Thursday, April 8, 2021
As noted previously in the October 2020 edition of
Baseload, the capital markets have seen explosive growth in the issuance of ESG debt in recent years. The advantages to utilities have been generally twofold: (1) provide access to a larger investor base than would otherwise be available (i.e. those investors with ESG-focused criteria) and (2) provide evidence of good corporate citizenship regarding certain of the issuer’s projects.
ESG encompasses three individual (but highly overlapping) elements: environmental criteria, social criteria and governance. The environmental element has been a mainstay of the capital markets since the late 2000s and has steadily increased since the International Capital Market Association (ICMA) first published its “Green Bond Principles” in 2014 and last updated them in 2018. [1] Debt issued in this category is designed to support specific climate-related or environmental projects and includes investments related to clean energy or pollution reduction. The social criteria, described in the “Social Bond Principles” [2] published by ICMA and last updated in 2020, focuses on projects “that address or mitigate a specific social issue and/or seek to achieve positive social outcomes.” [3] The third criteria of ESG is governance – the internal system of rules, policies and procedures that govern the management of a company. The individual elements of ESG are, by their nature, intertwined.