3 innovative approaches to ESG investing in Europe
Environmental, social and governance (ESG) agendas are becoming a key area of focus for many European investors. But navigating the fine line between sustainable opportunities and successful outcomes requires adaptable trustees and a bit of outside-the-box thinking.
Socially responsible investing is more than just a trend, it’s a transformative reorientation that’s gaining traction, reshaping the industry and becoming impossible to ignore.
In a survey conducted by U.S. Bank last year, “71% of finance leaders say their business’s focus on ESG has increased in the past 12 months, including 80% of those generating more than $5 billion in annual revenue.”
To accommodate these priorities, as well as the influx of U.S. issuers entering the European market, trustees are being stretched to their limit in terms of what’s being asked of them. Some trustees have the flexibility, experience, technology, global network and breadth of services to embrace these challenges, and some are less equipped to adapt.
“The ESG financing space is complex and rapidly changing, which means it’s crucial for trustees to present innovative options to their clients,” says Michael Whelan, U.S. Bank Global Corporate Trust senior vice president – Europe. “In this environment, off-the-shelf ESG solutions aren’t enough to help CFOs and their teams stay competitive. Instead, we work to provide each client with customized solutions for the greatest possible impact.”
Below, we’ll look at three examples of how our global corporate trust team helped align client goals with the strategic and tactical approaches necessary to achieve them. Learn how the synergy of these strong partnerships produced several first-of-a-kind ESG transactions in the European marketplace last year.
Example 1: First European Article 8-aligned CLO
A component of the European Commission’s Sustainable Action Finance Plan requires additional disclosures from what it designates as “Article 8” (or “light green”) funds. These are funds that promote, among other characteristics, environmental and social characteristics (or a combination of those characteristics, provided the companies invested in follow good governance practices).
Working under this framework, our team at U.S. Bank helped a client establish the first ever European collateralized loan obligation (CLO) that aligns with Article 8 of the Sustainable Finance Disclosure Regulation (SFDR). To complete this landmark 405-million-euro deal, each underlying corporate loan was assigned an ESG score from A (highest) to E (lowest) with at least 50% of the portfolio achieving a minimum rating requirement of C (good) or higher.
Currently, U.S. Bank functions as note trustee, account bank, paying agent, calculation agent, registrar, transfer agent, information agent, custodian and collateral administrator for this CLO.
Example 2: First Eurobond issuance for financing green projects
As another innovative “first” in Europe, we helped issue a Eurobond initial public offering (IPO) for a client that intends to use the net proceeds to finance (and/or refinance) one or more eligible green projects pursuant to the company’s green finance framework. Our team serves in the role of paying agent for this 500-million-euro senior notes offering, and we’ve also applied for the notes to be added to the Irish stock exchange and traded on the global exchange market.
Example 3: Client’s first sustainability-linked notes issuance with French and European investors
One hallmark of the evolving European marketplace is that more issuers are working to broaden their investor base. Last year, we helped a client in the French market issue its first sustainability-linked bond with a broad European investor base. The 300-million-euro issuance contained two ESG performance criteria relating to the company’s greenhouse gas reduction strategy:
What makes a strong partnership?
ESG transactions present numerous legal and structural hurdles – testing the ability of trustees to extend beyond their traditional roles. Increasingly, issuers are leaning on their trustees to provide specific guidance and expertise related to the assets they administer and the domains where those assets reside.
To thrive in the European marketplace, issuers should find a trustee that can show proof of a successful track record as well as agility in the way they manage client expectations and deal with unforeseen circumstances. Clear and open communication is vital. They should also be able to demonstrate, with examples as evidence, how they improved market position and market ranking. If they can’t, it might be time to explore new partnerships.
Several additional qualities issuers should look for in their trustee include:
At U.S. Bank, we have the experience, reach and technology to navigate the mechanics of complex deals with transparency, consistency and unwavering quality. As new opportunities emerge in the European ESG landscape, we can help you understand some of the new legal and structural hurdles in this evolving market.
For more information about our European trustee solutions, contact Michael Whelan at firstname.lastname@example.org.
For more resources related to ESG investing: