We want to find out more about you. Please answer two quick questions to help us improve your website experience.

Take the survey

ESG news: Transition finance and the ICMA effect

11 December 2020

Dr Arthur KrebbersHead of Sustainable Finance, Corporates

View bio

Other insights

View more insights

2 minute read

The recent publication of the ICMA1 Climate Transition Finance Handbook – toward which NatWest contributed as a working group member – is expected to mark another seminal moment in the evolution of the sustainable debt space. Its guidelines (see Chart 1 below) provide an overlay to the existing sustainable debt instruments such as green bonds and sustainability-linked bonds.

What are the main implications for companies?

Proven ICMA “brand power”

ICMA has a proven ability to set the tone and direction of travel for the sustainable finance market, as seen in 2020 with its Sustainability-Linked Bond Principles. Therefore expect 2021 to be the year transition finance finally “matures” to a widely respected investment proposition. It’s likely that we’ll see the first issuers start to embed and actively reference the Handbook over the coming months with wording such as “this framework is aligned with ICMA’s Green Bond Principles and Climate Transition Finance Handbook”.

Make sustainable debt more representative

The corporate sustainable bond market has historically been skewed towards firms and sectors that are already quite advanced in their decarbonisation journey. The Climate Transition Finance Handbook should help attract a “broader church”:  it lowers the (perceived) barriers to entry for companies from harder to abate sectors by giving them clear disclosure guidelines that reduce the risk of greenwashing accusations. Such sector diversification should help the corporate sustainable debt space become more representative of the real economy.

Focus on company-wide analysis

It’s been argued that existing ICMA standards are relatively narrow in scope, particularly the focus on “use of proceeds debt” on a specific subset of projects. Many market participants are moving away from this “siloed approach” by also assessing the sustainability credentials of the overall company. The rollout of this  handbook continues this trend: the focus is more on firm-wide transition strategies rather than individual transition projects or metrics.

“Tell me where you’re going”

With the growing sense of urgency surrounding the implementation of the Paris Agreement commitments, there’s more openness towards financing firms that can have a meaningful marginal impact on the economy’s overall carbon footprint instead of consistently  excluding more “hairy” industries and backing “green angels” that are already in a good place. The Climate Transition Finance Handbook supports this trend, moving attention away from a firm’s steady state and towards its future plans.

CHART 1: Recommendations of ICMA’s Climate Transition Finance Handbook

Source: ICMA

1 ICMA International Capital Market Association

ESG
Sustainability


This article has been prepared for information purposes only, does not constitute an analysis of all potentially material issues and is subject to change at any time without prior notice. NatWest Markets does not undertake to update you of such changes.  It is indicative only and is not binding. Other than as indicated, this article has been prepared on the basis of publicly available information believed to be reliable but no representation, warranty, undertaking or assurance of any kind, express or implied, is made as to the adequacy, accuracy, completeness or reasonableness of the information contained in this article, nor does NatWest Markets accept any obligation to any recipient to update or correct any information contained herein. Views expressed herein are not intended to be and should not be viewed as advice or as a personal recommendation. The views expressed herein may not be objective or independent of the interests of the authors or other NatWest Markets trading desks, who may be active participants in the markets, investments or strategies referred to in this article. NatWest Markets will not act and has not acted as your legal, tax, regulatory, accounting or investment adviser; nor does NatWest Markets owe any fiduciary duties to you in connection with this, and/or any related transaction and no reliance may be placed on NatWest Markets for investment advice or recommendations of any sort. You should make your own independent evaluation of the relevance and adequacy of the information contained in this article and any issues that are of concern to you.

This article does not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell any investment, nor does it constitute an offer to provide any products or services that are capable of acceptance to form a contract. NatWest Markets and each of its respective affiliates accepts no liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this material or reliance on the information contained herein. However this shall not restrict, exclude or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed.

NatWest Markets Plc. Incorporated and registered in Scotland No. 90312 with limited liability. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. NatWest Markets N.V. is incorporated with limited liability in the Netherlands, authorised and regulated by De Nederlandsche Bank and the Autoriteit Financiële Markten. It has its seat at Amsterdam, the Netherlands, and is registered in the Commercial Register under number 33002587. Registered Office: Claude Debussylaan 94, Amsterdam, the Netherlands. Branch Reg No. in England BR001029. NatWest Markets Plc is, in certain jurisdictions, an authorised agent of NatWest Markets N.V. and NatWest Markets N.V. is, in certain jurisdictions, an authorised agent of NatWest Markets Plc. NatWest Markets Securities Japan Limited [Kanto Financial Bureau (Kin-sho) No. 202] is authorised and regulated by the Japan Financial Services Agency. Securities business in the United States is conducted through NatWest Markets Securities Inc., a FINRA registered broker-dealer (http://www.finra.org), a SIPC member (www.sipc.org) and a wholly owned indirect subsidiary of NatWest Markets Plc.

Copyright 2020 © NatWest Markets Plc. All rights reserved.