Sustainable Investing and Finance

It has become common practice to include ESG factors in investment decisions. For financial institutions, asset managers, banks and pension companies, ESG conditions play a significant role in avoiding negative impacts and contributing to sustainable development through the right investments. Sustainable financing intends to: Firstly, improve the financial world's contribution to sustainable and inclusive growth and to address climate change. Secondly, to improve financial stability by incorporating environmental, social and managerial (ESG) factors into investment decisions.

Changes in society's expectations of the financial sector are creating demand for ESG data and sustainable financing. Today's investors face challenges in the form of greater focus on ESG reporting, new legislation on sustainable financing, lack of standardisation and a changed risk profile for a more long-term perspective.

ESG-linked financing provides an opportunity to drive attractive deal outcomes and wider business value, including:

• Ensuring best access to capital in a difficult credit market: Borrowers with a clear ESG story, who can make firm commitments on ESG to lenders, can see materially greater appetite for their credit
• Achieving the best terms, including potential cost-of-capital benefits: As credit markets see tightening of terms and increased pricing, the access to capital benefits of ESG financing can enhance competition and terms, including pricing incentives directly linked to meeting ESG performance targets
• Evidencing ESG commitments to other stakeholders: Accountability on ESG to lenders can bring greater focus on ESG delivery within the business, as well as evidencing to customers, suppliers, employees, and regulators that the business takes ESG seriously.

Borrowers should be thinking ahead to a future wherein – “No ESG, will mean No Capital” – as capital providers increasingly look at all lending prospects through an ESG lens, convincing lenders that ESG is a strategic priority for the business is now essentially a minimum requirement for accessing capital.

Sustainability-linked debt deals now involve banks, credit funds, and high-yield bonds, covering all sectors and both large-cap and mid-market businesses.

Many of these are loans raised for general corporate purposes or M&A, but include commitments by borrowers to hit one or more ESG-linked performance targets during the life of the facilities. Others involve the entire proceeds of the transaction being committed to ESG purposes or projects.

We know from experience how lenders are assessing borrowers’ ESG commitments as part of the credit process, and how this is feeding through to appetite and terms for financing. We help borrowers throughout their financing lifecycle, leveraging our experience to support them to:

• Evaluate and enhance ESG financing options, supported by the firm’s other ESG propositions as required
• Identify potential lenders, leveraging our strong relationships with lenders and independent verifiers of sustainability performance targets
• Prepare for market to maximise appetite and the prospects of success
• Negotiate commercial terms of ESG-linked financing
• We also connect with our Sustainable Bonds Assurance SMEs who can support with certification of the bond itself, use of proceeds, related KPIs or against recognised external frameworks such as the Climate Bond Initiative.

If you or your company are interested in hearing more about our sustainable investing and finance, you are welcome to reach out to our finance and ESG experts.