Raising the bar on sustainability best practice

The global sustainable finance market continues to strive for maximum impact and unimpeachable standards for all participants. A group of Australian corporate borrowers, speaking at a September roundtable hosted by ING and KangaNews Sustainable Finance, say external pressures to be best in breed are significant but these align with their own corporate goals.

  • Luis Castillo-Melendez General Manager, Corporate Finance JEMENA
  • Vincent Chin Head of Treasury GOODMAN GROUP
  • Melanie Evans Chief Executive ING BANK AUSTRALIA
  • James Hall General Manager, Strategy and Capital Markets TPG TELECOM
  • Martijn Hoogerwerf Head of Sustainable Finance, Asia Pacific ING
  • Fiona Trigona Executive General Manager and Group Treasurer NBN CO
  • James Vesper Head of Sustainability GOODMAN GROUP
  • Laurence Davison Head of Content KANGANEWS

Davison There has been no shortage of turmoil in global markets this year. How has sustainable finance performed and adapted to the challenges?

HOOGERWERF The sustainable finance market – loans and bonds – has slowed in 2022 but this is more to do with the backdrop of general economic conditions. In the years leading up to 2021, we recorded double- and triple-digit growth on an annual basis, to the point where the global sustainable finance market topped out at US$1.7 trillion including 60-65 per cent of the loans market.

The bond market contracted in the first half of 2022 and the biggest drop was in social bonds. Last year, we saw a spike in social bonds driven by the COVID-19 response – the fall is against that increase.

Within our sustainable finance book in Asia Pacific, we see strong growth across sustainability-linked loans (SLLs) and green loans, with social a slightly smaller segment. Overall, we had 50 per cent growth in the first half of 2022.

There are still a lot of quality transactions in the market. Earlier this year, we noted similar size and volume as previous years globally – growth was effectively zero per cent. But we expect a stronger second half, based on what we saw last year, so I think we will record roughly the same numbers as 2021. Asia Pacific represents about 25 per cent of this, which is not an insignificant part.

“I believe our sustainability goals are already ambitious. Setting even more ambitious targets to satisfy the needs of bond investors and lenders is hard to promote within the company. We achieved carbon-neutral operations nearly two years ago. How do we get more ambitious than zero?”

Davison What have been the focus areas for market leaders – including aspects of concern – over the course of the year?

HOOGERWERF There is a lot of concern focused on greenwashing, and this is not a surprise. Going back 6-12 months, we were very concerned about the KPI structures of some transactions. Today, however, I am hopeful that structures are becoming more credible. A lot of developments are ongoing, specifically at the regulatory level, to guide the market and ensure it continues to be credible.

Some market players are taking the issue more seriously and becoming comfortable with more ambitious structures, which is a positive development. We have made great headway from the last few years.

We know that what gets measured, gets managed. In this context, disclosures are improving – but we have a long way to go. We still need good data not just across our loan book but at the corporate level. This includes data on operations including supply chains and getting better at disclosures.

Importantly, we also need company data that is comparable across different businesses within a sector even when there are different formats and guidelines. Standards are being developed on this but we also need stronger commitments across the various participants active in the market.

We are on the right track, but we are not moving fast enough. We like to pat ourselves on the back as leaders in this space, but it does not make sense to be a leader in a space that is not moving. Systemic change and stakeholder engagement is a fundamental part of our sustainability journey.

Davison Corporate borrowers in Australia have gone back to their bank lenders for their funding requirements this year, which is no surprise given bond market conditions. But has sustainable finance remained a priority when there have been so many other issues to deal with?

CASTILLO We have been quite vigilant of market conditions, but we have not separated sustainability elements from traditional funding. We have observed a lack of supply and deal flow is nowhere near as intense as it was last year, but we have plans and a desire to continue using the sustainability structures we have established through our green financing framework.

The pockets of opportunity we would normally observe around this time of year are not as obvious. We have received reverse enquiries from investors on private placements or for smaller transactions, rather than a public bond structure, and we have investigated those opportunities at a high level.

We do not require funding immediately and therefore we have the luxury of sitting out the current volatility that applies also to sustainability-linked structures and green financing. We will observe and come back to the market when opportunities become more conducive.

CHIN This is clearly a risk-off market and as such we were fortunate to find a window to issue the first sustainability-linked bond (SLB) from an Australian corporate into the US 144A market. We found the exercise extremely educational.

We worked closely with our sustainability team to make sure the sustainability finance framework was aligned with our core sustainability objectives. It was an interesting exercise to work with bookrunners who helped us understand what we needed to craft to meet the market’s expectations with what we thought were already very ambitious targets.

We have had a variety of feedback since the SLB. For instance, I have spoken to some Japanese investors that prefer not to have a coupon step-up. They want us still to be ambitious with our targets but, rather than price in ‘failure’ through a coupon step up so they get a better yield, they suggest we donate the step-up or buy carbon credits. This means failure to meet the target is not going to them as an investor, but to benefit other sustainability initiatives.

HALL Issuers applying a sustainability wrap of one sort or another to financing is now the norm and, market volatility notwithstanding, I do not expect this to change. Lenders, whether banks or bond market investors, need to have comfort in the sustainability credentials of the companies they are lending to.

The mechanism through which they get this comfort may vary. Maybe it is an SLL or SLB structure, or a UOP [use-of-proceeds] bond. It might be through the way the company reports. But the mechanism is secondary to the intent. What is important is that the company has a strategy and disclosures, and it knows how to engage.

The most interesting and most important development in the short-to-medium term is the establishment of the ISSB [International Sustainability Standards Board] standards, which are intended to unify corporate reporting in relation to sustainability in such a way that it becomes normal, much like corporate governance reforms 20 years ago.

It will be interesting to see the extent to which the normalisation of sustainability reporting makes some of the bespoke mechanisms on financial instruments redundant. On the equity side, ISSB will standardise everything so there will be less reliance on practices that have been developed to make up for the shortfall of information.

TRIGONA NBN Co issued a green bond this year but most of our 2022 funding has been achieved via bank facilities as opposed to the debt capital market. We established our sustainability bond framework in February and then issued our green bond just prior to the market dislocation we have now witnessed throughout this year. Volatility and the attractive funding achieved from bank facilities had kept us out of the market for more than six months.

We cannot rely solely on bank facilities, however, and we looked for opportunities to return to the debt market. Such an opportunity came in late September when we issued an A$800 million (US$520.5 million), four-year bond. Given the volatility in the market and the additional marketing associated with issuing a green bond, however, we decided to issue a standard bond.

“Some Australian banks and corporates are struggling with transition funding, particularly in hard-to-abate sectors. Bankers are being pressed to do more and this is butting up against the hard reality of how the Australian economy presently works.”

Davison Does NBN have any sense that green bonds are, as has often been suggested, more ‘sticky’ in challenging markets than vanilla issuance?

TRIGONA Absolutely. Our green bond is trading tighter than the rest of the curve – those bonds are very tightly held. But we also want to ensure investor demand remains strong. There are opportunities in multiple currencies and markets, and Europe could provide a good opportunity for us.

Davison It is almost a truism that European investors are the most progressive on sustainability globally and specifically in the demands they put on borrowers. As the first Australian SLB in the US 144A market, did Goodman Group get a sense there was additional demand for the format?

CHIN Investors found an additional benefit to having an SLB in their portfolios. Ultimately, this is a credit instrument and investors were interested in making sure the right components were in place, such as guarantors, supports, covenants, cash flows and company prospects. But we received good support from investors that had a specific mandate.

HALL Europe is more advanced in the way things are applied and we see examples in European financial markets of sustainability mechanisms that enable challenging sectors to be funded. Transition funding is more mature in Europe than it is in Australia.

Some Australian banks and corporates are struggling with transition funding, particularly in hard-to-abate sectors. Bankers are being pressed to do more and this is butting up against the hard reality of how the Australian economy presently works. In Europe, the market has become much more sophisticated and mature in this regard.

Davison What are TPG Telecom’s issuance plans?

HALL We are in the process of developing a sustainable financing framework. We have about A$5 billion of syndicated bank debt, which was put in place when we merged with Vodafone Hutchison two years ago. We are now in the process of evolving the funding platform to something that feels more like a permanent capital structure for a listed company.

The first cab off the rank is a sustainable financing framework. We are exploring rating options and the best way to term out these borrowings and update our banking platform. This will start happening next year.

We will aim to devise a framework that gives us the capability to do UOP and linked structures, and then deploy it as appropriate. We want a holistic sustainable financing framework. We do not want to define the metrics for every transaction but define the framework and then put in place something like a sustainability deed poll, which we can refer to for all our borrowings.

Collaboration is key

The banking industry globally is trying to work together on sustainability while keeping competition alive. Most importantly, the financial sector has to lead rather than wait for governments.

EVANS There is ongoing acknowledgement of the network effect of tackling sustainability and climate change together, rather than independently. Banks can compete for business while at the same time supporting the transition of the global economy. The industry must consider a range of topics, from how to define a green mortgage to new standards on reporting and emissions. ‘Together’ also means banks, with clients and business partners.

Discussions like the one we are having today, that bring our clients and business partners together, are important for making progress in tackling climate change in a collaborative way.

One of the things we have learned, as a global organisation, is that the more we can get people moving together, the more impact we will have. We are taking active steps in this space locally and internationally. For instance, our climate reporting is among the most advanced and transparent in the industry, globally.

In banking it is often said that ‘what gets measured gets managed’. One outcome of measuring is that ING Group realised we need to take more high-conviction moves, and sooner than we thought we would.


ING is not here to give directions about how to run businesses. We are here to support them to achieve their goals. Our role is to work with our clients to make the transition as seamless and as positive as possible, but we cannot ignore the facts on items such as financial stability, energy supply risk and shareholder value.


Davison It is inevitable that different jurisdictions will go in their own directions on reporting standards to at least some extent. How challenging will this be for borrowers, especially those that routinely tap multiple capital markets? Are we heading toward a future where one framework or one sustainability report will work in all global markets?

HOOGERWERF In an ideal world we would be – but we do not live in an ideal world. I believe roughly 30 different taxonomies are currently in development and I do not think one particular taxonomy will work globally. The same will apply to corporate disclosure.

What we do need is better disclosure and more guidance about what to disclose. We need a standard to apply to subsets of the market. TCFD [Task Force on Climate-related Financial Disclosures] is incredibly well placed, but there is no gold standard out there.

When I look at a simple finance report on a particular company, I will search for key words such as ‘emissions’, ‘TCFD’ or ‘scope-three’. This provides a sense of how the business is placed. On the other hand, while a lot of companies are disclosing on these topics the reality is that most of our clients are not. Having a more broadly accepted standard will be incredibly beneficial.

Davison If Australia ends up with a mandatory TCFD reporting regime – as now seems all but inevitable – and companies are producing reporting in line with such a requirement, might these reports suffice for European or US investors? Or will borrowers have to do an extra ‘annex’ to satisfy particular jurisdictional requirements?

HOOGERWERF It is not practical for a company to publish multiple reports. But you touch on an important point, which is that when European investors in particular look at an Australian company they will need certain disclosures – perhaps not today, but certainly soon.

I expect some alignment between disclosure standards and the same applies to taxonomies – there might be bits and pieces that differ, but they will align. It will be the same for corporate disclosure formats.

We must be pragmatic, on the basis of thinking realistically about how much of a company’s resources we can ultimately expect it to leverage to create multiple sustainability reports.

VESPER We spend about a quarter of the year pulling data together across our group and operating regions. We use these datasets to fulfill various reporting obligations, surveys and ESG benchmarks throughout the year. There is huge demand for disclosures on ESG performance, and it is time and resource intensive. TCFD is a good place to start, and many large corporates and investors are heading down this path.

We have a science-based target [SBT] in place, which we report on annually, and we have Climate Active certification for carbon neutrality. However, there are slight differences between the inventories and how these need to be disclosed. It is not significant, but there are a few variables in different regimes – and this is where things can get a little ambiguous.

Another challenge with disclosing ESG data, risks and targets relates to the financial metrics to put around them. This is where it gets tricky.

Davison Is the assumption that issuers will not need to respond to every individual jurisdictional requirement?

VESPER No, but only because not every jurisdiction will have a mandatory requirement for disclosure. However, we apply a consistent approach to how we collect and report our data and align with the greenhouse gas protocol approach. Scope-three emissions remains an issue that needs further work to define boundaries, provide guidance and avoid duplication.

TRIGONA Measuring scope-three is the important issue. NBN is aligning emissions reduction targets with the latest climate science and, in March 2022, we committed to setting targets via the Science-Based Target initiative that cover scope-one, scopetwo and scope-three emissions.

In FY22, we also made progress in assessing opportunities for reducing indirect emissions associated with the company’s products and supply chain – which are scope-three emissions. We have just released our annual report and, for the first time, we have integrated sustainability reporting and performed limited assurance over selected ESG metrics.

HALL I can envisage a future in which the ISSB standards become the global norm and they form a component of an annual report that, over time, will develop the rigour and discipline of financial statements. This is what the market wants: disclosures that are comprehensive enough to be credible but are delivered concisely.

The problem we often have with sustainability reporting is that we end up with enormous amounts of information that investors and lenders have to go through, picking out the salient points to compare. This is not in anyone’s interest.

Davison Is this being driven by the expectation of regulatory requirements, investors, moral obligations, or a bit of everything?

TRIGONA All of the above, and it is also about prudent risk management – by which I mean assessing the risks and asking how we can mitigate them. We have recently undertaken a company-wide climate change risk assessment in alignment with the recommendations of the TCFD.

CASTILLO Jemena is very keen to address the disclosure and reporting issue but it is also important to acknowledge the potential risks of getting too far ahead of the curve. We have established a working group with members of the organisation including corporate strategy, finance, treasury and corporate affairs. This brings in a number of areas of knowledge to help form the narrative we want to put in front of internal management to support the future disclosure task.

One of the things we have done quite effectively this year is engage with the IFRS Foundation. The ISSB put an exposure draft out in March and requested responses. We provided quite a lot of feedback, based on the fact that we engage with a number of participants in the energy sector and we have learned a lot from this process about the practicality and nature of what needs to be incorporated in disclosures.

From our experience, every stage with the IFRS Foundation has been refreshing and we believe this type of experience is likely to support standardisation of disclosures that will be well-received globally.


Best practice and access to capital

As expectations on corporate ambition and disclosure continue to ramp up, there is growing risk of some businesses falling further out of reach of the sustainable finance market. On the other hand, market leaders want the extent of their ambition to be recognised.

DAVISON Is the market at risk of a situation emerging in which some companies are hitting global best practice and others are effectively not engaging at all?

HOOGERWERF Yes, I think so. Also, certain sectors will move more slowly. I do not think this has a direct impact on access to capital yet, but we have seen it to some extent in the coal sector. The owner of a coal-fired power plant might already have serious issues gaining access to funding. I believe this will start happening in other sectors as well.

In the meantime, companies that are disclosing well, showing where they are headed and what their intentions are will have better access to capital. This is the whole point about mandatory disclosures with taxonomies: being able to define what is green first, or what is the sustainable economic activity.

This allows regulators and central banks to make sure capital flows toward these activities are indeed funding transition or can be classified as sustainable economic activity. We are not there today.

As banks, we have developed linked products with financial incentives, but the reality is that green funding is not necessarily cheaper. I believe this is where we are headed, but for the time being companies that are disclosing the correct measures and are on a trajectory to decarbonise will find it easier to access capital than others.

“We are on the right track, but we are not moving fast enough. We like to pat ourselves on the back as leaders in this space, but it does not make sense to be a leader in a space that is not moving. Systemic change and stakeholder engagement is a fundamental part of our sustainability journey.”


Davison How have the specific products used in the sustainable finance market developed over 2022?

HOOGERWERF There are many layers to this. ING structured the first SLL in 2017, with Philips. We also executed the first one in Asia Pacific. The interesting element about linked products is that there is an initial disclosure tied into the product, whereas green bonds or loans do not feature this as a requirement. There is a reward or penalty mechanism, if you will, as part of the structure that is fundamentally different from a UOP product.

The challenge with green bonds and loans is simply that the market is limited by the number of green assets and projects out there. The global green asset base is growing rapidly and we expect this to continue, but the linked product is better suited to carbon-intensive sectors.

ING is a traditional bank in many ways. Our loan book is carbon-intensive – we lend to the cement and steel industries, and to aviation and shipping. We realised that to transition we needed to decarbonise our loan book. But we also realised we need products like steel and cement. The notion of transition from a carbon-intensive society is about incentivising at the corporate level. This will be driven by product design to guide transition over time.

The Sustainability Linked Loan Principles that were first published in 2019 dictate annual updates, which are meant to make the products better defined. This is not a snapshot in time – over time, we will see these guidelines get stricter. They were developed by industry bodies – they are not regulatory – and they have done a tremendous job of enhancing the product’s impact.

Right now, there are some credibility issues associated with certain structures we have seen in the market. Industry associations are in the process of vetting their loan principles and better defining them. This will be an ongoing process.

Davison Is it harder to enter the SLL market nowadays, in the sense that there are greater expectations of ambition from lenders?

HOOGERWERF This is a good question. If a company is not disclosing anything and it does not have any targets, it will find it hard to get a labelled loan. Take a steel company, for example. It may have certain renewable energy assets, but these will be a fraction of its capex activity or financing plan.

Sure, it can issue a small green loan or bond. But if it wants to do something material, its only option is sustainability-linked and to set ambitious targets – otherwise it will be difficult to access the market.

Vesper Cement and steel are two sectors that need to decarbonise for Goodman to hit its scope-three targets. As a bank, is ING moving away from financing these sectors or does it want to continue financing them with SLLs?

HOOGERWERF As a bank – and this likely applies to a lot of banks worldwide – I do not think there are too many sectors we want to steer away from. We announced earlier this year that we are avoiding new oil and gas project financing, but the current strategy to decarbonise our loan portfolio is tied into our net zero by 2050 commitments.

We are about to publish an update that shows we are tracking a range of carbon-intensive sectors – nine to be exact. The intention of our decarbonising is engagement, and this applies to the cement and steel industries.

We have done sustainable finance transactions with these sectors, but what we are doing goes beyond sustainable financing. It is about engaging with these industries and the players in these sectors, and incentivising them through dialogue and stakeholder engagement to help them move along the trajectory of decarbonisation.

As a bank, we could choose not to finance a few specific sectors – but then ING would not be ING. We do not have a choice in this regard, if we want to be a part of the sustainable future.

“Our green bond is trading tighter than the rest of the curve – those bonds are very tightly held. But we also want to ensure investor demand remains strong. There are opportunities in multiple currencies and markets, and Europe could provide a good opportunity for us.”


Vesper Through the engagement practice, is ING encouraging these clients to implement science-based reduction targets? We need the entire supply chain to decarbonise if we are to make real progress, especially with scope-three.

HOOGERWERF We are not there yet with steel and cement. ING is leading a working group called the Net Zero Steel Initiative, which is based on something similar for the shipping industry, where the large shipping banks decided to report carbon emissions on an annual basis.

This forced those banks to engage with their clients, which initially did not want to disclose the data. But they started moving as well. The shipping industry is now coming along and we are doing something similar with steel. The aviation sector and cement will follow shortly.

The market will likely set decarbonisation trajectory expectations for these industries, which then allows a bank like ING to go into a credit committee for a cement company and point out where this company sits within the sector. We are not there today, but this is where we are going.

Davison The path for industries with significant operations in hard-to-abate sectors is clearly not a straight line. Firms might be waiting for technology to be affordable or scalable, for instance. How does a bank think about structuring lending to register ambition, including interim targets, where the main goal is not yet achievable?

HOOGERWERF This is where SBTs play a role because they effectively assess the long-term targets set by a company and also the medium-term targeting that allows a bank to structure loans around them.

Again, this is not like a traditional credit assessment at present. But we will get there, and in the near term. Some form of agreement on what an acceptable trajectory looks like within sectors will be important, but it also depends on the starting point.

A steel company in Norway will be using more hydropower, so will have a lower carbon intensity than a steel company in China. We must take the starting position into consideration. Are we expecting a Chinese steel mill to catch up within the course of five or 10 years? This is a grey area.


Davison How did Goodman think about targets and goals going into its SLB process?

CHIN I believe our sustainability goals and where we see ourselves in the industry are already ambitious. Setting even more ambitious targets to satisfy the needs of bond investors and lenders is hard to promote within the company. We achieved carbon-neutral operations nearly two years ago. How do we get more ambitious than zero?

Another issue we had to face was the carrot and stick to target setting. Investors and lenders want us to be ambitious, so the carrot is a cheaper margin if we meet our targets. But is this right way to look at it? Should the investor or lender be pricing in the probability of not meeting a target or benefit from the company not meeting its target? How does this fix the world?

We should consider whether the penalty should instead be attributed to something more altruistic, like a donation or purchase of carbon credits. It is a real cost to the company either way, and I believe the market still needs to evolve because the incentives and stick are not right yet.

VESPER We had already set corporate targets that were quite ambitious. When our finance team said it was considering an SLB – but it comes with a penalty step-up – and asked which of our targets they could attach to it, I did not want to make the stick bigger than it had to be.

It was fortunate that we were in the process of putting our SBT in place when we were setting the bond – so it made sense to use this as the performance criteria. But, to be clear, our SLB excludes scope-three emissions as we have limited direct control over these.

“The issue of the ambition demanded from borrowers by lenders is something I am really interested in. We all want positive sustainable outcomes, so how big should the penalty be if borrowers fail? Should it be an incentive rather than a penalty?”

Davison What sort of SLB targets can a company deploy when it has already achieved net zero?

VESPER We were carbon-neutral under Climate Active, the Australian government scheme, which we use specific offsets to achieve. We compile a global emissions inventory and then we offset it, whereas the SBT is purely a reduction target.

An emissions reduction target is one performance option for an SLB, although there are many ESG metrics a company could consider. It really depends on what is material to the company and where it can make a real difference.

Davison NBN flagged in advance that it would use UOP format for its labelled issuance. What does the company think about sustainability-linked structures?

TRIGONA We used UOP due to the nature of our assets and the size of our UOP pool. If we did not have access to a large UOP pool we would have considered a sustainability-linked structure.

Davison Would it be fair to say the outcome of the company’s targets means the eventual creation of assets that would qualify for UOP funding?

TRIGONA NBN is aligning its emissions reduction targets with the latest climate science. The most important lever to pull for our scope-two emissions is to purchase 100 per cent renewable electricity, and we have set a target to hit this mark by 2025. This is included in NBN’s UOP asset pool.

CASTILLO This sort of consideration has been central to the way we approached the development of our green financing framework and it also influences how we prioritise and sequence the debt formats we want to approach.

The nature of our business – as a diversified energy infrastructure owner and operator – means we have to keep customer interests central to our strategy. In particular, we need to have affordability and reliability of energy at the heart of every decision we make while at the same time setting aspirational, ambitious targets.

The reality is that delivering these in an affordable manner, where the customer pocket is not going to be hit hard, will take time. Being realistic, from a labour and a supply chain point of view, will require an emissions roadmap that delivers more than federal and state standards. This is quite problematic. We wanted to focus on how we develop KPIs or targets.

We must protect customers’ interests, and we have to be able to lobby regulators and governments to ensure we can deliver energy as a service. We want to achieve net zero emissions by 2050 and we feel sustainability-linked funding will be critical to the way we move forward. But the key reason we have not yet accessed this market is that we are still working on what realistic targets should be.

HALL We expect to issue UOP and sustainability-linked structures over time. We have A$5 billion of debt to term out over the next few years so there will inevitably be opportunities to do both.

We are in a capital-intensive sector and a lot of it naturally fits a UOP structure. But, at the same time, we are in the process of working out long-term carbon emissions reduction targets that would very naturally fit with an SLL structure. Given the current volatility in global markets, I do not think a bond will eventuate anytime soon. We will likely rely on bank debt for now.


Davison Does the question of public disclosure play a part in selecting what and where to issue debt? How much do issuers consider reputational or headline risk?

CASTILLO We need to strike a very delicate balance. The practical reality is that a lot of our earnings come from gas transmission and distribution. For us to electrify the network to deliver the same amount of energy will require material investment in the form of capital deployment and labour. It is difficult to access skilled labour.

Achieving this transition in an efficient way that we can commit to delivering now is difficult as it is hard to get an accurate forecast of how viable it is. The transition will be delivered in the 2030s, 40s and 50s, though we believe a mixture of technology will enable us to meet those targets.

The question is how we effectively embed this into Jemena’s culture, vision and values to be consistent with the way we ensure customers’ interests are protected. It is difficult for us to point to specific KPIs as technology is evolving rapidly. We want to be authentic and genuine about how we go about delivering in a reasonable timeframe and make it as affordable as possible to the customer.

VESPER We also have the disclosure predicament. Like a lot of Australian companies, we set corporate sustainability targets a few years ago and we consider them to be ambitious.

One of them, for example, aims to have 400 megawatts of solar on our rooftops around the world. This is a stretch target because there are a lot of barriers to achieving it in some markets. But if we do not – and we are talking about a 2025 target – we are in a predicament.

If we hit 300 megawatts it is still significant and a better outcome than had we not set the target, but is there a reputational risk? I do not know – but we will disclose our progress anyway. As it a target we have set ourselves, there is no financial penalty specifically. We might not have set such an ambitious target if there was.

When we put this in the context of a bond or an SLB, where there is a financial penalty, it certainly influenced our approach when we were setting a target.

CHIN Some advisers were telling us our SLB target was not ambitious enough, which was interesting. There is real risk that we may not make that target and they still wanted to make it more ambitious. There is a disconnect here.

HOOGERWERF The points on how to set ambitious targets are all valid. We have created many sustainability products over the last few years and it would be interesting to see how many of those have hit their targets. I believe most of the ones done in Asia have done so.

This is likely an indication of clients wanting to set ambitious targets but also being pragmatic and having a certain level of openness about being able to achieve them. But this is part of the initial stages of the market and it will evolve over time.

“We need to have affordability and reliability of energy at the heart of every decision we make while at the same time setting aspirational, ambitious targets. The reality is that delivering these in an affordable manner, where the customer pocket is not going to be hit hard, will take time.”

Davison As an arranger of SLLs, does ING suggest to borrowers that they should go public with their targets?

HOOGERWERF It is recommended, but most SLLs do not disclose – including the ones ING structures. It is not an absolute requirement though we welcome it if a company wants to disclose.

CHIN There might also be confidentiality concerns with regard to competitors as well. I do not necessarily want my competitors knowing my targets unless I am working with them in a group. I do not think this is about disclosure; we do a lot of corporate disclosure already.

The other concern is the bilateral arrangement between us and the lender in what is essentially a private transaction. Obviously, this is not a problem with a public bond.

HALL I think targets should be made public. It is useful for there to be standardised regimes of disclosure relating to anything that is material to decisions financial markets make.

VESPER The issue of the ambition demanded from borrowers by lenders is something I am really interested in. How ambitious do lenders want the borrower to be and how much do they want it to achieve? We all want positive sustainable outcomes, so how big should the penalty be if borrowers fail? Should it be an incentive rather than a penalty?

CHIN Further to this, if it is a financial penalty, who benefits from it? Where should it go? Right now, it is going into potentially supporting the investor or lender, but is this the right mechanism? Ultimately, we do not want companies to fail targets – we want to encourage them to meet and exceed targets.

HOOGERWERF We have had these debates with some of our clients. Should we donate penalties to charity? In many ways, we can argue that this should be the case. If the whole SLB and SLL market funnelled this capital into charitable foundations it would open up a whole new channel that would be very hard to manage, though. Maybe there are other ways of looking at this.

HALL It is one of the inherent flaws in sustainable financing. Either a bank benefits from the issuer failing to meet targets, or a charity does. If the borrower meets the targets, the charity misses out. Some might ask whether it is better to not meet a target, as the money goes to charity.

This is fundamentally problematic. It is well intentioned, as it is driving companies toward sustainability, but we must work this part out. Ultimately, the benefit to any company of sustainable financing should be that it increases its pool of investors, boosts its reputation through better disclosure and being a better corporate citizen, and, as a result, receives cheaper debt.

It should not just be a discount if the issuer meets targets. This is where we need to go further than the step-up and stepdown mechanism.