Integrating sustainability in financing is now the standard. 2021 was the year when Danish companies kicked off ESG-linked financing on a broad scale. Today, the majority of long-dated corporate credit facilities contain a sustainability link. At the conference Cash & Treasury Management 2022 on 1 September, some of the early adopters will share their experiences with sustainability-linked facilities as well as practical learnings and advice.
Leading up to the event, here are four key trends currently shaping the developments in sustainable finance from Nordea’s Sustainable Finance Advisory team.
1. ‘Net-Zero’ targets are becoming the norm
Of the list of new buzzwords to enter the sustainable finance lingo in the past year, the concept of “net zero” is probably at the top of the list. To stay on the good side of investor sentiment, companies are committing to “net-zero” carbon targets, typically with a deadline around 2030-2050. Many are committing to targets under the Science-Based Targets initiative (SBTi), which are aligned with the latest climate science. We expect this trend to continue, given that science-based targets fit like a glove with the burgeoning market for sustainability-linked financing (both bonds and loans).
2. Greenwashing takes centre stage
With a number of high-profile greenwashing cases in recent months, the market now pays attention when such allegations are raised. This dynamic is likely to persist, and even strengthen, during 2022 as regulator scrutiny and investor ESG skills pick up. Several areas seem ripe for potential misguidance or exaggeration, such as with the explosion of “net-zero” commitments by the corporate sector or asset managers’ sustainable investment claims. That said, it is important to ensure that scrutiny and accountability (both important for market integrity) do not stifle innovation and bold ambition.
3. Sustainability reporting to harmonize
Another key, long-awaited development is the global harmonisation around sustainability (or non-financial) reporting standards. Previously, the broad array of voluntary initiatives left the market with uncertainty and a lack of clear, overarching guidance. Enter the International Sustainability Standards Board (ISSB), the newly formed standard-setting board focused on sustainability reporting and hosted by the esteemed International Financial Reporting Standards (IFRS) Foundation. One of numerous reporting-related developments, the ISSB aims to create baseline sustainability disclosure guidelines.
4. Taxonomy goes beyond ‘climate’
The EU Taxonomy is the centrepiece of the European Commission’s broader work on sustainable finance. After years of drafting, discussing, consulting and amending, the Delegated Acts on Climate were adopted into law by 1 January 2022. Looking ahead, the Taxonomy is also set to expand beyond climate to other environmental objectives (water, circularity, pollution and biodiversity). This will provide for a more holistic assessment of sustainability and widen the scope for many companies previously not eligible for the Taxonomy. Finally, the European Commission is due to report on how the Taxonomy can be extended to cover social objectives and activities that are significantly harmful to environmental sustainability.
Come and hear first-hand from companies working with sustainability financing
We have gathered a strong line-up of Danish companies, including Ørsted, Leo Pharma, Pandora, and DSB for the sustainable finance panel at Cash & Treasury Management 2022. This year the conference will be held in the exclusive setting of Hotel d’Angleterre. Read more about the conference here and sign up here.