EuroFinance

Amid global macroeconomic uncertainty, the demand for sustainable finance instruments like green, social, sustainability, and sustainability-linked bonds (GSSSB) still has the potential to grow. According to a recent S&P Global report, the issuance of GSSSB is anticipated to increase modestly in 2024, reaching between $0.95 trillion and $1.05 trillion, up from $0.98 trillion in 2023. This growth is primarily driven by the increasing demand for environmental projects across all geographies, with green bonds expected to maintain their dominance in the GSSSB markets. The potential rise of transition bonds, which fund carbon-reduction projects, and blue bonds, which support marine conservation, further highlights the expanding scope of sustainable finance, the report noted.

“We believe that issuers in middle- and low-income countries will strive to increase their share of GSSSB issuance given their large unmet funding needs,” The same S&P Global report said.

Several factors could drive the growth of GSSSB issuance, including the broader adoption of sustainable taxonomies, enhanced transparency initiatives, increased issuance from emerging markets, and intensified efforts to accelerate the energy transition. However, certain macroeconomic conditions might hinder this growth, such as the uncertainty tied to high interest rates and the potential for an economic slowdown in key regions like Europe and Asia-Pacific.

At the 2024 EuroFinance Global Treasury Americas Miami conference, treasurers shared valuable insights and strategies on the evolving role of treasurers in ESG and sustainable investing, as well as the significance of green liquidity in the overall financial mix.

Green bonds: a strategic tool for treasury

Andrea Vigo, global director of capital markets and sustainable financing at Dow, one of the world’s leading materials science companies, emphasised the strategic importance of sustainable financing within treasury management. “ESG financing or sustainable financing is another tool that Treasury teams need to have in their toolbox,” Vigo said. He stressed that companies must be prepared to access capital markets swiftly when needed, including through green bonds and other sustainable finance instruments.

Dow’s recent issuance of its first green bond highlights the company’s commitment to sustainability. The company intends to allocate proceeds from this offering toward projects that meet the eligibility criteria contained within Dow’s Green Finance Framework, including expenditures and investments related to building the world’s first net-zero Scope 1 and 2 emissions ethylene and derivates complex in Alberta, Canada. This $6.5 billion gross investment from Dow will support organic growth in attractive, high-end markets while decarbonizing 20% of Dow’s global ethylene capacity, Vigo added.

Issuing a green bond, however, is not a simple process. Vigo explained that preparing for such an issuance requires extensive internal coordination and adherence to specific standards along with the need to secure a second-party opinion. “We worked very closely with the entire organisation, as well as our external auditor,” he added. The process involved ensuring that Dow had the capabilities and structures to track the financial allocation to specific projects and report on the expected sustainability impacts of the projects. 

Commitment to impact investing

Leticia Zuardi, Impact investing responsible at Vale, a Brazilian multinational logistics operator, shared insights into how the company is integrating sustainability into its core strategies. Vale’s sustainability department is dedicated to ambitious goals such as conserving and restoring 500,000 hectares of forests by 2030 and achieving net-zero carbon emissions by 2050. Zuardi emphasised the value of impact investment as a means to generate positive social and environmental outcomes while also realising financial returns.

Zuardi explained that impact investing at Vale involves supporting sustainable businesses through blended finance operations, where Vale’s catalytic capital serves as the first loss. This approach not only helps de-risk investments but also enables supported businesses to access more funding and better rates. “For Vale, it’s so important because any return will be used to support new projects and new businesses,” Zuardi noted.

The crucial role of treasury

Zuardi highlighted the crucial role of the treasury in ensuring the success of these sustainability initiatives. “The Treasury department has a fundamental importance in this discussion because they validate all our financial models, analyse all the agreements and documents, and ensure alignment with our strategy and goals,” she explained. Without the treasury’s involvement, Vale would face significant challenges in managing the financial aspects of its impact investments.

Regulatory support: a key to sustainable finance

The success of sustainable finance initiatives, however, is not solely dependent on corporate efforts. Vigo emphasised that regulatory bodies have a crucial role in creating a regulatory environment that supports sustainable investments. Without such support, the viability of sustainable finance could be at risk. 

Governments and regulators must implement policies that encourage sustainable practices and protect investors from unfair market practices. Zuardi added that individuals also have a role to play in promoting sustainability by engaging in collective investment platforms and supporting corporate sustainability initiatives. Vale, for example, is actively promoting employee engagement in sustainability through impact networking and monitoring programs.

As the global market for GSSSB continues to evolve, the role of treasury in supporting sustainability initiatives will only grow in importance. By leveraging sustainable finance instruments and fostering collaboration between corporate and regulatory bodies, companies can contribute to a more sustainable future while also achieving their financial objectives.