ESG and sustainable financing opportunities in Canada
Environment, Social and Governance (ESG) has moved from optional to essential as a factor contributing to the success of businesses in Canada and around the world. The ESG market is already huge in Europe and is rapidly gaining a foothold in Canada, in part thanks to sustainable financing opportunities.
BLG recently hosted the first of its 2021 Environmental Social Governance Thought Leadership webinar series, “Sustainable Finance in Canada,” with attendees discussing Green Bonds and Green Loans, Social Bonds, and Bonds and Loans. linked to sustainable development. The panelists were:
- Ian howard, Global Business Director, Sustainable Finance Solutions, Sustainalytics a Morningstar Company
- Dana krechowicz, Senior Director of Sustainable Finance, HSBC Bank Canada
- Tiffany murray, Partner, Financial Services, BLG
The moderation of the discussion was:
The session began with an introduction by Tiffany Murray on various terms in sustainable finance, including:
- Green bonds / loans are those whose profits must be devoted to “green” or sustainable initiatives. Reports are needed to track the use of funds.
- Social bonds / loans raise funds for projects with dedicated social benefits.
- Sustainability obligations use their recipes for a combination of environmental and social benefits.
- Sustainable development bonds / loans: The use of the product is not a determining factor in classifying these bonds / loans as sustainability bonds / loans. The product can be used for general business purposes, but goals and measurable results are created (eg, increased energy efficiency or decreased water use). The borrower’s performance against these targets is linked to the interest rate of the bond / loan.
What is the current landscape for sustainable finance?
- The ESG market is still in its infancy – just eight years ago, there were hardly any green bonds available.
- Over the past year, there has been considerable growth and interest in structures related to sustainable development.
- The demand for sustainability loans is highest in Europe, accounting for almost 71% of the market in 2020. The Americas as a whole (including Canada and the United States) accounted for 16% of the market for sustainability loans. durability .
- When a business is not eligible for green, social or sustainable bonds, sustainability loans come into play. Sustainability loans are a way for companies to move away from more intensive activities. carbon by setting specific objectives to reduce their impact on the environment.
What are some of the biggest sustainable financing opportunities for Canada in the coming years?
- A great opportunity is to use products related to sustainability to attract capital for crucial projects in indigenous communities.
- The Canadian government has announced its intention to create regulations for support the development of the national carbon offset market. There is growing interest in how carbon offsets play into financing structures.
- Similar to what is happening globally, there is a greater emphasis in Canada on the tangible results and impact of green funding. These benchmarks are easier to measure and report in a more quantifiable way than in the past, and communicate to the market the real impact and benefits of green finance.
How have the key indicators used to assess ESG performance changed over time?
- Due to advances in artificial intelligence (AI), Dana Krechowicz said companies such as Truvalue Laboratories provide more “momentum scores, which are more like a real-time look at a company’s market sentiment.” These scores take into account a company’s reputation based on news stories and other sentiment indicators.
- According to Ian Howard of Sustainalytics, the way the company assesses ESG initiatives has become more standardized and accessible, with a notable increase in usable data.
- Asset-level data, which examines a company’s assets, is another development. This approach explores a company’s physical assets, the amount of carbon emissions it produces, and its exposure to physical climate risk.
- Over the next few years, Ian believes governments will begin to demand more mandatory disclosures on environmental and ESG-related information.
What future for sustainable financing opportunities?
- Disclosures will become more and more standardized and governments will be more involved in their implementation. This will allow direct comparisons between companies in the same sector. Establishing standard disclosure requirements improves the quality and availability of data on companies and their ESG activities.
- Sustainable finance will increasingly be used to help companies achieve decarbonization goals.
- ESG regulations and standardization are likely to occur around the world. The EU is leading the way in strengthening the stringency of green bond issuance standards.
Stay tuned for an announcement on the second webinar in the Thought Leadership Webinar Series on Social and Environmental Governance