ESG Financing

Global sustainability bond & loan volumes (EUR b) Record green and ESG linked issuance in Q1 ‘21

ESG-linked loan pipeline (EUR b) Sustainable linked loans suit any company from any sector

ESG Financing - Market observation per 17 May 2021 -

Refinancing activity is dominated by sustainability linked instruments

  • Record-breaking sizes of sustainability linked loans (SSL) mark the augmented efforts by banks and companies to align credit facilities to sustainability targets
  • The growth of SLLs has encouraged borrowers of all sorts to accelerate sustainability strategies, competing with their peers for access to capital markets
  • SLLs will become increasingly normal and banks pitching without addressing ESG factors will soon be the exception rather than the norm

SLL principles under review by Loan Market Association (LMA)

  • The LMA is working on updating its sustainability linked loan principles, which is a joint effort with its US and Asian equivalents. The SLL principles were first published in 2019 and an update is expected in May / June ’21
  • The associations look into standardising key performance indicator targets, the ambition of those targets and reporting requirements. A current lack of disclosure around targets in private deals has raised concerns of potential green washing
  • In the meantime, companies in ‘brown’ industries are raising SLLs before the principles tighten

Push for ESG may impose challenge for certain sectors

  • Traditional reliance on bank financing may come under pressure for certain industries as banks increasingly focus on ESG factors
  • This imposes challenges to find liquidity on pre-Covid terms for certain sectors such as automotive, tobacco and mining
  • Lenders are becoming more selective about the business of their clients, pushing a critical look at what existing clients are contributing to environmental, social and governmental factors
  • A recent climate related stress test, conducted by the French banking regulator, may accelerate the process. The regulator says French banks and insurers should speed up their response to climate change and disclose the impact of climate change to their balance sheets
  • The climate related stress test has no impact on how much capital financial institutions must hold. It is likely that the Bank of England and the ECB will conduct similar climate stress tests in the future Zanders hosted the webinar ‘Trends in Sustainability Linked Loan’, providing insights in defining KPIs and ambitious targets, without impacting timelines of your refinancing. Feel free to request a recording or a copy of the slides via Lotte Coppelmans.