Cash & Liquidity ManagementInvestment & FundingInvestors flood to sustainability in wake of coronavirus

Investors flood to sustainability in wake of coronavirus

Sustainable investment has seen a substantial boom over the past few years, with investors continuing to look to long term goals amid difficult economic circumstances.

Standard Chartered has reported that money market deposits focused on helping finance sustainable development initiatives saw record inflows in March as coronavirus failed to push investors away from their sustainability goals.

“We’ve seen a remarkable upturn in the amount of sustainable deposits that we’ve been taking as an organisation,” says Alex Kennedy, director of sustainable finance ESRM at Standard Chartered.

“We could have expected things to fall by the wayside as the crisis hit, but it’s been heartening that treasurers and corporates still want to have some impact with their dollar.

“The fact that they’re still depositing into the product allows us to use that liquidity to help finance SDG [sustainable development goals] aligned activities. No matter how hard coronavirus is hitting, the need for renewable power, for loans to entrepreneurs and for healthcare infrastructure, particularly in Asia and Africa, is still there,” Kennedy says.

Desiree Pires, managing director and head of corporate sales Europe FM at Standard Chartered agrees, saying that demand has grown for ESG initiatives in part because liquidity is high as corporates have sought out high-quality liquid assets as the coronavirus crisis unfolded.

“Lots of corporates are making sure that they’ve got plenty of liquidity to see them through this time. It’s what I would call crisis liquidity – it’s not necessarily needed, but it is there as a backstop for difficult times. But that raises the question of what you do in the short term, and you tend to put it on deposit.

“And if you’ve got a choice about a normal deposit or something that could be sustainable, I think that theme is resonating with companies right now and they like the idea of investing in a sustainable way,” Pires adds.

We’re acutely aware that capital isn’t getting to where it is needed the most. We are seeing lack of capital flowing to Asia and Africa. For SDGs in Europe and the Americas around 80-90 percent of finance is realised. In Asia, it’s 60-70 percent, but in Africa it’s only around 10 percent.”

Kennedy adds that financing SDGs in these regions will ultimately decide whether the requirements of the UN’s Paris Agreement on climate change are met or not.

“Being able to shift the way that China, Bangladesh, India use power will have a huge impact on the world’s ability to meet the Paris Agreement. That’s where, as a Bank with a core footprint in Asia, Africa and the Middle East, we can really move the needle.

Chris Leeds, executive director, energy sales FM at Standard Chartered agrees, but believes one of the unusual aspects of coronavirus is that it’s highlighted the impact humans have on the planet.

“We’ve seen a respite from some of the pollution we see in the world, but it’s just that – a respite. Once economies recover, pollution will return.

“People are keen to find out how we can have a recovery that is sustainable, that is able to meet the Paris Agreement. We haven’t actually fixed anything. If anything, if it’s a brown recovery, as opposed to a green recovery, then potentially things will get even worse.”

Why should a treasurer care?

Leeds points out that whatever happens on coronavirus, the bigger long-term threat of climate change will remain. However, support for carbon emissions pricing mechanism remains strong and the EU Emissions Trading Scheme (ETS) will continue to be the EU’s flagship tool for reducing emissions as part of the Green Deal.

Speculation had been growing that the coronavirus could put the EU’s already fragile Green Deal in jeopardy, as climate hawks use the economic fallout from the pandemic to delay or dilute the EU’s goal of carbon neutrality in 2050. Instead, the Green Deal will likely serve as a key pillar of the EU’s economic recovery programme and a substantial chunk of the next EU budget will likely be devoted to climate spending. Consequently, the price of EU carbon credits has not fallen as far as might be expected and is likely to rise as the recovery takes hold. While the price of carbon in the EU is resilient, there is a clear need for a carbon price in the rest of the globe to divert finance flows from brown towards green. As other carbon markets emerge, such as the Chinese ETS, the cost of carbon will become increasingly influential and Corporate treasurers will have to factor this into their budgets.

The crucial questions for Pires is why, when there are so many short-term threats facing companies today, should a treasurer concern themselves with sustainability?

One emerging reason surrounds regulation and investor appetite. Pires says that with governments introducing green targets and possibly taxes while rating agencies are beginning to build ESG themes into their rating criteria, it creates a short-term need for treasurers to start thinking about how they can be more sustainable.

“It’s now becoming more important at a governmental level,” says Pires. “Which ultimately feeds through into companies, investors and shareholders.

“If you are depositing cash already, we thought that a simple thing we can do is issue this sustainable deposit product. By making your bank deposit sustainable, you are still following the same investment policy that you would typically follow as a treasurer, but you’re also effectively funding projects that meet the UN’s broader sustainable goals.

“Why not do that and be able to mention it to your internal ESG committee, mention it even externally as well, and point to something that you can demonstrate which is supporting sustainability as a company?”

‘You only have one shot at credibility’

Any sustainable product runs the risk of being seen as merely cosmetic, and with that comes allegations of greenwashing. To build trust and credibility, Kennedy says that it’s key to be as transparent as possible about your achievements and goals.

“Transparency is incredibly important, and so is being able to demonstrate impact” Kennedy says. “Backing up the sustainability bonds that we issue for example, will be an annual audited impact and allocation report showing exactly where the money is flowing to and the impact of that financing in the communities where we offer it. Since 2009 we have also published socio-economic impact reports showing how our financing contributes to sustainable economic growth in countries such as Bangladesh, Ghana and Uganda.”

For Leeds, making a success of SDG financing initiatives ultimately lies in credibility.

“It comes down to credibility. If you lose that credibility, you only get one shot at it. If you make certain claims that turn out to be bogus or not 100 percent true, then you’ll lose that credibility very quickly. It’s very difficult to come back from that.”

But Leeds insists that this is a good thing, forcing companies and banks to self-regulate.

“Most companies have strict governance internally, it’s vitally important to make sure what is communicated is true and verifiable.”

As corporate treasurers look beyond the current pandemic, it will be even more important to keep the focus on sustainability in the forefront of decision making, as we see communities rebuild and strengthen.

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