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Episode 29

Coronavirus - When Will Sustainable Investing Take Off Again?

Published on: June 1, 2020 • Duration: 5 minutes

Roger Hirst and Maria Dikeos, Refinitiv’s Head of Global Loans Contributions, talk about how certain investment themes, like ESG, were gaining momentum prior to the Corona Crisis. Now that investors are trying to preserve their capital, have we seen any trends emerge around these investment themes? 

  • [00:00:07] Welcome to the Corona Correction Series in association with Refinitiv, I'm your host, Roger Hirst. There were a number of investment themes that were gaining momentum prior to the Corona Crisis. One such theme was ESG, environment, social and governance investing. Over the last few months, investors have by necessity taken emergency steps in order to preserve capital and deal with the emerging crisis. But what does that mean for adherence to some of these new principles? I asked Maria Dikeos, Head of Global Loans Contributions of Refinitiv, if any trends had emerged. 

    [00:00:37] In 2020, we've seen a dramatic drop off in sustainability linked lending as a result of the Covid- 19 pandemic. It's not surprising, given the severity and the speed with which Covid-19 spread across the globe as well as industries. One of the hardest hit industries has been the airline travel industry. In the last few months alone they have, airlines have tapped the market for over 13 billion dollars in in draw downs, as well as an additional 15 billion dollars in incremental liquidity. None of this came in combination with sustainability linked or ESG linked metrics. And while this is disappointing, again, it's not terribly surprising given the severity and the speed with which the Covid-19 pandemic hit airlines in particular and travel more broadly. Nevertheless, environmental groups, shareholders and the public at large are taking note. And there's growing pressure to align financing and environmental goals, especially if there are state supported financing of corporations. We saw this with a 10 billion euro rescue financing secured by Air France KLM in April. France's finance minister publicly stated that the state backed guarantee was not a blank check, that there were requirements that Air France needed to meet, both in terms of profitability as well as sustainability practices. He specifically said that it was Air France's responsibility to become one of the most environmentally friendly companies on the planet. We have also seen sort of a similar effort as Lufthansa negotiates a nine billion euro or nine point nine billion dollar rescue financing. The Lufthansa financing had no commitments to safeguard the climate attached to its provisions, although Lufthansa does have an established corporate sustainability linked program and does publish annual reports on their sustainability initiatives and planning annually, and has done so for many years. There is an expectation that Lufthansa will work to replace old jets with more bio fuel efficient models. It is also the hope that biofuels will be the option of choice on on most flight flights wherever possible. But the key was that Lufthansa was not asked, nor did it volunteer to scrap some of its less profitable carbon heavy domestic flights in favor of other more environmentally friendly travel options. And that's been noted and slightly criticized in the market. Even though ESG lending is not moving as quickly as we would like in during the course of the 2020 financial year, there is a growing and greater sense of urgency and increasingly more creative thinking about best lending practices. And how are issuers, borrowers going to be held more accountable not only for paying back loans, but also operating in a more sustainable and globally supportive manner? 

    [00:04:51] It's clear that under the pressures of recent market conditions, some of the requirements around themes such as ESG have had to take a backseat whilst corporates and investors focus on wealth preservation. Now those corporates and investors do remain committed, and these investment criteria will make a comeback once markets start to settle down. We'll see you later with another update. 

     

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