A new report from Herbert Smith Freehills and the Association of Corporate Treasurers suggests that ESG has rapidly reasserted itself at the top of the corporate treasury agenda after a pandemic-induced slip and has impacted corporate debt raising.

The Corporate Debt and Treasury Report was based on a survey of finance and treasury professionals of 100 primarily FTSE 250 and FTSE 100 corporates.

It found that while somewhat suppressed during the early stages of the pandemic, the focus on ESG and sustainability-linked finance has quickly risen again to be a priority for the corporate treasury. A number of respondents suggested that this was becoming business-as-usual, with ESG reporting contained within plc audited financial statements rather than being bespoke, for example.

Herbert Smith Freehills finance partner Kristen Roberts said: “The key driver is not pricing; it is fundamentally a response by company boards to these issues as raised by their customers, investors and other stakeholders; it’s a key part of corporate strategy.”

His sentiments were echoed by a contributor to the report, who said: “The benefit is really investor relations, not pricing”, with another saying it is a “reputational issue” to ignore ESG now.  

Many agreed that there were reputational issues in committing to ESG/sustainability targets, but also felt there was a wider anti-embarrassment issue if a business didn’t incorporate an element of ESG/sustainable financings in their debt capital structure, considering the strong growth of this trend.

The report charts the increasing importance of ESG when organisations decide their debt strategy, with the percentage of respondents agreeing that ESG is a factor rising from 17 in 2018 to 61 this year. The percentage of those intending to include ESG features in their next financing has also increased, from 50 last year to 65 this year; sustainable loans are the most likely source of ESG financing at 35 percent, followed by green bonds (17 percent) and sustainable bonds (15 percent).

Roberts commented that the flexibility of sustainability-linked loans “offer the most straight-forward route for corporates to dip their toes into ESG debt financing. Over the longer term there is a sense that green loans and bonds could see much broader application as corporates pursue specific aspects of their ESG agendas via green-lending.” He added that compared to 2020 “the impediments to incorporating ESG elements into financings are weakening. This should be the case as the markets continue to develop and refine ESG financings and they become better understood.”

Just over half of respondents plan to refinance their debt this year (up from 40 percent in 2020), partly as a result of pent-up demand from of the pandemic. Just under 40 percent also intend to raise new capital – an increase from 30 percent 12 months ago, with the report suggesting their confidence may be related to most claiming that they aren’t experiencing more cautious behaviour from customers, suppliers or creditors.

Asked how they expect their organisation’s expenditure will compare to 2020, one third suggested increased spending on acquisitions, up from 25 percent in last year. A quarter also indicated that increased capital will be used to pay dividends, up slightly from 22 percent in 2020.