/ 1 min read / Reed Smith Client Alerts

LMA’s second annual Sustainable Finance Conference

Authors

Kelly Knight, Ella Evagora, Sarah Caldwell,
Angelina Shum
,
Benedikt Corkill

Key takeaways

  • At the LMA’s Sustainable Finance Conference in London on 9 November 2023 we saw that, despite a slowdown in ESG related loans, there is strong demand for ESG funds and ESG is a core factor for many consumers in their purchasing decisions.
  • Increased ESG regulation would be welcomed and expected in the next three to five years.
  • Blue financing is developing but is focused on emerging markets, as opposed to the focus of green financing on the European market.

Reed Smith attended the Loan Market Association’s (LMA) Sustainable Finance Conference in London on 9 November 2023. Below is a summary of our key takeaways and industry perspectives from the conference.

Let’s talk numbers

  • Finance and sustainability go hand in hand. ESG loan volume has skyrocketed over the last several years. Since the London Stock Exchange Group (LSEG) started collecting data on ESG related loans in 2017, volumes have increased 15x.
  • LSEG initially saw rapid growth in the asset class, peaking in 2021, but there has since been a significant slowdown. In 2022 this was due to geopolitical and macroeconomic factors, and much of this has continued into 2023.
  • Global sustainable lending in Q3 2023 (US$216 billion) was down 35% YoY (Q3 2022 – US$333 billion). Sustainability-linked loans fell 65% YoY to the lowest quarterly total since Q3 2020. Despite this, ESG related loans have only declined proportionately to the general reduction in global loan issuance.

ESG in funds finance

  • There is strong investor demand for ESG funds, and funds are responding. Funds also are driven into ESG by fears of being perceived as the laggard in the space, and as regulation advances and more data becomes available, this trend will only continue.
  • Due to their involvement across businesses and industries, funds have a significant amplification factor that can drive ESG across entire portfolios and industries.
  • Additionally, the ESG performance of funds is increasingly incorporated into the pricing of loan facilities, whereby better performance results in lower margins, which illustrates the value-add of ESG.

Greenwashing regulation

  • Greenwashing and ESG create political capital, sparking interest from the press. They are at the top of the agenda for many and a significant increase in regulation therefore is expected over the course of the next three to five years.
  • 72% of consumers now consider sustainability in their purchasing decisions. Studies show that businesses welcome ESG regulation – over 60% of businesses surveyed stated that law reforms and regulation will drive changes in ESG practices to provide more certainty and consistency.
  • The EU (and other jurisdictions) will look to implement regulation in the ESG space because it wants consumers to feel comfortable that sustainable products will perform, or be produced or manufactured, as expected.

Preserving nature

  • Investors are becoming more sophisticated and are noticing investment opportunities in the market (e.g., autonomous tractors and biofertilisers).
  • Transparency of supply chains has become increasingly important, leading to more efficient KPIs that foster a more robust market and mitigate risk for investors.
  • Blue financing is progressing as an asset class. It is a rapidly developing form of sustainable finance akin to green financing, but with a focus on the ocean environment and maritime based economies (aligned with the UN’s Sustainable Development Goal 14 – Life Below Water). However, blue financing is focused on emerging markets, as opposed to the focus of green financing on the European market.

Client Alert 2023-287

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