heat waves, et cetera. And so really for a financial institution, and the bank, in that case, to understand the physical risk that the loan book and the assets might be exposed to. And the next slide is just a flavor as well of, when we speak to banks, I know a big issue that a lot of the banks face are Pillar 3 disclosures around ESG risks. And all of the data we have, we are trying to actually map that to exactly what the banks need to support their very complicated Pillar 3 disclosures. And I know these templates that need filling in, that need data, and we've done these types of assessments. And if we speak about general Europe, but Eastern Europe in particular as well, almost every bank we talk to, we are talking about regulatory Pillar 3 disclosures and what type of data is out there in the market, where potential gaps are in the market. So that's a flavor on the bank side. I want to move us to the corporate use case as well, again. Being very efficient here, given the limited time we have. But we want to start with the polling question here as well. If you could bring that up on the next slide, that will be great. So now shifting the mindset from a bank financial institution to a corporate. So if you are affected -- or if you are a corporate, how far are you in your climate risk disclosure? The options are: not started; planning to disclose in 1 to 2 years; have included climate risk in reporting, but mostly qualitative; and the fourth option, have conducted full scenario analysis and financial value at risk analysis. So if you could cast your vote, we give it a second and then we bring up the results. [Voting]

Great. So if we could see the results. Excellent. That's actually quite a mixed picture we are seeing here. So I think probably most of the respondents, in the middle, so planning to disclose, thinking about what to do and how to disclose, and also having included climate risk already, but mostly qualitative. Again, I think that broadly reflects what we are hearing from the market and our clients. Because the piece that is, in our view, really complex is, of course, the last one, which is scenario analysis and financial value at risk disclosure. And I brought 2 examples of work we did with corporates on these last pieces. So if we go to the next slide. And we're also approaching the end of my presentation, when we then can go to Q&A. So I think it's really the piece in the middle that is complex. So it's the scenario analysis around transitional risk and physical risk, and actually calculate that financial risk. So if we go to the next slide. Here is an example where we're looking -- where we looked for a company, we looked at their carbon pricing risk exposure in the future. So on the left-hand side here, the graph shows you, in U.S. dollars terms, what a future carbon pricing risk could look like for that company under different climate scenarios, starting in 2025, all the way out to 2050, and under different climate scenarios. And the secret here, not the secret, or the approach is really to say if you have emissions data broken down by country, broken down by facility, broken down by subsidiary, how can you link that to a forecast of how carbon prices will develop? And so our view is that we collected data on 45 countries and the planned regulatory changes over time. And that includes, for China, the U.S. and Canada, a breakdown by region, province and state. And so once you have the forecast and you have your emissions data, you can make those type of financial calculations. And you can then translate that, and this is interesting, into -- and this is on the right-hand side of the slide, a carbon adjusted operating profit margin. So really think about climate as a climate risk now as something that we can translate into financially material and traditional financial metrics. So that's one thing. So kind of carbon pricing risk. So we really take this as a proxy for transitional risk. And then on the next slide and the final slide before we go to Q&A is to look at physical risk. And again, here, I think the secret is to understand where in the world your assets are located, what type of asset is it, and what's the value of that asset, so the book value or the production value, whatever you want to look at. And once you know that, you can then overlay different type of climate models and scenarios and time horizons. And you can then, through very sophisticated models, actually say, on average, this could be an annual loss that will impact that asset. So here for this particular client, we looked at a 2-degree scenario, 4-degree scenario. And we found out that a -- in the decade of the 2030s, the modeled average annual loss is around $507 million, and then respectively, $547 million under a 4-degree scenario. So really kind of translating these qualitative -- more qualitative risk assessment into hard financial numbers. And you need to do that, as I said, at the asset level, and also to understand what type of asset it is, right? If you really want to do this at a way that is meaningful and provides insights, you want to say, if you have a vineyard in your portfolio of assets or a real estate or a commercial office, these will be very differently impacted by climate change. And the financial impact, say, from a heat wave or a drought looks very different. So for the vineyard, it might actually have impact on the amount that you can produce. On the real estate side, it might impact on the cost of running your air conditioning units. And so it's that level of detail that provides you a good insight into that. So I'm going to end here. And I'm looking forward to Q&A and the discussion. And I hope really, yes, we provided you with a good overview of our thinking here at S&P. Thank you. I think we have another poll. Yes, sorry, Elizaveta, you're going to take that. Thank you.

Another polling, yes. Okay. So this polling, I guess I can read it out. So would you like to be contacted by our commercial experts for insightful data, research and analysis to inform your workflow? Yes, please contact me by your ESG solutions. Yes, I'd like more information on where I can get similar research and news. No, thank you at this time. [Voting]