Aligning debt and equity investment

Debt investors reject the notion that their sector is generically ‘behind’ equity in sustainability uptake. Even so, there is potential for greater efficiency if the two asset classes can more closely align their efforts – for instance on reporting.

HANNA Debt is only one part of the capital equation. Corporates need to make considerations about how much debt and equity they hold in their capital mix, and as a result debt investors can only drive impact to the extent we are needed. To what extent are sustainability coordinators looking at engagement on the equity side and do we need to be engaging more holistically between debt and equity?

DANN It is important that the targets we use as part of a transaction are consistent with what investors want to see across debt and equity. Sustainability-linked transactions should be using targets that are core to the business and its ESG [environmental, social and governance] risks and impact.

The materiality of ESG factors is the key focus when we are structuring these transactions and selecting their targets. The materiality assessments we look at consider the whole company and we expect the material sustainability issues to be similar for debt and equity investors.

MOTTOLINI It would not be productive to have separate sustainability targets for equity and debt investors.

Like most companies, we have an investor-relations team that typically focuses on equity investors, while our treasury team talks to our debt investors. Increasingly, when our investor-relations team talks to equity investors our sustainability manager goes along so these presentations incorporate ESG.

We also find the equity analysts are bringing fixed-income analysts along to these meetings. It should be a uniform story and our sustainability focus has to be the same for all investors.

GIFFORD It is similar for ANZ – there is a great deal of crossover between our equity and debt holders. Our leadership in the bond market is appreciated by equity investors because it means we have access to the widest sources of liquidity. Meanwhile, debt investors take a lot of comfort from the fact that there is alignment with the owners of the business.

A large proportion of our shareholders and debt investors are members of Climate Action 100+ and the UN Principles for Responsible Investment. We collate these and the list grows every year. There is a lot of crossover and alignment between equity and debt in ESG matters.