Where next for labelled issuance?

A market that fully integrates environmental, social and governance (ESG) aspects in risk management and pricing could have no use for labelled ESG products. The Australasian market is some way from this end point, however.

DAVISON What is the end state of use-of-proceeds and sustainability-linked issuance? Will labelled bonds continue to be relevant as the market evolves?

WARD Hopefully we will not need them, in time at least. Investors will be able to look at a company like Lendlease and understand from the way the company communicates that sustainability and responsibility is part of its DNA. It would be great if a label were not required to highlight this.

BYRNE I tend to think that we are in a transition period and that eventually the focus will shift from instruments to companies’ actual reporting.

This will mean ESG reporting becomes far more embedded in financial reporting, whether it is aligned to the Task Force on Climate-related Financial Disclosures (TCFD), TNFD [the Task Force on Nature-related Financial Disclosures] or anything else. I could see this in time deciding the appetite of debt investors rather than a label or bespoke instrument.


There are benefits around consistency, transparency and reaching a broad audience. I can see the reasons for desiring a world where labels are not needed but I think they are currently a good thing as a means for differentiating ourselves.


DAVISON How would issuers feel about not requiring labelled issuance to highlight ESG credentials?

MILNE I am not a great believer in use-of-proceeds instruments. The goal should be becoming a green borrower, not just to take a dollar and use it for a green purpose. I take a whole-of-business view: that everything we do, as a trustee of property funds, should have a sustainability lens applied to it.

At the end of the day, capital is fungible. If we are meeting our ESG targets there should be no issue with using funds for “general corporate purposes” as long as we do what we say we are doing with them.

On the other hand, it is important to remember that execution is a key factor – execution drives price and the biggest thing for an issuer is liquidity. If we can generate a two- or three-times oversubscribed deal book, it offers us a really good deal outcome.

Having access to different capital tools can only be an advantage because it means we are not dependent on a few investors. This applies no matter how much money is floating around in global markets.

LARKIN I do not doubt some investors are capable of doing the ESG work but there are benefits around consistency, transparency and reaching a broad audience. I can see the reasons for wanting a world where the labels are not needed but I think they are currently a good thing.

If a deal is not green-labelled I think there would still be a need for a consistent means of comparison across issuers as to whether or not they are green.

HATTON I hope for a future where ESG is fully integrated in reporting and we are confident that organisations are doing what they say they are doing. But there will always be a need for validation of some kind.

It is important to understand what is behind reporting. There is only so much that can be disclosed publicly, so it is vital to have validation and be able to ask questions. This should allow organisations that are genuinely transitioning to have an advantage. This will push organisations that are talking but not doing as much acting.