At a BNP Paribas-hosted panel discussion during the recent ACT Annual Conference, treasurers heard how investors and companies are engaging with each other to develop strategies and products to guide them on their roads to net zero. The need for clear targets to drive action towards achieving net zero by 2050 was spelt out, as was the ability to adapt those targets so they continued to be stretching and achievable.
Below are five key points raised during the discussion.
According to Jenny Mill, climate change strategist at Schroders, the transition to net zero is the biggest disruption to investment for decades. “We can no longer think about going along a straight road or look back at historical investment trends. The road ahead is unpredictable.”
“But we can help shape the route ahead. We look at all the companies that we invest in, all the targets they have been set and their alignment to the… journey to net zero by 2050.
“As an asset manager, we have four levers at our disposal. We can divest, but that would have little impact. We can invest in climate solutions, this is something that clients are asking us to do more of, but it wouldn’t offer us sufficient diversity in our portfolio.
“Third, offsets will play a role in the road to 2050, but they are a last resort, and not something we are relying on at the moment. And the fourth lever is engaging with our current portfolio companies. We are engaging with companies across all sectors and help them transition, which will help them create value in the long term.”
Emer Murnane, group treasurer at packaging company Smurfit Kappa, said that for credibility, the corporate strategy for net zero should be driving the treasury strategy. “Sustainability has always been at the heart of our business. We started reporting on sustainability in 2007, but we were already investing in emission reduction and energy efficiency – it has been decades in the making.
“It makes my job easier when I’m talking to our board, our CFO and CEO, they are already on board with the decarbonisation strategy. When you are looking at green financing, you need to have that sound corporate strategy to be there to have credibility when you are trying to build it into your capital structure.
“There are different time horizons. In the short term, we are measuring what we are doing today, and it is never a straight line. There are times when it is difficult, but there are times when things work well for you. In the medium term, we have our strategic investments in areas such as replacing natural gas with hydrogen.”
“When it comes to ESG assessment, investors are becoming more sophisticated,” said David Reynolds, global head of sustainability communication and marketing at BNP Paribas. “It is something that is evolving all of the time – we have one investor that we speak to who has more than 160 data points that they are assessing with every single company, and then on top of that there is a qualitative overlay assessment.
“For us, ESG assessment is carried out irrespective of the instrument you are issuing, whether it is a conventional bond, or even if you are looking at your equity. Your ESG profile is really key, so we are talking about net zero targets, low or no controversies and how you align with global norms, and this all goes into the assessment.
“But no sector is the same, so there is a large degree of pragmatism taken by investors.”
Matthew Hewitt, a structurer in the BNP Paribas sustainable capital markets team, said: “Evolution is happening at a different pace across different [financing] products. Use-of-proceeds products is a more mature market, but rapidly evolving.
“The main challenge for green bonds and loans is the identification of eligible assets. We have the EU taxonomy, which is a good guide, but it does not cover everything so the question of what is green is still up for debate.
“Investment that is looking towards the future is moving more towards capex than opex. That said, American investors are leaning more towards opex investment, while European investors are looking more at capex.”
Biodiversity and nature continue to climb the corporate strategy agenda. Panellists agreed this was likely to be the next challenge to appear on treasurers’ radar.
“We can’t reach our targets unless we are nature-positive,” said Mill. “We are developing plans and tools to help us understand nature. We are also ramping up our engagement programme on deforestation. We have made a commitment to eliminate agriculture commodity-driven deforestation by 2025.
“We have learnt a lot from what we have done with climate and are now applying that to nature.”
Philip Smith is editor of The Treasurer
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