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Sustainability

Sustainability strategy remained key focus for investors in 2022

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 2022, our insights have been gathered via corporate issuance from sectors such as chemicals-specialty, consumer, electric, real estate, real estate investment trusts (REITS), transportation, and utilities.

Sustainability strategy remains the prominent focus area for investors, as they continue to value transparency on an issuer’s broader sustainability strategy and its overall impact on cash flows, along with a granular focus on competitor actions and initiatives considered for customer reception towards sustainability.

I. Key Themes

  • Sustainability strategy remains the most frequently asked-about topic (26%), as investors are interested in issuer-level information regardless of whether the bond is conventional or in the green, social, sustainable, or sustainability-linked format (GSS/S).
  • For sustainability-linked and GSS use-of-proceeds bonds, investors go beyond the frameworks and disclosures to ask about sustainability Key Performance Indicators (KPIs) (19%), and sustainability projects (14%) as the 2nd and 3rd most discussed topics.
  • Share of questions regarding sustainability KPIs increased by ~6% compared to 2021, with varied questions targeting Scope 3 offsets, energy performance certificate (EPC) targets for buildings, and Science Based Targets initiative (SBTi) validation for emissions KPIs
  • Share of questions about bond characteristics increased by ~9% compared to 2021, with more investors demanding a clear rationale for using a particular label for issuance and having meaningful step ups

Split of questions by different topics

Notes: Based on 394 questions and feedback received in 2022 for chemicals-specialty, consumer, electric, real estate, REITS, transportation, and utilities sectors. “Other” includes ESG ratings, stakeholder relations, sustainable finance framework, ESG assessment, and verification categories.

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

 

Percentage of questions under each topic: 2022 and 2021

Notes: Based on 394 questions and feedback received in 2022 for deals in chemicals-specialty, consumer, electric, real estate, REITS, transportation, and utilities sectors and 380 questions and feedback received in 2021 for deals in chemicals, consumer, education, finance, housing association, property trust, real estate, REIT, transportation, and utilities sectors.

Source: NatWest, ESG-related investor questions and feedback for corporates in 2022 and 2021.

II. Example Questions and feedback

Issuer focused

Sustainability strategy

  • Utilities: Does it remain your key focus to reduce emissions from all the spheres of operations (like scope 3)?
  • REITS: How does the company view an eligibility threshold of Leadership in Energy and Environmental Design (LEED) Silver or BREEAM (Building Research Establishment Environmental Assessment Method) – ‘Good’ as consistent with the company’s strategy to rapidly address climate change?

 

Instrument focused

Sustainability KPIs

  • REITS: In practice how has the company differentiated whether an improvement is significant under the green building refurbishment component of the green bond framework (activities which ‘significantly improve’ energy or water efficiency)?
  • Utilities: Given all references to 2025 and the importance of near-term action i.e. over the next 3 to 5 years across frameworks, has the issuer considered an interim trigger date (2025)?

Sustainability projects

  • REITS: About 60% was allocated to acquisitions of logistics buildings with green building certifications. From an “additionality” perspective, it’s difficult to see any additional positive environment benefits generated from acquiring an already existing green building. Did you do any work to improve these green buildings after acquiring them?
  • Consumer: Are the projects related to food waste, plastic, alternative protein, and to overarching targets at the company level?
  • Utilities: What is the expected Use of Proceeds allocations? Will the issuance be 100% refinancing of existing projects?

Alignment with standards

  • REITS: What percentage of capex is aligned to the EU taxonomy?
  • REITS: What percentage of your current portfolio has highly rated environmental certifications?
  • Consumer: Related to the Science Based Targets initiative (SBTi) Net Zero target, has the company looked at the Forest, Land and Agriculture (FLAG) methodology?

Bond characteristics

  • REITS: Do you expect to achieve better pricing with a sustainability-linked private placement versus a conventional private placement?
  • Utilities: What are your future issuance plans? How do you see the future currency split going forward, and the broad split on sustainable versus vanilla?
  • Utilities: Given there is a social category in the framework, do you have any plans to issue a sustainable or social bond in the future?

Reporting

  • Utilities: Regarding new projects, does the issuer disclose details on the planned strategy regarding allocation?
  • REITS: Can you comment on impact metrics reporting? It appears this is only at the portfolio level not at individual asset level.
  • REITS: How often will you report on the KPI development during the lifetime of the bond? Will this be externally verified and, if yes, by whom?

 

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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