Not green becomes brown

As environmental, social and governance (ESG) integration becomes ever-more mainstream on the buy side, issuers face something of a sustainability arms race. It is no longer sufficient to sequester a limited supply of green assets for labelled issuance – they have to walk the talk across their business and the whole debt book.

DIXON Is there a growing perception that issuers not engaged with sustainability-themed issuance are by definition ‘brown’? What are the consequences?

GIFFORD As capital shifts toward impact and ESG-aware funds, if you are not meeting the increasing disclosure standards you are locking yourself out of a growing portion of the bond market. It is important for us to maintain access to the most diverse and wide investor universe possible. This is a big driver, as well as wanting to be at the table and at the forefront of innovation and development. We also want to help set standards, so we see our role as a leader in the market.

DIXON We also engage with companies from an equity point of view, so we see both sides of the fence in engagement. One of the things I like about ESG is that when an entity sets targets they become instilled across the organisation, from frontline staff through to corporate treasury. Very few other things can achieve this.

We always say reporting on these metrics and setting targets is a positive reason for thinking about sustainability in a business. Other elements are harder. I think setting sustainability-linked loans can pull an organisation together but we also hear from some issuers that it is something they feel they need to do if they are to maintain access to as wide a range of stakeholders and bondholders as possible. Europe is at the pointy end of this development.

MOTTOLINI This was certainly one of our drivers for doing a sustainability-linked bond (SLB). We could see in our recent engagements with Australian and offshore investors that many questions were coming on what we are doing in ESG. It made sense for us to proceed down the SLB path because we have to demonstrate what we are doing in this space to ensure continued access to the market and as wide a range of potential bondholders as we can.

Another thing I have been reflecting on since we did the SLB transaction is the role of the assurance provider. The relevance relates to the question of how possible it is to achieve standardisation. The assurance provider ensures transaction targets are met