Insight & Analysis

Link with the future: why sustainable finance is on the up

Published: Apr 2019

When the Democratic members of Congress in the US announced the Green New Deal resolution back in February, it looked like a bold move towards ending the country’s dependence on fossil fuels. The idea, to replace carbon-emitting energy with green energy sources as part of the fight against climate change, is to make the US economy carbon neutral by 2030.

Green New Deal borrows its name from Franklin D. Roosevelt’s New Deal reforms from the time of the Great Depression. The original called for investment in new infrastructure projects to get Americans working again. The Green version – currently only a non-binding Congressional resolution – seeks to transform the US economy, only this time creating a new Green economy and tackling other Environmental Social and Governance (ESG) aims, including the setting of a new minimum wage.

But critics say the proposal is dead in the water. US House Speaker, Nancy Pelosi, is reported as saying its scope is too wide-ranging and that to succeed it needs to be made more palatable to elected officials.

The US, it seems, has the will to embrace sustainability, but not at any cost. Perhaps this is the reason why the idea of sustainable finance (Green bonds and different types of loan), is still very much in its infancy in the US.

Picking up

Globally the Green bond market saw US$182bn issued in 2018. Of that around 24% was in the US, and almost half of this being the work of a single issuer, Fannie Mae. There were five other issuances, mostly indigenous energy and utility firms. Considering that the US is by far the world’s largest bond market (outstanding of almost US$43trn in 2018), Green issuance seems somewhat under-represented.

The Green loan element in the US represents a more sizeable percentage of the global outstanding debt of US$64bn. Further interest may be driven by the import of the sustainable link loan concept from Europe, where margins on an RCF are directly connected to performance on agreed sustainability targets.

The first contract of this type in the US, agreed in mid-2018, unsurprisingly involved the US subsidiary of a Spanish company. But it was followed by the US$800m Senior Unsecured linked RCF for Xylem, a US-based water technology firm with global subsidiaries (case study to follow soon in Treasury Today).

With 83% of US companies now attaching an ESG statement to their annual report, up from 69% in 2011, interest is “gathering momentum”, says Anne van Riel, Head of Sustainable Finance, Americas at ING Capital.

Regional differences

The ratio of conversion from statement of intent to actual take-up of sustainable finance is still low. With a concerted effort in Europe by the banks, investors and regulators (the EU discussion on the sustainable finance taxonomy is ongoing), impact on business is inevitable, says van Riel.

However, the US presents a completely different environment. “Here, there is no regulatory push but there is some motivation within companies to do it because it’s good for business,” she notes.

In Europe, she reports that almost every corporate treasury visit by a bank is accompanied by a sustainable finance representative. Just a few months into her new role in the US, van Riel comments that she is “usually the first sustainable finance person they have ever seen”.

In most major US companies where an ESG or CSR (corporate social responsibility) function is supported, these are “very much on the ground”, talking to operational teams and even suppliers, notes van Riel. There is usually little in the way of interaction with treasury. “This is where we are striving to make that connection and have them start thinking about how the business can benefit by linking its financing to its sustainability performance.”


Sustainability teams tend to focus on dealing with areas such as supply chain issues, energy sourcing and waste management. As such they are perhaps more attuned to operational activities than treasury, says van Riel. But when confronted with a sustainable finance conversation, where their sustainability goals can be directly linked to cost of finance, the reaction can be one of surprise.

For those more familiar with sustainable finance, a common concern is the level of reporting and administration required. “Treasurers already have a huge workload so the first question is often ‘how much extra work will this create’,” says van Riel. “If they already have an efficient reporting structure in place the additional burden is very limited,” she assures.

For smaller companies, where some functions double up, the extra workload can be more of an issue. But even here, van Riel believes that if more emphasis is placed on reviewing ESG data, and more thought is given to how climate change might impact the business, “it can save costs, and reduce operational risk or volatility within the supply chain”.

Furthermore, in all cases, establishing a sustainable approach to business “helps to align all functions”, says van Riel. “Treasurers often tell us that projects such as improving reporting or implementing changes in supply chain or risk analysis often get deprioritised. “But if these are made more visible and are linked to financing, many more people in the organisation become incentivised.”

Taking action

Shareholders, suppliers and buyers are increasingly pushing for more transparency on the trading practices and wider relationships of their partners. That the Green New Deal is at least generating discussion is a positive step forwards in the US, says van Riel.

“But I think many businesses in the US have already decided by themselves, in the last couple of years, regardless of regulation or who’s in power, that their attitude to sustainability will either benefit or potentially increase risk to their business. Many have found cause to act.”

Whilst banks may be in competition on many aspects, that’s not the case on sustainable finance, she notes. “We’re all trying to achieve the same goal and moving our clients in a direction that, ultimately, benefits everyone.”

With the global alliance of the Loan Market Association (LMA), the Asia Pacific Loan Market Association (APLMA), and the Loan Syndicated and Trading Association (LSTA) having just published their Sustainability Linked Loan Principles, the fact that all major US banks were involved on the LSTA side could indicate that the tipping point has been reached in this vital market.

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