Sustainable Finance Re-examined

During the course of 2023, scepticism within treasury teams about the benefits of ESG-labelled debt (otherwise known as “ESG fatigue”) seemed to become quite widespread. Some corporates decided against ESG labelling their loans and/or bonds, and we are aware of a number which are weighing up whether to do so.    

The reasons for this are business and context-specific, but there are some common themes.  These include the costs involved in structuring and administering sustainable debt terms when balanced against the absence of any meaningful price savings.  Businesses also may have concerns about risk exposure as the contractual commitments required to attract a sustainability label evolve and become more onerous.  

Debt market conditions are also a factor for some.  In a year punctuated by global election activity, refinancing and issuance windows are constrained.  Companies looking to come to market in what is left of H2 24 may conclude that timetables simply do not allow for the negotiation of sustainability terms.

In our latest Treasury Insights article, we re-examine in detail the role of ESG-labelled finance in corporate capital structures in light of these developments.  What are the drivers for labelled issuance and how have they changed?  What are the key challenges from the borrower/issuer perspective and what can be done to open up the market?  And importantly, what does this mean for the future of sustainable finance?