Climate Risks and Opportunities: What debt investors expect from issuers

According to NatWest’s Global Fixed Income Investor Survey, it is becoming more important that issuers clearly report on their climate-related performance and be transparent about their transition plans, to retain and attract investors who are trying to meet their own ambitious decarbonisation targets.

Key findings include:

Fixed income investors are confident in their net-zero strategies: 71% of surveyed investors say their organisation has made a net-zero commitment. Just over half of these aim to achieve net zero by 2050. However, there is a lack of consistency in implementing these strategies, and it remains largely unclear what these net-zero targets entail, and which tools are being used to measure progress. Frameworks such as the Net Zero Asset Managers Initiative (NZAMI) are helping fund managers validate their own progress towards net zero, but these may not always mesh with the reporting standards used by businesses.

Evaluation of climate physical risk is less advanced: Only 18% of respondents say they consider climate physical risk for all corporate investments. Flooding, changing weather patterns, and the expansion of tropical pests and diseases into temperate zones are the most relevant physical risks identified.

Data is abundant, but insight is in short supply: Only 15% of respondents strongly agree that they have enough emissions data to track progress against their net-zero targets. And emissions data alone may not provide an holistic view when it comes to understanding a company’s climate risk profile. “Transparency, disclosure and real-time information; that’s really the biggest challenge we face right now,” says Stephanie Maier, Global Head of Sustainable and Impact Investment at Global Asset Management (GAM).

Investors want more transparency for all sustainably structured instruments: Investors prefer different sustainability structures to reach their net-zero goals, but the assessment of an issuer’s sustainability strategy and transition profile is critical for both sustainable and conventional instruments. “We want to buy into credible stories and credible actions,” says Xuan Sheng Ou Yong, Green Bonds & ESG Analyst at BNP Paribas Asset Management.

What should issuers do to meet investors’ expectations?

Based on the report’s findings, our NatWest ESG specialists – Caroline Haas, Head of Climate & ESG Capital Markets; Dr Arthur Krebbers, Head of Corporate Climate & ESG Capital Markets; and Jonathan Peberdy, Head of Capital Markets – recommend five key actions for issuers:  

Build climate transition considerations into the core business strategy: Issuers must recognise that investors are starting to consider net zero as a core commercial imperative to balance and optimise their risk and returns. Therefore, investors will want to see transparency disclosures around climate performance and strategy at the corporate level.

Engage with investors on their climate decision-making process: This could be done through dedicated roadshows, surveys, annual general meetings, or other methods to allow issuers to better understand the data that investors are using and how external factors impact the investors’ view and vice versa. 

Conduct climate physical risk assessments within your company and across supply chains: While not on investors’ priority lists yet, physical risk assessments may become an increasingly important area of focus, alongside transition assessments. 

Continue to improve disclosures on qualitative aspects of climate plans and ESG performance: Consider non-emissions indicators and qualitative information such as your climate governance and risk management approach and any other forward-looking areas of progress across the organisation, including published detail around how any climate targets will be reached.

Connecting sustainability strategy to green or sustainability-linked bonds is essential: Investors will want to see how projects in use of proceeds structures, or targets within sustainability-linked bonds, are linked to the business strategy in a clear and logical way. 

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