TMI | THE SOUTHAFRICANTREASURER 13 NEXT GENERATIONTREASURY Why is the market growing? ESG financing can provide specific funding to support a firm’s strategic ESG objectives. Both issuers and investors have recognised the importance that green bonds and sustainability-linked financing play in reaching these objectives. Commercially, ESG financing can also attract improved financing terms, a pricing premium or ‘greenium’ in comparison to conventional financing. Do issuers need to do anything differently? Yes. While many of the features of ESG financing are similar to those used on conventional bonds, the ESG related element of ESG financing introduces specific requirements on the issuer. In particular, there is an increased focus on external reporting, as issuers will be required to demonstrate how funds have been used or whether ESG related KPIs have been met. In addition, the issuer may need to adapt or establish a new suite of internal controls relating to ESG financing, as well as considering the accounting complexities and new financial reporting disclosure requirements. Key considerations for corporates Key considerations for corporates and ESG financing ESG financing can affect a wide range of business activities. It is important that corporates give careful consideration to the far-reaching implications, both pre- and post-issuance, to ensure success. Can any firmuse ESG financing? The broad nature of the ESG financing market means that a wide range of firms can access it, regardless of the size and nature of the underlying business, firms have sought to use ESG financing as a tool to support their progress towards meeting ESG objectives. How does an issuer define their approach to ESG financing? Issuers often publish an ESG financing framework. The framework tends to describe the nature of the issuer’s ESG financing strategy and how that relates to their corporate sustainability goals. In sustainability-linked financing, the framework may describe the ESGmetrics that will determine the coupon level and the system, processes and controls that have been established to govern performance. Many issuers also publish an annual statement covering the use of proceeds and key ESGmetrics associated with their financing.
RkJQdWJsaXNoZXIy MjczOTI1