• In Q1 2022, sustainability strategy (23%), alignment with standards (16%), and sustainability Key Performance Indicators (KPIs) (13%) were the top three categories of focus for investors. 
• In this quarter, questions related to bond characteristics (9%) made it to the top 5, as investors were keen to understand the bond structure, choice of currency for an issuance, and the rationale behind choosing a particular labelled bond over a plain bond.
• While in the last quarter we observed questions around the choice of second party opinion provider (SPO), in this quarter investors wanted to know how issuers are improving their SPO ESG scores.
• Issuer’s plans for managing supply-chain ESG requirements (2%) were a popular concern with investors in this quarter as well. 
• Similar to the last quarter, issuer’s environmental risk assessments (2%) on assets were an important consideration.

Split of questions by different topics

Notes: Based on 106 questions and feedback received in Q1 2022 for deals in Utilities (water, electric distribution, and transmission), Transportation, Chemicals, and Real Estate sectors. “Others” includes Second Party Opinion (SPO), ESG assessment, Stakeholder relations, Sustainable finance framework, and Environmental/Governance policies categories. See the appendix at the bottom of this article for a full breakdown of what each topic includes.

Source: NatWest, ESG-related investor feedback for corporates in Q1 2022. 

Issuer focused

Sustainability strategy

• Please can you explain how you think about the trade-off between additional investment required for ESG? How will this be paid for?
• For Utilities: Have you performed a climate physical risk assessment on assets contained within the green bonds and if so, has there been a conclusion or action taken to ensure that the assets are resilient to the physical risks that come with climate change?

Alignment with standards

• Can you provide a general reflection on the new Environmental Act? How well-placed are you for present and future investments on any new environmental duties imposed?
• For Utilities: Can you confirm compliance with the principles of the International Finance Corporation (IFC) General Environmental, Health, and Safety Guidelines for construction site activities?
• For Real Estate: How does the company view an eligibility threshold of Leadership in Energy and Environmental Design (LEED) Silver or Building Research Establishment Environmental Assessment Method (BRREAM) Good as consistent with their strategy to rapidly address climate change and ESG policy goal to address climate change risk?

Business strategy

• You have historically paid higher penalties than peers. Is this something inherent to the region you operate in?
• What are the required alternative investments that are not green?
• What type of measures are you thinking about when improving customer service? Do you have a timeframe for improving customer service?

Instrument focused

Sustainability KPIs

• What will the impact report look like across these many different categories? Will you be reporting KPIs for all of them?
• For Real Estate: In practice how has the company differentiated whether an improvement is significant under the green buildings’ refurbishment component of the green bond framework (activities which ‘significantly improve’ energy or water efficiency)?
• For Transportation: Does the issuer’s ESG metrics consider discontinuation of old diesel vehicles (which can be captured within scope 3 emissions of the company)?

Bond characteristics

• What is the rationale for moving towards green projects versus social projects?
• For Chemicals: Please confirm why you have chosen to issue a Private Placement (PP) with an ESG-linked payment.

Sustainability projects/assets 

• Which categories in the sustainability framework will be featured in the allocation of the issue? To which category will most proceeds go?
• For Real Estate: What share of your buildings have solar?
• For Electric-Distribution: Are there any proceeds that will be allocated towards Hydrogen Distribution Infrastructure?

Management of proceeds

• Under the Framework, how much of your financing will be focused on future projects versus refinancing of existing projects?
  
• Will the impact report use of proceeds (UoP) split be the same for the future?

We’ll provide regular updates on frequently asked questions posed by investors, to keep you up-to-speed with their most current views. So, please do regularly check our Insights Hub for updates.

Alignment with standards

This includes all questions associated with (but not limited to) alignment with:

• The Sustainable Development Goals (SDGs)

• The EU taxonomy

• The European green bond standard (EUGBS)

• The Science Based Targets initiative (SBTi)

• The International Capital Market Association (ICMA) Bond Principles

• Regulations by industry-level bodies

• Other regulatory

Bond characteristics

This includes all questions associated with (but not limited to) the structure of the bond (tenor, pricing, etc).

Business strategy

This includes all questions associated with (but not limited to) issuer’s strategy apart from ESG.

Environmental/Governance policies

This includes all questions associated with (but not limited to) environmental and governance policies set by the issuer.

ESG assessment

This includes all questions associated with (but not limited to) environmental and other assessments conducted by the issuer.

Management of proceeds

This includes all questions associated with (but not limited to):

• the allocation and management of proceeds  

• timeframe for allocation

• committee responsible for the assessment and selection of projects

• process for review and approval

• ongoing alignment with the framework

Reporting

This includes all questions associated with (but not limited to):

• reporting of impact metrics 

• reporting of impacts, methodologies, and assumptions of indicators

• reporting of progress on KPIs or historical performance

• frequency of reporting

Second Party Opinion (SPO)

This includes all questions associated with (but not limited to):

• rationale behind choosing the SPO provider

• feedback by the SPO provider

Stakeholder relations

This includes all questions associated with (but not limited to):

• supplier compliance with ESG

• third-party compliance with ESG

• customer compliance with ESG

Sustainability KPIs

This includes all questions associated with (but not limited to):

• selection of KPIs

• impacts, methodologies, and assumptions of indicators

Sustainability projects/assets

This includes all questions associated with (but not limited to):

• projects eligible for use of proceeds

• eligibility criteria

• rationale behind projects evaluation and selection

Sustainability strategy

This includes all questions associated with (but not limited to) the issuer's broad ESG strategy (both current and future) or approach towards sustainability.

Sustainable Finance Framework

This includes all questions associated with (but not limited to) structure of the framework.

Verification

This includes all questions associated with (but not limited to) assurance and auditing for the framework.

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 2022 © NatWest Markets Plc. All rights reserved.