Corporate treasury teams within British businesses have shrugged of the liquidity challenges presented by the Covid-19 pandemic. New data also suggests the dramatic rise of ESG and Sustainability up board agendas has resonated within corporate debt raising, with sustainability-linked loans becoming a mainstay of the corporate debt capital structure.
Market conditions for raising debt remain positive and corporate treasury operations and debt raising have not been impacted by Brexit. According to the latest annual Corporate Debt and Treasury Report, 55 percent of respondents plan to refinance their debt this year (up from 40 percent in 2020), partly due to pent-up demand from processes that were deferred due to the pandemic.
A significant proportion (38 percent) also intend to raise new capital – a figure that has risen from 30 percent 12 months ago. The data suggests that their confidence stems from most claiming that they are not experiencing more cautious behaviour from creditors, suppliers or customers.
Asked how they expect their organisation’s expenditure will compare to last year, 33 percent suggested greater spending on acquisitions, up from 25 percent in 2020. A quarter of those asked also indicated that increased capital will be used to pay dividends, up slightly from 22 percent in 2020 and reflecting the unwinding of the widespread dividend suspension policies seen in 2020.
Published today by Herbert Smith Freehills and the Association of Corporate Treasurers, the Corporate Debt and Treasury Report charts the increasing importance of ESG factors when organisations formulate their debt strategy. When the question was first asked in 2018, just 17 percent said ESG was a factor when formulating their debt funding strategy; this figure has risen to 61 percent. A slightly higher proportion (65 percent) now also intend to include ESG features in their next financing. At 35 percent, sustainable loans are the most likely source of ESG financing, followed by green bonds (17 percent) and sustainable bonds (15 percent).
In relation to ESG and sustainability-linked finance, Kristen Roberts, finance partner at Herbert Smith Freehills, says: “The key driver is not pricing; it is fundamentally a response by company boards to these issues as raised by their customers, investors and other stakeholders; it’s a key part of corporate strategy. As a result of their flexibility, sustainability-linked loans offer the most straight-forward route for corporates to dip their toes into ESG debt financing. Over the longer term there is a sense that green loans and bonds could see much broader application as corporates pursue specific aspects of their ESG agendas via green-lending.”
Roberts adds: “Compared to 2020 the impediments to incorporating ESG elements into financings are weakening. This should be the case as the markets continue to develop and refine ESG financings and they become better understood.”