ESG in the Americas: Ready for Lift-Off?

Financial innovation, Covid-19 and climate change have all come together to spur finance into action. Has ESG finally crossed the Rubicon?

Innovation has driven the adoption of sustainable finance among corporates and institutional investors in recent years. While initially focused on green outcomes, the spotlight has rapidly shifted to a broader range of environmental, social and governance (ESG) objectives – especially after the Covid-19 pandemic exposed the fragility of companies’ existing business models and therefore the world economy. This in turn is concentrating the minds of policymakers worldwide on how to construct a more resilient, durable economy.

In North America, this innovation has resulted in the increasingly widespread adoption of novel sustainability financing mechanisms, including tailored programmes across different industries. The region has seen new types of sustainability-linked loans (SLL) where the interest rate paid varies according to the attainment of predefined ESG goals, sustainable finance solutions in areas like cash management and new sustainability goals beyond those focused on the environment. 

“When we fully launched our Sustainable Finance practice back in 2014, we were saying that we had 50 years of financial innovation ahead of us to further embed sustainability into conventional finance,” explains Hervé Duteil, Chief Sustainability Officer for BNP Paribas in the Americas. “These recent ‘firsts’ in no way contradict the fact that we still have 44 years ahead of us to further innovate and accelerate the financing of the transition the world desperately needs.”

Covid-19 Crisis Spurs Call to Action

The Covid-19 pandemic is accelerating the drive towards sustainability with investors drawn to solutions that structure financial incentives to deliver not only better environmental outcomes, but also social outcomes outlined by the United Nations Sustainability Development Goals (SDGs). To date, more than $150 billion have been raised through social-themed bond programmes (including so-called Covid-19 response bonds), reflecting in large part the need to sustain healthcare systems and provide economic relief tied to the coronavirus.

In March 2020, New York-based Pfizer set a new benchmark with the first ever sustainability bond from a biopharmaceutical company. Proceeds from its 10-year, $1.25 billion issue will be used for funding pandemic-related medical treatment and vaccines, for grants promoting innovative approaches to combating infectious disease in underserved populations, as well as for environmental objectives.
Elsewhere, the capital markets have seen continued growth in investor demand for sustainability bonds from sovereign and supranational issuers, with a flurry of Covid-19 response bonds since the outbreak.

The UN has called the pandemic “a defining moment for modern society.” It is an opportunity for policymakers, banks and companies alike to construct a more durable economic framework that is more resilient in the face of pandemics, climate change and other challenges. Banks must make it their purpose to draw on their financing know-how to support firms and investors seeking to improved ESG outcomes. 

Landmark ESG deals in the Americas in 2020

In a recent public letter, BNP Paribas’ CEO Jean-Laurent Bonnafé led a consortium of France’s leading corporates imploring government officials to prioritise sustainable strategies as part of the country’s pandemic relief programme, which the Group said, “can be a powerful catalyst for a green and inclusive recovery.” The bank’s strategy extends to the Americas, which has seen a number of landmark ESG transactions in 2020.

WSP Links Diversity with Financing
In February, Montreal-based WSP Global became the first Americas-based professional management and consultancy services firm to add sustainability performance targets to its syndicated $1.2 billion credit facility (BNP Paribas was sole Sustainability Coordinator). These include a reduction in operational greenhouse gas emissions and an increase in formally defined “green revenues”.

Of note is a gender-equality progress target embedded in the financing, the first of its kind in the Americas. In this case, WSP must achieve a significant increase in the percentage of positions held by women in middle and top management by the end of 2021 (30% vs. 20.7% at the end of 2018).

JetBlue Goes Green
New York-based JetBlue became the world’s first airline to close a $550 million 4-year SLL in February (BNP Paribas acted as Sustainability Structuring Agent). Through an amendment to the airline’s senior secured revolving credit facility (RCF), the company formally agreed to include an ESG score as part of its ongoing operational objectives.

According to Chief Sustainability Officer Sophia Mendelsohn, JetBlue’s ESG performance aspirations reflect the growing influence of ownership and employees, who see a link between sound environmental and social policies and the company’s future growth. The company also embedded ESG into its treasury operations in 2019 by creating a tailor-made sustainable cash management solution that met the airline’s ESG objectives and treasury guidelines.

Crown Achievement
In March Philadelphia-based Crown Holdings, a producer of packaging and equipment, announced the integration of sustainability-linked terms to its $3.25 billion syndicated credit facilities (BNP Paribas was joint Sustainability Coordinator) x – one of the largest ESG-based credit agreements to date.

Under the terms of the loan, Crown’s borrowing costs will reflect its ESG performance on a rolling basis, based on ratings from an independent scoring agency. This transaction was the first US syndicated SLL in the paper & packaging sector.

Prudential Debuts Green Bond
In March, Prudential Financial brought to market its inaugural $500 million green bond – a first from a US life insurance company (BNP Paribas was Sole Structuring Advisor and Joint Bookrunner). Prudential’s Green Bond framework is aligned with the UN’s Sustainable Development Goals (SDGs).

Proceeeds from Prudential’s issue fund existing or future investments that provide environmental benefits, including reduced greenhouse gas emissions and improved resource efficiency. The eligible categories for the use of the net proceeds include renewable energy, green buildings, environmentally sustainable management of living natural resources and land use, energy efficiency, clean transport, sustainable water and wastewater management, and pollution prevention and control.