The role of sustainable finance in achieving the corporate ESG agenda
Sustainable finance reflects a new approach that brings money and purpose together. A growing number of stakeholders, whether company Boards, investors, employees, suppliers or customers, expect the companies in which they invest their time, talents or money to reflect their values. This includes environmental priorities such as climate change and clean water, but also social and governance issues, including ethical treatment of communities and employees, diversity and inclusion.
Sustainability is at the heart of our decision-making at Standard Chartered. Our footprint extends across many of the regions of the world that are most vulnerable to extreme weather events, environmental degradation, exploitation and inequality in communities, and failures of governance. Consequently, we take our responsibility to promote ESG (environmental, social and governance) improvement seriously, which influences how we do business, and the support we can offer to our clients in informing and delivering on their own ESG objectives.
A pioneer of sustainability ambition and action
The United Nations’ Sustainable Development Goals (SDG)¹ provide a common reference point on which many organisations, including Standard Chartered, base their sustainability objectives and strategies. We have three pillars that define our sustainability aspirations²: sustainable finance; responsible company, and inclusive communities. Each of these helps to shape how we think, how we act, and how we allocate our human and financial resources. For example, despite significant global consensus and commitment to the UN SDG, there remains a substantial funding gap in delivering on these goals. In emerging markets alone, the UN estimates that $3.9 trillion per year will be required to achieve all 17 SDGs by 2030; however, the funding gap is around $2.5 trillion per year³.
With our footprint across 59 countries throughout Asia, Africa and the Middle East, across our four client segments, we recognise our ability to change this. For example, we harness innovation, through digital banking, ecosystem banking and blended finance, to attract and direct additional capital to our markets. We facilitate the development of sustainable and resilient infrastructure to catalyse growth. And we help to shape and enable our clients’ own sustainability ambitions. In 2020, we announced Opportunity 20304, Standard Chartered’s SDG5 Investment Map illustrating $10 trillion in investment opportunities for the private sector to deliver clean water and sanitation, affordable, clean energy, and industry, innovation and infrastructure across 15 of the fastest-growing economies.
Partnering for success
Our early commitment to sustainability means that clients globally seek our advice on shaping their ESG vision, policy and objectives. While most large businesses have now developed ESG strategies, these can only be effective when a commitment to positive change permeates into the culture, behaviour and priorities of the organisation as a whole, and its wider supply chain. To facilitate this, we are helping corporate and institutional treasurers to reflect the values of their organisation into their activities, which they are doing in a variety of ways:
Sustainable investment
Corporate and institutional investors have always employed a range of criteria in their decision-making, most commonly balancing investment risk, security and yield. Sustainability has now become an essential fourth investment pillar for many treasurers and investors. According to Bloomberg, global ESG assets are on track to exceed $53 trillion by 2025, representing more than a third of the $140 trillion in projected total assets under management. Furthermore, treasurers do not have to choose between ESG and financial performance: the majority of sustainable strategies have outperformed non-ESG funds over one, three, five and ten years6.
While there remains considerable scope for market development in sustainable finance, the range and volume of sustainable investment options, both short and longer-term, continues to grow. In 2019, we launched sustainable deposits, which funds our sustainable finance book. These are already proving very attractive to western clients, with interest expanding quickly across emerging markets too.
Sustainable financing
For treasurers, ESG is also a driver for corporate finance. Green bonds, first issued in 2007, have been followed by social bonds, ESG, sustainability and SDG bonds to reflect the wider ESG agenda and investors’ and borrowers’ specific financing and investment priorities. Sustainability-linked and transition bonds were first launched in 2019 to enable high carbon emitters to finance their carbon reduction strategies.
Corporations have been major issuers of green bonds, which reached a record level of $269.5bn in 2020, an increase of £3bn in 2019, with predictions of further record levels in 20217. Sustainable and social bonds are proving even more attractive, with transition bonds also gaining traction, particularly with power and energy companies.
It is not only financing instruments themselves that are becoming more closely linked to ESG objectives, but also the hedging instruments that treasurers use to manage their risk. For example, a company issuing a sustainable bond and converting from floating to the fixed rate is increasingly able to source more favourable rates if they meet their ESG commitments.
Sustainable infrastructure financing
Sustainable finance also plays a key role in facilitating infrastructure projects that are critical for governments and corporations to improving the environment and communities in which they operate. This requires highly tailored and collaborative approaches to financing. Together with governments, corporations, export credit agencies, development finance organisations and supranationals, we are investing in projects that help achieve SDGs and empower communities to grow their local and national economies. For example, we co-ordinated a $1.46bn financing transaction in export credit agency (ECA)-backed long-term financing, including commercial and development finance investors, to fund the new Tanzania railway, the country’s largest ever infrastructure project8. Every train takes 500 lorries off the road, significantly cutting pollution, congestion and risk to people and vehicles using the highway, and more than 8,000 new jobs have already been created.
Scaling voluntary carbon markets
As an increasing number of companies commit to reducing emissions, and investors demand clear, credible transition plans, a well-functioning voluntary carbon market will be critical to reaching net zero and net negative goals. Through these markets, companies can buy carbon offsets from verified suppliers to offset their emissions. Carbon offset schemes include projects that reduce emissions from deforestation or conserve, rehabilitate and replant forests.
Although this market already exists, it will need to scale up by 15 to as much as 160 times its current size. Standard Chartered’s Group Chief Executive, Bill Winters, chairs the Taskforce on Scaling Voluntary Carbon Markets, which was launched by Mark Carney, former Governor of the Bank of England and UN Special Envoy for Climate Action. The Taskforce comprises more than 40 leaders from six continents who bring expertise from the financial sector, market infrastructure providers, and buyers and suppliers of carbon offsets. Over the coming months, the Taskforce will look at growth challenges for existing voluntary carbon markets, build consensus on how best to scale up and present a blueprint of actionable solutions. As Bill Winters comments, “Establishing a fair price for carbon offsets in a transparent and liquid market will allow those who seek to reduce their carbon footprint to more easily fund those who invest in actual carbon reduction projects.”
Committing to US$1 billion in financing to help companies combat Covid-19
As part of our commitment to the fight against the pandemic, in March 2020 we introduced a not-for-profit COVID-19 US$1 Billion Fund9. With this, we support and enable companies in our global footprint that are dedicated to improving the lives of people suffering from the effects of COVID-19, including manufacturers and distributors in the pharmaceutical industry and healthcare providers, as well as non-medical companies that have volunteered to add this capability to their manufacturing output – goods in scope include ventilators, face masks, protective equipment, sanitisers and other consumables. To date, a total of US$ 1.18 billion has been allocated by our Sustainable Finance Working Group. Currently, the Fund is focusing on critical care in India and South Asia, directly helping our clients and their communities.
Private and public collaboration
Given the magnitude of the task, and the fundamental changes in behaviours and attitudes that we need globally to protect our planet, our communities and our livelihoods, every organisation needs to play a role. Public policy is a key determinant, by incentivising co-operation and change; however, achieving the SDGs must be a common objective for corporations, banks, ESG rating agencies, technology providers, governments and regulators alike. At Standard Chartered, we continue to pursue our vision to be the world’s most sustainable and responsible bank, committed to sustainable social and economic development through our business, operations and communities. This includes channelling our expertise and financial resources, connecting private and public organisations to promote positive change, close the SDG financing gap, and creating a virtuous cycle in which communities and nations can thrive, socially, environmentally and economically.
If you would like to stay connected with the latest Standard Chartered Borderless Business Banking report and insights from the world of Europe and the Americas, visit https://www.sc.com/en/banking/europe-americas/.
You can also reach out to the following contact for further queries:
Jamie Toedtman
Head of Corporate Sales – UK, Standard Chartered
[email protected]
