To meet the strong demand for ESG investments
Each year, the sustainable bond markets reach record levels of growth and volume. As of April 2021, these markets have grown over $1.7 trillion in cumulative ESG debt issuance.
Also, investors are increasingly focusing on these ESG debts as they pursue more stringent ESG policies in their mandates.
Investors are increasingly seeking sustainable options for their cash management
Thomas Callahan, Head of BlackRock’s global cash management business
Furthermore, the majority of issuers that issue ESG debt instruments (such as green, social or sustainability debt) are significantly oversubscribed to investors. This entails that the demand for ESG debt is far greater than the supply, and could lead to a pricing advantage for issuers.
To diversify your sources of funding with new investors
ESG integration is occurring across all asset classes. Fixed income and money market investors are beginning to consider the ESG performance of all their investments.
Having a good ESG score could make the difference
As treasurers seek to raise funds, manage cash flow, and ensure that their organisations are on a sustainable path, they may attract new investors in financing their activities. These new investors would not be interested in investing in companies that do not improve or maintain good ESG performance.
Commercial Paper is an alternative debt option
Treasurers have a clear incentive to include ESG instruments in their debt financing, as an ESG approach opens up the market. In addition, diversifying funding is a prudent move to manage liquidity risk, especially in difficult times.
Treasurers consider Commercial Paper (CP) as a sustainable diversification debt product option that provides flexibility in financing for their sustainable projects and activities. Concretely, green CP could finance operating expenses such as maintenance, R&D and other short-term needs related to green assets or projects.
Many issuers like Daimler, Vasakronan, Citycon, ENEL are issuing green CPs as an additional instrument to green Bonds
To manage actively ESG risks in your organisation
Environmental concerns dominate the top long-term risks as shown in the World Economic Forum’s Global Risk Report 2020. Environmental risks affect financial stability and company’s profitability, but they also open the door to new opportunities.
ESG risk management is critical for treasurers
If companies and treasurers integrate and manage ESG risks into their strategy and processes, they can take action now to manage their ESG impacts. This is recommended by the TCFD (Task Force on Climate-related Financial Disclosure) which is spreading and being used by more and more financial and non-financial companies.
The objective of ESG risk management is to readjust the balance between risk and return by ensuring that exposure to physical, legal, reputational or other risks is limited. These risks, whether external or internal to the organisation, can impact its creditworthiness and could result in a downgrade of its credit rating.
To communicate transparently on your sustainability strategy
A number of large green bond issuers were surveyed by the Climate Bond Initiative. The key findings are that ESG debt offers greater market visibility while contributing to transition, risk management and corporate sustainability.
Develop your sustainable frameworks
In today’s markets, a treasurer is encouraged to bring clarity and transparency to its debt financing and strategy with respect to ESG issues. A first step here would be to develop a sustainable financing framework. This document is designed as a guide for investors and stakeholders to understand your strategy and how you are integrating ESG into all of your activities. Many frameworks and standards exist for green, social, sustainable objectives and activities.
Engaging in ESG is also a great opportunity to engage with different teams in the organisation as well as with customers and suppliers. Treasurers will need to work with multiple departments to set project selection and evaluation, define impact methodology and implement cash management and internal processes for ESG debts.
To adapt to the rising pressure of ESG regulations
By placing ESG indicators into their debt financing, treasurers will benefit from adapting their strategy to the emerging regulations.
Mark Carney, former governor of the Bank of England, has said that a combination of carrot and stick is needed to get companies to take ESG seriously. This is what Europe is implementing in its European Green Deal plan.
Actually, a classification of green activities in the EU has been established with common eligibility criteria. Therefore, companies whose activities are aligned with the EU taxonomy classification would be more likely to attract investment funds. This is also reinforced by the requirement for investors to classify their investment products according to ESG criteria under the SFDR regulation.
Treasurers place ESG in everything they do
Indeed, debt financing processes are evolving with these market transformations. ESG is becoming increasingly important in investment and financing decisions. So it’s time to embrace sustainability in all debt markets.
At Onbrane, we believe the future of financing is sustainable. Today, we provide issuers and debt market participants with a sustainable module to help them create sustainable frameworks and adopt ESG debt products through an efficient and flexible online platform.
Our mission is to build a better primary debt market. This is why we will continue to work on the digital and ESG transformation of the debt markets that is already underway.
