Everything's gone green

The idea of issuers being considered ‘universally green’ for investment purposes is something of a holy grail in sustainable finance. It remains a work in progress.

DAVISON While use of proceeds (UOP) issuance is limited by a borrower’s qualifying assets, is there any reason why all bank debt couldn’t be in sustainability format?

LAKE I regard this as the biggest fundamental challenge for the sustainable finance market. The bond market is for general corporate purposes, but companies that are already green have to go down the UOP route to access sustainable finance. This means tying funding to assets, which is the opposite of what we do in the bond market. This is a fundamental problem.

My concern is getting Mirvac Group rated green. We are net zero – we have achieved the target the Paris Agreement is all about – but it does not enable us to do anything in sustainable finance. We cannot do a bond for general corporate purposes based on our net zero achievement.

I have spoken to many different players in the market and there does not seem to be a solution to this, though I am sure the market will mature over time. For now, this is a challenge we have at Mirvac, having started down this path earlier than some others. We will end up doing a green bond or a green loan, but it is not something I feel 100 per cent comfortable with because of the asset linkage.

CHEN More attention is now focused on the corporate level and companies’ net zero strategies, rather than just on the assets in the pool. There is a lot of discussion about whether, at borrower level, having a net zero aligned strategy makes all the company’s financing green.

DAVISON Have other companies got to the stage of thinking about what financing looks like once they have achieved all their sustainability ambitions?

WASHER It will not be one size fits all so we will always have a multipronged strategy to our financing. Sustainable finance will keep evolving and it is not just going to be about emissions – there will be other points of focus as well. There will be various products across our lending facilities, but they might encompass different objectives.

We want to broaden the whole conversation because it should be about ESG [environmental, social and governance] in a very holistic manner.

DILLANE I agree that ESG will evolve to be essentially just another part of credit risk assessment. The UOP piece is really not a perfect solution because everything is funded from one pool – there is a pot of equity and a pot of debt on which the business is run, but it is one big pot at the end of the day. What really matters is a company’s ESG credentials and the associated risk.

WONG The market evolves to meet different types of organisational strategies. We have seen this already with what regulatory bodies are doing, including the TCFD [Task Force on Climate-related Financial Disclosures] now being compulsory in certain jurisdictions. The Task Force on Nature-related Financial Disclosures will be the next frontier. This is an evolving field and net zero is only one component of what needs to happen in the sustainability space.

CHEN When the green-bond market started, more than 10 years ago, there weren’t really established methods of determining whether or not a company as a whole was net zero aligned. The UOP approach was useful in beginning a dialogue on the climate strategy of the borrower. We are now moving to assessing the entire entity – the whole market is evolving. Ultimately, we will get to a point where we can make a call on whether a company is sustainable or not. In this case the debt that hangs off it will also be sustainable or not, irrespective of debt labelling approach.