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Sustainability

Biodiversity is an important topic for utilities investors

To help companies better prepare for investor meetings, we collate feedback and key questions asked by investors during NatWest-led deal and non-deal related roadshows. For Q2 2023, our insights have mainly been gathered via corporate issuance from the utilities sector, which was also the highest issuer of global corporate sustainable debt (~30%) in first half of 2023.

I. Key Themes

  • Questions about sustainability projects were most frequently asked (32%) with investor focus on proceeds allocation towards new projects, types of different projects, lookback period for selecting projects, and share of refinancing vs. financing for repeat issuers; a trend that was observed last quarter as well for utilities.
  • In Q2, biodiversity was a recurring theme for utilities and related questions included the execution of biodiversity restoration projects, type of biomass used in projects, geographic focus of projects, whether projects are being executed in partnership with organisations, and incorporation of “Do No Significant Harm” (DNSH) criteria.
  • Alignment with standards (9%) remains a popular topic as observed in previous quarters, and investors still expect transparency from issuers on EU taxonomy and Science Based Targets initiative (SBTi) for their emissions reduction targets.

Split of questions by different topics

Source: NatWest, ESG-related investor questions and feedback for corporates in Q2 2023

Notes: Based on 109 questions and feedback received in Q2 2023 for electric-generation, electric-integrated, electric-transmission, energy-alternate sources. “Others” includes reporting, ESG ratings, and bond characteristics 

 

 

Percentage of questions under each topic: Q2 2023 and Q1 2023

Source: NatWest, ESG-related investor questions and feedback for corporates in Q2 2023 and Q1 2023

Notes: Based on 109 questions and feedback received in Q2 2023 for electric-generation, electric-integrated, electric-transmission, energy-alternate sources and 132 questions and feedback received in Q1 2023 for automobile manufacturers, communications, electric-transmission, engineering & construction, transportation, and utilities sectors. “Others” in Q2 2023 includes reporting, ESG ratings, and bond characteristics categories and in Q1 2023 includes bond characteristics, ESG ratings, and verification

 

 

II. Example questions and feedback

Issuer focused

Sustainability strategy

  • Do you see any security challenges in for example the interconnectors given today’s political situations?
  • How do you approach biodiversity considerations across projects? Do you have a specific strategy or a dedicated team?

Stakeholder relations

  • Do you engage with suppliers on circular economy projects?
  • Do you have a dedicated human rights policy on supply chain?

ESG assessment

  • Are you planning to undergo a lifecycle emission assessment? 
  • Are audits on human rights done on an ad-hoc basis or regularly?

Instrument focused

Sustainability projects

  • How much of the capex would be for offshore wind projects?
  • What is the anticipated mix of projects and the expected project category split?

Sustainability KPIs

  • Can you provide an update on your GHG reduction targets vs baseline? (Scope 1, 2 and 3)
  • How do you define your net positive biodiversity targets (noting multiple components e.g., flora, fauna)?

Alignment with standards

  • Do you have an estimate of expected emissions of the projects in CO2/MJ? i.e., will it be in line with the EU Taxonomy?
  • Is your Net Zero by 2050 target approved by SBTi? If not, do you plan to get it approved in future? 
  • We note that the company disclosed their level of EU Taxonomy alignment e.g., Capex %, Opex %, Revenues %. Are those figures based on the revenue eligible % figure?

Sustainable finance framework

  • Any plans to update the Green Finance Framework since it’s quite old from 2018?
  • How do biodiversity projects link to your investments under the green finance framework?

III. Appendix

Alignment with standards

This includes all questions associated with (but not limited to) alignment with:

 

  • The Sustainable Development Goals (SDGs)
  • The EU Taxonomy
  • The European Green Bond Standard (EUGBS)
  • The Science Based Targets initiative (SBTi)
  • The International Capital Market Association (ICMA) Bond Principles
  • Regulations by industry-level bodies
  • Other regulatory

Bond characteristics

This includes all questions associated with (but not limited to) the structure (tenor, pricing, etc.) and the choice of the bond type (e.g. conventional, green, sustainability-linked, etc.). 

 

ESG assessment

This includes all questions associated with (but not limited to) environmental and other assessments conducted by the issuer.

 

Reporting

This includes all questions associated with (but not limited to):

  • Reporting of impact metrics
  • Reporting of impacts, methodologies, and assumptions of indicators
  • Reporting of progress on KPIs or historical performance
  • Frequency of reporting

 

ESG ratings

This includes all questions associated with (but not limited to):

  • Rationale behind choosing the SPO provider
  • Feedback by the SPO provider
  • ESG ratings reports

 

Stakeholder relations

This includes all questions associated with (but not limited to):

  • Supplier compliance with ESG
  • Customer compliance with ESG

 

Sustainability KPIs

This includes all questions associated with (but not limited to):

  • Selection of KPIs
  • Impacts, methodologies, and assumptions of indicators

 

Sustainability projects

This includes all questions associated with (but not limited to):

  • Projects eligible for use of proceeds
  • Eligibility criteria
  • Rationale behind projects evaluation and selection
  • Management of proceeds

 

Sustainability strategy

This includes all questions associated with (but not limited to) the issuer’s broad ESG strategy (both current and future), approach towards sustainability, and firm-wide policies.

 

Sustainable finance framework

This includes all questions associated with (but not limited to) the structure of the framework.

 

Verification

This includes all questions associated with (but not limited to) assurance and auditing for the framework.

 

We’ll provide regular updates on frequently asked questions posed by investors, to keep you up-to-speed with their most current views. So, please do regularly check our Insights Hub for updates.

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