Interview with Laurie Chesné, Head of Green & Sustainable Financing & Advisory EMEA, Natixis
Marc-Etienne Sébire (CMS): What are the main benefits of the Sustainability-Linked Bond market?
Laurie Chesné (Natixis): The Sustainability-Linked Bond market is a complementary leg to the Green and Social Bond markets, especially for issuers that do not have access to the use-of-proceeds formats, because they don't have enough CapEx or because their activity is not appropriate for that type of financing. The use-of-proceeds formats are still more developed on the bond market, but we are convinced that the sustainability-linked format, when well-structured, is very interesting and welcome. It provides forward-looking dimension and is more dynamic than the use-of-proceeds formats intrinsically linked to the nature of the assets or to the nature of the CapEx spending. On the other side, the sustainability-linked format is intrinsically linked to the sustainability strategy of the company, and this is where it is complementary. We are even keen to combine both formats when feasible, to really join the asset or capex plan view with the strategic view of the company.
M.-E. S.: But the growth of the sustainability-linked bond market is limited. Do you have an explanation?
L. C.: Some issuers were particularly impacted by the crisis, meaning that their 2020/2021, and sometimes 2022, figures are not representative, making it difficult for them to set targets that demonstrate their ambition. The lack of historical data or “business as usual” trajectory may be complicated to demonstrate ambition. In addition, some issuers, already equipped with SLB framework, are cautious before issuing any SLB due to public scrutiny and concerns expressed by some investors on this market.
M.-E. S.: Can you confirm that GHG emissions reduction remains the main KPI, and do you anticipate some sort of diversification in the coming years?
L. C.: I think the “must have” KPI will continue to be on climate for many market participants, because climate is everywhere, in terms of sector, initiatives and regulations, even if the materiality is not systematically the highest. When you speak to lenders, to investors and to companies, everyone is keen to have CO2 data in their own disclosure, so, it should be the KPI that the market will continue to focus on. Also, because the assessment methodology robustness is up there (e.g. mainly GHG Protocol), companies are well equipped to measure and set targets related to their carbon footprint. In a nutshell, yes, I think it will continue to be part of the KPIs included in SL instruments. However, we also see some diversification, with more and more discussion around biodiversity, water, and natural capital KPIs. We also discuss the social side with our clients, both the fair transition angle, in the relevant sectors, and the question of access and affordability as well as responsible sourcing. Clients are more ready than before for it, as they see that investors are keen to have some information around social aspects and maturity on measurement and integration is growing.
M.-E. S.: The availability of data, before and after the issuance of the bonds, is a frequent concern of investors. Do you see changes?
L. C.: Obviously, on climate, the data is more developed now, with sufficient depths. It’s the same for some of the social KPIs, because companies have been reporting on social data for many years and have historical data, because of the constraints and social regulation that every country has related to human resources and human capital. On the contrary, it is still difficult to have relevant data and robust methodologies for other KPIs such as access & affordability and biodiversity, although we start to see some data providers providing interesting methodologies and dataset. Also, we see that there is some concern by issuers to use external data in the KPI itself, as we've seen some years ago with ESG ratings: companies have a lack of control, for example, on the methodology, it is dependent on the provider, and the underlying improvement levers, making it complex to use it as a relevant KPI and to set targets.
M.-E. S.: What about the ambitiousness of the targets? Is it challenged?
L. C.: The loan market is where I see a huge evolution from the lenders. Some years ago, we had few questions during the syndication phase, because only a limited number of banks were equipped in terms of ESG expertise. Now, I think that all banks are in capacity to assess and challenge the ESG structures and their ambition. And it's something new for clients: they are challenged by their banks on ESG strategy, which I think is good.
It was already the case from investors, and issuers were challenged since the launch of SLBs three years ago. When we connect clients with SLB investors, issuers are usually challenged on their level of ambition and the consistency with their strategy. They need to demonstrate that the target is at the right level. The question is systematically: is it enough?
M.-E. S.: Does it changes the way you advise your clients?
L. C.: Helping companies on their sustainable financing structuring, we encourage our clients in having a more and more high-level approach. I mean not to focus only on a given transaction, but really to take a step back, encompassing the sustainability strategy itself. Considering that there is “one company, one CSR strategy”, we consider the strategy as the starting point to advise on how we can reflect it everywhere and in the best way in the financing policy of the company. Our clients are generally sensitive and responsive to our approach: “how I can include as much as possible my ESG features in my financing features?”. This merger between financial strategy and ESG strategy is now more and more concrete. Our first challenge is usually to decrypt and leverage and/or advise on the CSR strategy, and then try to bridge the gap between finance and sustainability with appropriate sustainable financing solutions: from debt-to-equity solutions, and from short term to long-term perspective.
Read more interviews:
- Interview with Benoît Rousseau;
- Interview with Laurie Chesné, Natixis;
- Interview with Adam Parker and Catarina Martins.
