London-headquartered lender Standard Chartered is creating a tool to evaluate the targets in sustainability-linked loans, in the wake of the UK regulator\u2019s concerns over market integrity.<\/p>\n
Sustainability-linked loans came under scrutiny from the UK\u2019s Financial Conduct Authority (FCA) in 2023 when it wrote to bank executives<\/a> expressing concern that lenders were not sufficiently incentivised to set tough sustainability targets for their borrowers, or to impose meaningful step-ups in margins where targets are missed.<\/p>\n \u201cWe\u2019ve developed some in-house IP that would, in effect, try and triage [the loan targets],\u201d said Alex Kennedy, head of sustainable finance solutions, adaptation and resilience at Standard Chartered, speaking at an industry event this week.\u00a0<\/p>\n The aim is to assess if the target is material, robust, ambitious and tracked, while also setting up processes for dealing with sustainability-linked loans in emerging markets, via a \u201cKPI strength\u201d tool.\u00a0<\/p>\n Kennedy said the bank had presented it to the FCA, with the aim of consulting other financial institutions and eventually making it more widely available.\u00a0<\/p>\n \u201cWhat it does is enable us to have a view on what is material, what is achievable, what isn\u2019t achievable, so that when we\u2019re doing our due diligence on particular transactions, we can make more informed decisions,\u201d he explained.\u00a0<\/p>\n Sustainability-linked loans, where terms such as pricing are linked to the borrower meeting certain targets or KPIs, are the most widely used sustainable finance product.<\/p>\n Last year, the FCA said<\/a> it had been \u201cencouraged\u201d by improvements in the integrity of the sustainability-linked loan market, despite ongoing challenges around pricing.\u202f<\/p>\n Kennedy was speaking on February 10 on a panel at the Trade for Tomorrow: A Sustainable Path conference, hosted by the International Chamber of Commerce UK (ICC) and the All-Party Parliamentary Group for the UN Global Goals.<\/p>\n The panel discussed sustainable trade and growth, including whether trade can be green and profitable after concerns that ESG has fallen off the agendas of businesses and governments in recent years.<\/p>\n Tom Crawford, global head of sustainability at Vodafone, said that \u201cdespite the polarising debate\u201d around ESG and the geopolitical tensions within trade, ESG expectations are \u201cnot weakening\u201d.\u00a0<\/p>\n \u201cThey\u2019re becoming way more demanding, way more varied,\u201d he said, pointing to aspects such as the level of supply chain due diligence that is now required for many companies. \u201cESG compliance is actually a source of resilience, and it\u2019s a source of competitiveness.\u201d<\/p>\n Crawford added that ESG represents 10% to 20% of the tender weighting for many large business and government contracts. \u201cIt is becoming very much a defining criteria,\u201d he said.<\/p>\n Changing terms<\/p>\n The panellists said that while the labels of ESG and sustainability might be dwindling in popularity, different language can be used to achieve similar ends.<\/p>\n Steve Kenzie, executive director at UN Global Compact Network UK, noted: \u201cWhen something has got an ESG label on it, it somehow is treated less seriously. It becomes a \u2018nice to have\u2019.<\/p>\n \u201cWhat\u2019s really important is that we get back to the fundamentals and language of business, like resilience, risk and opportunity. The risks associated with climate change, with modern slavery, with corruption, are very real.\u201d<\/p>\n Standard Chartered\u2019s Kennedy said the lender had seen an uptick in the use of bank guarantees to unlock investment in renewables. One adaptation finance deal agreed last year saw Standard Chartered provide bank guarantees to enable Chinese firm Jinko Solar to supply extreme weather-resilient solar modules to farms in the US, UAE and Saudi Arabia.<\/p>\n \u201cImporting storm-resistant solar panels, for me, isn\u2019t necessarily something you have to wear as a badge of sustainability. As a CEO or a CFO, that just makes common sense,\u201d Kennedy said.<\/p>\n In February last year, Standard Chartered became the first international bank<\/a> to align its trade practices with the ICC\u2019s Principles for Sustainable Trade Finance<\/a>, and in September inked what it said was the \u201cworld\u2019s first\u201d ICC-aligned<\/a> sustainable trade deal.<\/p>\n Kennedy said the principles had helped the lender secure deals. \u201cWe\u2019ve seen that it puts us at a competitive advantage already in tenders against peers when we\u2019re bidding for projects,\u201d he said. \u201cIt puts us streets ahead.\u201d<\/p>\n How supply chains can adapt to the physical risks of climate change is also important for Standard Chartered as the bank operates mainly in emerging markets, the majority of which are coastal, Kennedy said.<\/p>\n The bank can raise capital in mature financial markets and help deploy it in areas where \u201cthe negative effects of climate change will kick in the fastest and hardest\u201d.<\/p>\n He also flagged the \u201cmultiplier effect\u201d of emerging markets finance, which can target \u201cpower issues in India, China, Pakistan, Bangladesh and so on, where that need is the greatest and the multiplier is the greatest\u201d.<\/p>\n","protected":false},"excerpt":{"rendered":"London-headquartered lender Standard Chartered is creating a tool to evaluate the targets in sustainability-linked loans, in the wake…\n","protected":false},"author":2,"featured_media":47314,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[21387],"tags":[23718,23719,23720,23721,20677,23722,23723,23724,23725,23726,6740],"class_list":["post-47313","post","type-post","status-publish","format-standard","has-post-thumbnail","category-standard-chartered","tag-alex-kennedy","tag-all-party-parliamentary-group-for-the-un-global-goals","tag-international-chamber-of-commerce-uk-icc-uk","tag-jinko-solar","tag-standard-chartered","tag-steve-kenzie","tag-sustainability-linked-loans","tag-sustainable-trade","tag-tom-crawford","tag-un-global-compact-network-uk","tag-vodafone"],"share_on_mastodon":{"url":"","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts\/47313","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/comments?post=47313"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/posts\/47313\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/media\/47314"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/media?parent=47313"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/categories?post=47313"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/britain\/wp-json\/wp\/v2\/tags?post=47313"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}