No hiding from transparency

ESG regulation, greenwashing risks and ESG disclosures were some of the key topics covered during AFME’s European Leveraged Finance Conference, which – now in its 17th year – brought the leading names in the European high yield and loan markets together to network and debate. 

Key take aways from the panels included:

ESG regulations: finally getting the sustainability reporting right

  • ESG regulations, especially the EU Taxonomy, are paramount for high yield companies to show investors how their businesses focus on ‘sustainable’ activities. However, high yield issuers may not yet have the resources to report as comprehensively against the EU taxonomy and other regulations, such as, the Corporate Sustainability Reporting Directive (CSRD). Eventually, these companies will have to comply, hence there are expectations that high yield issuers will begin to ramp up sustainability disclosures ahead of the regulations coming into force.
  • Current regulations are focused on investors, but some requirements will trickle down to investee companies, even high yield issuers. For example, some of the Sustainable Finance Disclosure Regulation (SFDR) disclosure requirements ask investors to report on principle adverse impacts (PAIs). However, investors are already saying that finding data for these required SFDR Article 8 and 9 funds’ disclosures is challenging. Looking to the future, the panellists agreed that the EU will focus on the implementation of the measures adopted and/or announced to date (EU Taxonomy, SFDR, etc) rather than publishing new major legislation, or any specific legislation for the high yield market. The panel members acknowledged that the amount and sequencing of regulations may be confusing for high yield issuers, but also pointed out that regulations should help direct capital towards the transition to a low carbon economy.

Expectations for ESG disclosures: transparency, transparency, transparency

  • Investors demand increased transparency of high yield issuer’s ESG performance, both qualitative and quantitative. At the same time, improved disclosures can help high yield issuers mitigate greenwashing risks. While, as mentioned above, there may be a lack of resources to support ESG reporting, high yield issuers can have a bias towards transparency and material ESG topics that affect their ‘credit’ directly. Qualitative disclosures around the current and future status on HY issuers’ ability to report quantitative data and set targets may become even more important to manage investors’ expectations.
  • The lack of sufficient disclosures may affect high yield issuers’ ESG ratings. There’s an additional rationale for high yield issuers to improve transparency and the level of detail (e.g., explaining the nuance) on quantitative metrics (e.g., boundary of what is measured, what can’t be measured and why and when the gap will be rectified). More information for third-party ESG rating agencies can help them deliver more complete ESG ratings. This information can also support with ESG-labelled issuances. For sustainability-linked structures, Second Party Opinion (SPO) providers are looking for the same traits as for Investment Grade issuers: that the Key Performance Indicator (KPI) is material (and there is explanation for why), and the target is ambitious.

The sustainable finance market for high yield issuers: winds of change

  • One year on, the high yield market overall has changed. While strong investor demand in 2021 encouraged high yield companies to think about Green, Social, Sustainability and Sustainability-Linked (GSSS) (labelled format) bonds, less than 12 months later the same firms are thinking very carefully about whether to tap into the markets, and if yes, which window to choose. However, in real terms, there has been a smaller drop in global GSSS bond issuance compared to conventional issuance (23% year-on-year versus 27%; mid-Sep data), meaning that issuers are still looking to do financings in a labelled way. For high yield issuers, the sustainability-linked structure remains most relevant and has grown year-on-year.
  • High yield issuers will continue to use the sustainability-linked structure as they don’t need to identify future spend, and such a structure more easily applies to all sectors. Hence there will be an increased investor focus on the ESG journeys of high yield issuers to contextualise metrics and targets. Considering the lack of resources and available data, qualitative targets (ideally a Science-Based Target initiative (SBTi) approved target) are an option for high yield issuers, as long as they can explain why such qualitative targets are appropriate. While the financial impact from ratchets may be minimal, reputational concerns is important to high yield issuers.


The conclusion from the conference: sustainable finance and sustainability disclosures have both seen rapid progress and have become an important part of the high yield market. But high yield companies need to do even more work to ensure that investors have a clear understanding of their ESG performance thus far and the future direction of travel.

Want to know more?

If you want to discuss any of the topics raised at the AFME conference, please reach out to one of our specialists: Tonia Plakhotniuk, Vice President, Climate & ESG Capital Markets, or Dan Bressler, Vice President, Corporate Climate & ESG Capital Markets.

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 supervised by De Nederlandsche Bank, the European Central 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. 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 © NatWest Markets Plc. All rights reserved.

scroll to top