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Sustainability (ESG) Communication and Sustainable Finance

MACK BHATIA

Sustainability (ESG) communication acts as a catalyst to capital raising activities when companies look for options among the sustainable finance instruments.

The established links between corporate sustainable strategies and increasing financial returns has resulted in a growing number of investors now considering environmental, social and governance (ESG) factors in their investment decisions.

As a result, investors and analysts are now searching for authentic ESG communication material on corporate digital communication platforms and others. But despite this fast-growing interest, most companies are lagging behind in terms of innovation and creativity when it comes to conveying authentic sustainability messages to the broader investment community. 

As the article at HBR.org states, “Larry Frank isn’t going to read your sustainability report”, companies will need to communicate very differently with their investors. Disclosing their performance on the most material environmental or social issues (determined by the Sustainability Accounting Standards Board) as Fink recommends, is a necessary step. 


Sustainability Communication as a catalyst to Sustainable Finance 

Sustainability (ESG) communication acts as a catalyst to capital raising activities when companies look for options in the financial markets.

ESG Communications Mack Bhatia theSustainabilityio teamSIO
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Sustainable finance doesn’t have a definition by itself. Although, as our team puts it – it can be referred as ‘financial instruments and support available in the market specifically catered to provide capital to projects with environmental or social benefits”. Sustainable finance ecosystem is also supported by organizations such as International Capital Market Association (ICMA) and Loan Market Association (or LMA). These organizations provide guidelines to structure your process to the expectations of market and lenders.

The purpose of green financing, as stated by the UN Environment Programme, is to increase the level of financial flows (from banking, micro-credit, insurance and investment) from the public, private and not-for-profit sectors to sustainable development priorities. The aim is to align financial systems, working with countries, financial regulators and financial sectors, to direct capital allocation to sustainable development that will shape the production and consumption patterns of tomorrow. Financial mechanisms such as Green Bonds help this alignment as they promote public-private partnerships for sustainable development.

Growing pressure across financial markets to consider environmental impact and risk as a major plank in investment decisions helped push fixed income instruments such as green and sustainable bond issues to record-breaking levels. Investors hedge against climate risk by investing in green bonds or social bonds and into companies which are serious about their sustainability progress.

Sustainability communication plays a very important role. Sustainable finance initiatives such as issuance of green bonds or social bonds advocates the sustainability story. It is an encouraging sign to investors that the company issuing bonds is serious about their sustainability progress. These initiatives, as we recommend and under regulatory framework should be added to the sustainability (or ESG) communication channels. Moreover, prior to bond issuances or loan applications lenders and investors certainly look at a company’s Sustainability/ESG profile to monitor your sustainability commitments.


ESG Communication can lower the cost of capital

One of the fixed income instruments that a company’s sustainability strategy can leverage is popularly known as ESG Linked Loan or Sustainability-Linked Loan. The interest rates on these types of loans is tied on the company’s ESG performance. This means, the better a company performs on its ESG parameters the lower the interest rate. Similarly, issuers can also leverage Sustainability-Linked Bonds where the financial or structural characteristics can vary depending on whether the issuer achieves pre-defined Sustainability / ESG objectives.  

Connect with us to know more about how can we generate business value through Sustainability/ESG communication initiatives.

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