Blog article
See all stories »

Sustatinble Finance - a treasurer's brief

Why care about sustainable finance?

‘Sustainable’ is a buzzword right now: but why pay attention and what is all the fuss about?

If you are a treasurer who aspires to make corporate life socially and morally responsible, whilst also being at the heart of a capitalist machine, then sustainable finance is the opportunity to make a difference. As the strategic importance of the treasurer increases, it's an opportunity to shape the overall strategic direction of the firm.

Sustainable Finance gives an opportunity to bring together environmental and social elements in a single debt issuance, supporting the principles of Environmental, Social and Governance (ESG) development and delivering ethical business.

But for the capitalists out there, don’t be dismissive:  investors have discovered that holding true to ESG and the United Nations Sustainable Development Goals (UNSDGs) actually delivers better returns. These better returns therefore mean that the business is at a lower risk of default, meaning higher credit rating and lower cost of funds….a positive virtuous circle! We have seen demand for sustainable debt is high and premiums are low. From a treasurers’ perspective, this demand not only broadens the debt investor base but also opens up a route to ethically influenced equity investors.

So if you’re interested in undertaking a sustainable issuance, what steps do you need to follow? At a high level, there’s a useful three-point plan to follow:

  • Strategy
  • Process
  • Review

Firstly determine what your strategy is with respect to ESG.

Is a green (environmental) issue most applicable for your business, should it have a purely social intent, or is a mix of both (sustainable) the best option? And once you have completed the initial review it’s crucial to ensure that the Board is on board!  Credibility is key, so avoid criticism of green washing and social washing, make sure your overall corporate strategy also aligns to the debt being issued. You don’t want to deliver a shiny new sustainable bond issuance only to meet with investor criticism because a part of your organisation or its immediate supply chain is not aligned.

Secondly, develop a process.

To review and understand if any funds issued can be for new initiatives, or whether they are refinancing existing debt. Refinancing is still a good route as it helps embed sustainable finance disciplines into the organisation and flows into an easier issuance next time. What type of debt do you need to issue?  MTN is simplest but securitisation and covered bonds are also key products.

Thirdly continually review your corporate strategy and use of bond proceeds.

Your issuance needs to be accredited by a suitable third party accreditor. Accreditors will review the purpose as per the prospectus. This is a relatively inexpensive step but is critical to ensure credibility. And make sure the organisation’s strategy and the promises which are being made in the issuance are aligned and still hold true.

Why make the leap to sustainable issuance now?

The market continues to grow year-on-year and development banks are ploughing more and more funds into this space. This is especially the case where countries require to meet the commitments made on the Paris agreement and hence further investment is required over the coming decade in particular.

It is an exciting time and the focus in the UK in particular will only grow. The Bank of England has been getting progressively more vocal on the topic over the past year, following on at pace from the UK Government's Green Finance initiative launched in the summer of 2019. COP26 in Glasgow now moved to 2021, is also aiming to support the drive to a more sustainable economy and we have to hope that  more countries will be persuaded to agree to more ambitious targets to tackle climate change.

So now is the time to talk to your Board, your executive team and get buy in. Be ready to embrace the change in capital markets and make sure the corporate strategy is aligned.

2301

Comments: (1)

Richard Peers
Richard Peers - ResponsibleRisk Ltd - London 17 June, 2020, 17:18Be the first to give this comment the thumbs up 0 likes

Thanks Adrian good to see yout thoughts on the blog

Adrian Sargent

Adrian Sargent

Founder and Managing Director

ESG Treasury Ltd

Member since

22 May 2020

Location

Edinnburgh

Blog posts

3

This post is from a series of posts in the group:

Treasury Management

This network brings together treasury and financial professionals who manage treasury functions. Members share a common interest in treasury, cash management, banking, risk management and investments.


See all

Now hiring