Sustainability

Investors look for clarity on issuers’ ESG ratings and performance ahead of issuance

To help companies better prepare for investor meetings, we collate feedback and key questions asked by investors during NatWest Markets-led deal and non-deal related roadshows. For Q1 2023, our insights have been gathered via corporate issuance from sectors such as automobile manufacturers, communications, electric-transmission, engineering / construction, transportation, and utilities.

I. Key Themes

  • Investors placed an emphasis on taxonomy alignment and emissions reported figures. They were also keen to understand approaches used for reporting. 
  • For sustainability projects (8%) the focus was on the split of financing and refinancing for inaugural issuers. Repeat issuers were asked about past allocations to projects (as a reference) and whether there would be a change in allocation for the new bond.
  • A desire to avoid impacts from negative press was observed. There was clear demand to address controversies, such as human rights violations, and to confirm that Use of Proceeds (UoP) would not go towards anything that would violate sanctions.
  • For conventional bond issuers, investors wanted to understand the rationale behind the choice of conventional format over labelled formats e.g. green or sustainability-linked.

Split of questions by different topics

Notes: Based on 132 questions and feedback received in Q1 2023 for automobile manufacturers, communications, electric-transmission, engineering & construction, transportation, and utilities sectors. “Other” includes ESG ratings, verification, ESG assessment, sustainable finance framework, and alignment with standards categories.

Source: NatWest, ESG-related investor questions and feedback for corporates in Q1 2023

Percentage of questions under each topic: Q1 2023 and Q4 2022

Notes: Based on 132 questions and feedback received in Q1 2023 for automobile manufacturers, communications, electric-transmission, engineering & construction, transportation, and utilities sectors and 31 questions and feedback received in Q4 2022 from electric-distribution sector. “Other” in Q1 2023 includes stakeholder relations, ESG ratings, verification, ESG assessment, sustainable finance framework, and alignment with standards and in Q4 2022 includes ESG ratings and ESG assessment.

Source: NatWest, ESG-related investor questions and feedback for corporates in Q1 2023 and Q4 2022.

II. Example questions and feedback

Issuer focused

Sustainability strategy

  • Utilities: What is the risk that gas assets become stranded in a couple of decades, given the UK’s net zero commitment? 
  • Electric-Transmission: How much of your revenues comes from nuclear power?
  • Electric-Transmission: Do you plan to build a ‘green curve’?
  • Utilities: In terms of your ability to accommodate hydrogen in the network, how ready are you? What is your cost to upgrade?

Stakeholder relations

  • Utilities: Is the cost of developing hydrogen passed through to the customer? 
  • Utilities: How often do you have ‘wage bargaining’ discussions with trade unions? 
  • Engineering & Construction: What is your strategy regarding the retention of global employees?


Instrument focused

Sustainability KPIs

  • Engineering & Construction: What does the Scope 3 denominator include? Does it include upstream/downstream?
  • Utilities: Do you have data showing your emissions per km of network?

Sustainability projects

  • Electric-Transmission: What will the split be, between financing and refinancing?
  • Utilities: How would capturing ‘fugitive emissions’ feature in your allocation of proceeds? i.e. the % in the allocation?

Bond characteristics

  • Communications: How many more green bonds could you issue?
  • Engineering & Construction: Did you look at the UoP structure? Why did you choose a sustainability-linked bond (SLB) instead of UoP?
  • Engineering & Construction: The second-party option (SPO) provider commented that the key performance indicator (KPI) does not account for the sustainability impact of issuer’s projects and services which are material. Is there potential for this to be included in a future version of the framework?

Reporting

  • Automobile Manufacturers: Has (the issuer) put anything out ahead of their issuance to address a downgrade in their MSCI rating?

III. Appendix

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 (tenor, pricing, etc.) and the choice of the bond type (e.g. conventional, green, sustainability-linked, etc.). 

ESG assessment

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

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

ESG ratings

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

  • Rationale behind choosing the SPO provider
  • Feedback by the SPO provider
  • ESG ratings reports

Stakeholder relations

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

  • Supplier 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

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

  • Projects eligible for use of proceeds
  • Eligibility criteria
  • Rationale behind projects evaluation and selection
  • Management of proceeds

Sustainability strategy

This includes all questions associated with (but not limited to) the issuer’s broad ESG strategy (both current and future), approach towards sustainability, and firm-wide policies.

Sustainable finance framework

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

Verification

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

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.

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.

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