GANDOLFO Sustainalytics plays a key role as a provider of ESG ratings and data in rating more than 11,000 companies globally. We primarily determine our company assessments by evaluating public disclosures.

We include this information in our model and provide a rating and a report. This is updated annually and becomes the basis of our new score for the following year. This is frequently used as the key benchmark and driver of the pricing matrix for an SLL.

GANDOLFO No it hasn’t – but I think it is important as it will increase standards across the industry particularly for newer players. We pride ourselves on our high standards.

There is a provision in the green-bond draft standard for the EU to have verifiers regulated. This will probably happen, although I don’t think it will bring about significant change for Sustainalytics. We take an independent view and we already have internal compliance processes in place. If anything these changes should be net positive and ensure a level playing field for the industry.

BRADBURN It is an opportunity to offer our investors the gold standard. Wealth is transferring from one pot to another. The money is transferring from debt investors to Sydney Airport, for example, off the back of the Sustainalytics report – which is based on trust.

GANDOLFO Absolutely. We need to be credible, independent and robust. We support any regulation that emphasises this as it is what we are and do already.

CHO As we mentioned, the SLL market started out with ESG-rated loans but how the market has developed over time is that not all SLL deals are issued by rated companies. It is typically the larger, listed entities that are rated by Sustainalytics. However, there are also unlisted companies that link KPIs with their corporate-sustainability strategies.

The accumulated number of deals that have been tied back to KPIs specific to the borrower has overtaken the number of deals linked to ESG ratings.

Our view is that the two approaches are equally credible, so it comes down to company preference around how it chooses to express and measure sustainability progress.

CHO The sustainability-linked-loan principles (SLLPs), which were published by the Loan Market Association, Asia-Pacific Loan Market Association and the Loans Syndications and Trading Association – and to which ING Bank contributed – recommend external verification.

As a lender, we put our money on the line based on issuers’ KPIs so ideally an external reviewer will act as third-party verifier. There are certain situations where there is very clear third-party certification already, and this is the basis for sustainability improvement.

Generally speaking, best practice is to have third-party involvement. However, if there is already third-party assurance on the sustainability reporting, which incorporates it in a quantitative target, this is one way to streamline how the target is set and reported on.

GANDOLFO We have also seen a variety of structures starting to emerge in the SLL market. We have seen KPI-based structures, external rating-based structures and a mixture of both. I think we will continue to see ongoing growth and, as Michael Momdjian suggests, there are pros and cons to each approach.

As an external verifier, Sustainalytics has started providing opinion letters for KPI-based SLLs. These state that the transaction is aligned to the SLLPs. However, overall materiality, comparability, relevance and ambition are very important for SLLs and for the KPIs used.

Sustainalytics rates many companies from an ESG perspective and we have developed a methodology that focuses on materiality. Aspects like credibility of structure and KPIs, robustness, who created it, who is checking it and checking regimes are really important factors.

From our perspective, using an external ESG rating ensures independence, comparability, credibility and is a holistic approach, combined with the fact that many investors look at the same ESG risk ratings reports.

LARKIN From our perspective, verification and reporting is not a barrier because we are already tracking sustainability performance for our stakeholders anyway.

YOUNG We are beginning to look at Task Force on Climate-Related Financial Disclosure (TCFD) reporting and what should be included in this. We have done some work around climate-change scenarios and how weather events might affect our operations. We’ve looked at this to 2060 and the debate we have is, because this will be our first year of TCFD reporting, do we take a generic approach or look at how far we can go?

I think we will lean on the former because we need to look at these areas and flesh them out. It is a critical part of us telling the story. We are not ignoring it, we’re working on it and there are some short-term things we can do. But we are also focused on the long term.

A lot of the issues we face revolve around increasing heat in regional ports in Queensland, the Northern Territory and Western Australia. The infrastructure at these ports is ageing and is not built to deal with climate change.