Investors are missing short-term investments
They are looking for sustainability
In 2022, investors have collectively committed to invest more than $110 trillion in Assets under management (AuM), under the UN PRI principles. We are witnessing a fast-growing number of investors such as Amundi, AXA Investment Managers, Mirov who are looking for more responsible and credible investments.
This demand is observable in all debt markets, from fixed-income to money markets. Investment behaviors from money market funds (MMF) are rapidly changing to integrate ESG into their strategy.
Investors are increasingly seeking sustainable options for their cash management
Thomas Callahan, Head of BlackRock’s global cash management business
Fitch and CMDportal hosted a webinar event about the latest ESG developments in the short-term markets to discuss major trends in green and sustainability-linked short-term debt instruments such as CP. The event gathers Rabobank and SNCF case studies for issuing ESG commercial papers.
ESG Commercial Paper is critical to investors’ strategies
Investors have increasing motivation to encourage the integration of the ESG criteria in all debt investments with the EU regulation package under implementation. This is no exception to Commercial Pape and currently CP markets are more standardised and very liquid debt instruments.
By issuing an ESG CP, investors will benefit from the same level of transparency and contribute to positive sustainable impacts.
This represents a huge opportunity to access more sustainable debt investments.
How to issue Sustainable Commercial Paper?
Commercial Paper is eligible for both, use-of-proceeds and KPI-linked formats. Consequently, this means the funds from short-term debt instruments can also be used to finance sustainable projects, purchase assets, or achieve the company’s targeted impact.
Different labels and formats exist
Use of Proceed format – the debt is used to finance in part or in full, new and/or existing eligible projects and assets.
- Green to finance projects and activities that benefit the environment.
- Social to finance projects achieving positive socio-economic benefits
- Sustainable to finance projects that bring both of these benefits
KPI-linked format – the debt is linked to the achievement or not of one or more Key Performance Indicators (KPI)
The KPI could be related to the Environmental, Social, or Governance dimension and should describe ambitious and tangible sustainable targets at the company level. The objective of ESG debt is to raise debt funding for eligible investments or targets with clear benefits.
Valuable case studies for issuing sustainable CP
View all the CP issuers that have issued an ESG CP program or ESG CP issuance
In the global CP markets, issuers have already set up ESG CP programs with links to the ESG framework.
Project-based CP programs (UoP)
- Vasakronan issued the world’s first green ECP in 2018 and mentioned CP in its framework.
- SNCF issued its first green ECP in Oct 2021 and set up a Green Commercial Paper Framework
- Fabege has published a dedicated Green ECP programme to finance eligible green proceeds
- Daimler and Citycon updated their Green Finance Framework to use CP for green debt financing
- Munchener Hyp is a bank financing property and has used green CPs to refinance green loans.
- IDB invest diversified its ESG debts offering beyond bonds to provide investors with ESG CPs.
- Credit Suisse arranges the industry’s first green ABCP note, raising USD 200 million for Alpine
Target-based CP programs (KPI-linked)
- ENEL is an energy company that issued the world’s first $6 billion ECP programme in 2019, linked to SDG7 KPI
- LafargeHolcim linked their $3 billion ECP programme with their best-in-class ESG risk rating performance
- Iberdrola expanded its ECP programme by €2 billion and is introducing ESG indicators
- These players are some of the early movers on the ESG-linked market.
In the French market, the Paris marketplace launched an ESG NEU CP – NEU MTN Working Group, set up by ACI France AFTB, AFTE, and AFG, with the participation of Banque de France. They have released an IM Template for ESG issuances on the NEU CP – NEU MTN markets available on Banque de France’s web site.
Onbrane, the 1-stop solution for ESG debts
We have launched our ESG+ module, available for all market participants (issuers, dealers, brokers, investors, rating and SPO providers, etc) to simplify all processes related to ESG debts.
- We centralize all your information in one secure place. Issuers can upload framework, SPO reviews, impact and allocation reports and other relevant documents (CSR strategy, impact methodology, etc.).
- We make it easy to connect the framework to the CP programmes with just a few clicks. Be transparent and save time with your counterparts when issuing and negotiating your green CP or any other debt product.
- We streamline all reporting processes to report on allocation and impacts measured by using market best practices and the ICMA Harmonized framework for impact reporting.
- Finally, we enhance communication and collaboration between all stakeholders. Everyone has access to the framework, can comment, ask questions and validate all key information. Thus, issuers increase their visibility to investors and dealers on the platform.
What does CP bring to ESG issuers?
Diversify their debt products
Treasurers consider CP as a sustainable diversification debt product option that provides flexibility in financing for their sustainable projects and activities. Concretely, green CP could finance operating expenses such as maintenance, R&D and other short-term costs related to green assets
Many issuers like ENEL, Alliander, SNCF, Vasakronan are issuing green CPs as an additional instrument to green Bonds
Attract more investors
In fact, sustainable debt instruments have demonstrated to attract a larger investor base with new engaged investors. This is a great way to build trust with market participants.
“New green debt instruments means we are offering the capital markets further possibilities to actively pursue a lower environmental impact.”
Vasakronan’s group treasurer, Thomas Nystedt
Enhance their reputation
Green debts are an excellent way to access better liquidity for eligible activities and projects. Most sustainable issuances have been oversubscribed to investors.
By supplementing their funding sources with green bonds and medium-term notes, Commercial Paper is a new instrument to gain a competitive edge and improve your visibility across debt markets.
The future of financing will be sustainable
To sum up, the interest of investors for ESG Commercial Paper is on the rise. Regulation is also evolving in this direction and the market is adopting sustainable debt products in all debt asset classes.
Today, our ambition is to build a better, more sustainable primary debt market. We believe there is an important edge in including Commercial Paper in the ESG debt instruments available, alongside Bonds.
