[co-author: Russell Clay, and Nancy Ricardo]
In this alert, we provide a round-up of the latest developments in ESG for UK corporates.
In this month’s ESG market alert, we cover:
The FCA publishes the final rules on climate related disclosures for standard listed companies and regulated firms;
The market for ESG securities and securitisation when compared to other ESG debt instruments; and
What’s new in market practice – Companies are beginning to be required to provide ESG credentials when seeking financing arrangements from certain banks and lenders.
FCA publishes final rules on climate-related disclosures for standard listed companies and certain regulated firms
On 17 December 2021, the FCA published its final rules on climate-related financial disclosures for standard listed companies and certain regulated firms. Key points to note are:
Policy Statement 21.23 confirms the new rules from the FCA extend the scope of the existing obligation in LR 9.8.6 R (8) for premium listed companies to also apply to standard listed issuers of:
The continuing obligation requires in-scope standard listed companies to include a statement in their annual reports for accounting periods beginning on or after 1 January 2022 adopting:
a comply or explain approach when including disclosures in their annual financial report in accordance with the TCFD Recommendations; and
providing an explanation of where in the annual report (or other relevant document) the various disclosures can be found (if applicable).
Policy Statement 21.24 confirms the final rules on climate-related disclosure requirements will also apply to asset managers, life insurers and pension providers.
The full FCA publication can be viewed here.
Talking about a revolution – Making ESG securitisations mainstream
The near future for ESG securities and securitisation
- In our view, a broader acceptance of “use of proceeds” securitisations is crucial to jumpstart the market and finance the ramp-up required to originate more ESG assets. Such funding sources are becoming more readily available to larger corporations for ESG purposes where they have a steady, demonstrable cashflow (e.g. replacing a rental car fleet with hybrid or Electric vehicles).
- ESG debt instruments alone may not be sufficient to move the dial towards a financial system which more fully aligns to conformed ESG criteria and excluding “use of proceeds” securitisations risks limiting the potential scope of ESG deals in the future.
Read the full article on ESG securities and securitisation here.
What’s new in market practice?
Debt investors and lenders are increasingly requiring companies to provide their ESG credentials in financing arrangements, regardless of whether a company is seeking financing for ESG-specific purposes. This is due to sophisticated lenders having their own internal ESG requirements and due diligence queries which they need to satisfy for new financing arrangements.
The lack of consistency between different lenders’ ESG criteria and expectations presents a challenge for companies seeking finance in the short term due to the different benchmarks such companies would need to adhere to. Over time we expect to see further developments in industry-led initiatives to standardise ESG credentials and disclosure requirements, together with the introduction of regulation to alleviate lenders’ concerns over ESG-washing. We will continue to report on such developments as they progress.