ESG Transformation of the Fixed Income Market

Issuers must first define what ‘sustainability’ means to their organisations, and the extent to which they wish to entrench it within their organisational philosophy, business operations, financing strategies and business structure. Developing and elucidating a coherent corporate sustainability strategy is likely to allow the entity a consistent use of proceeds, thus helping create a credible story for capital markets.
 

"Business as usual"

Under certain circumstances, shifting towards a more sustainable strategy can be a big undertaking: the nature of an industry can itself be an impediment for entities to embed sustainability into their operations. Those in GHGintensive sectors or with a very fragmented value chain can find it very costly to do so. Furthermore, players finding themselves in a financially precarious position will face difficulty shifting towards a long-term sustainable strategy.

As a result, a considerable part of the economy is still considering ESG from a risk and regulatory perspective. However, entities that make no adjustments to their operations, governance or organisational structure may find themselves at a disadvantage. Therefore, GSS bonds should still be considered as a tool to slowly embark on a sustainability transition.
 

"Selective approach"

A growing number of entities try to seize the business opportunities that have emerged from the ESG revolution. Not committed to rearranging their organisations around an overarching sustainability strategy, companies overlook the importance of putting in place the necessary structures and protocols. Although they may profit from using GSS bonds for specific projects in the short term, entities using a selective approach will not fully reap the benefits of a sustainability transition. 
 

"Sustainable leaders"

What defines a sustainable leader is their ability to transform their entire organisation (financing, operations, etc.) to be aligned with the evolving needs of society. Thanks to this approach, they can take advantage of GSS bonds as a standard method to raise financing for projects that will contribute to the future success of the entity. In the long run, we strongly believe that adopting this approach will position players at the forefront of today’s changing world, guaranteeing future prosperity for the entity as well as society.

Once an entity has decided to which extent they wish to embed sustainability within their organisational and operational DNA, they must then select which type of sustainable bond to issue. The selection process varies largely from issuer to issuer, and is largely determined by their specific needs, objectives and capabilities – taking into consideration pre and post issuance processes.

Once the type of bond is selected, players must then determine suitable projects that are aligned with both their long-term goals, current financial situation, and existing regulation. For companies with multiple economic activities, among which non-sustainable ones, the issuance of GSS bonds to finance sustainable activities or to transition to more sustainable activities will be one of the finance management instruments of CFOs in the near future.

Based on the extent to which the organisation is willing to adapt its funding strategy, issuers must find their own balance between seeking partnerships with external players and developing internal capabilities. The upskilling process – necessary for an efficient and scalable GSS bond issuance process – should be regularly examined in order to keep adapting an issuer’s bond issuance to the required standards. 

Trust encompasses the data challenge, risk monitoring and transparency requirements associated with GSS bond issuance. All of which can result in an improved brand management strategy where the issuance of GSS bonds can enhance issuers reputation, build a constructive relationship with stakeholders, and create long term value.