Sustainable finance is of rapidly-growing importance as increasing regulatory pressures and demand from investors promote the incorporation of environmental, social and governance (ESG) factors in investment strategies.
A key focus for lenders is developing investment decision-making which incorporates sustainability and ESG factors. In the derivatives and structured finance space, particular importance should be given to:
The European Commission has adopted a number of legislative proposals to promote sustainable finance, including ESG-related disclosure requirements for certain firms, and current consultations address requirements on investment firms to take client ESG preferences into account when giving advice. There are also growing calls for the establishment of a centralised database and standardisation of ESG data in the EU.
Though obviously directed towards lending rather than investing, the law and regulation currently applicable to lenders is similar to that which applies to asset managers, with the focus being on encouraging disclosure and transparency.
While the majority of EU regulations are now part of UK retained law, firms should bear in mind the possibility of UK divergence from these regulations in the future.
Lenders, issuers of corporate bonds and other market participants who fail to keep pace with the change in attitude towards sustainability and ESG issues may find that their offerings become increasingly less attractive to customers.
On the other hand, those who take early steps to incorporate sustainability and ESG factors into their decision-making may find themselves at a competitive advantage going forwards.
The Travers Smith Derivatives and Structured Products practice provides legal support to financial institutions, asset managers, corporates, fintechs, funds and pension scheme trustees on all aspects of their derivatives and bespoke structured financing arrangements.
We are members of several industry associations that are active in the sustainable finance space, including the International Capital Market Association (ICMA), the International Swaps & Derivatives Association (ISDA), the Futures Industry Association (FIA), the Financial Markets Law Committee (FMLC) and the Loan Market Association (LMA).
We are also among the law firms appointed to the inaugural panel of the Impact Investing Institute and provide pro bono support to the organisation, which works to encourage sustainable investment to achieve the UN’s Sustainable Development Goals.
