Moderated by Dr Arthur Krebbers and Dan Bressler from our Climate & ESG Capital Markets team, the webinar guests – Dr Anastasia Petraki, Head of Sustainable and Transition Solutions, DACH, at BlackRock; Erin Heide, Director of Responsible Investing at MacKay Shields; and Roisin Booth, Head of Sustainability Reporting, at NatWest Group – shared several learning points and helpful insights. These included:

• Transition planning should be a strategic exercise: “Regulatory box ticking” does not suffice. Investors expect corporate transition planning to be a strategic exercise with input from many stakeholders across business lines, functions and geographies as well as input from external specialists. Also, systemic thinking plays a role when defining transition pathways. Booth mentioned NatWest Group’s systems thinking approach, with the bank viewing transition through the lens of four interdependent systems: 1) energy, 2) food, 3) mobility, and 4) property. Cross-cutting changes across the systems will likely be required to support large-scale decarbonisation. Understanding these changes from a systems perspective enables us to appreciate the challenges faced by customers and provides insight into shaping climate-related opportunities.
• It is acknowledged that there may be different approaches to transition planning; with some setting long-term targets and working backward to try to achieve them, while others may start their transition journey by making immediate-to-short-term changes with the aim to grow those efforts over time to achieve decarbonisation.
• Good quality disclosure is an important transition proof point for investors: Despite the complexity of data, a focus of sustainability disclosures ought to lie on making them user-friendly and easy to understand, not just for investors but other stakeholders too. A bottom up-approach would suit this purpose. Seeking constant feedback from stakeholders on their information requirements helps to identify emerging topics, and evolving data demands from investors and others. The specialists also emphasised the importance of being “extremely transparent” on data quality and assumptions for transition plans, to mitigate risks of greenwashing claims.
• Transition planning and implementation is perhaps the only area in business where showing vulnerability may be a strength: Companies should feel comfortable being open about the transition challenges they face as it is a “complex and messy” task. Those that are transparent about their vulnerabilities are illustrating management’s strategic preparedness to potentially mitigate those risks. Additionally, with plans and metrics still evolving, a close collaboration between companies and investors, with investors providing support where possible, is key to reaching the desired economic transition goals.
• Transition is not just a carbon reduction story – it’s key that social aspects are considered: While there is no single definition for a ‘just transition’, one way to judge fairness from a customer point of view is by looking at the increase in prices as a result of companies handing down their decarbonisation costs to their customers: the lower prices can be kept, the fairer the transition as it won’t risk excluding previous customers who might not be able to afford the products at a higher price. Of course, a fair transition goes much further, and investors are looking very closely not only at how companies’ journeys impact customers, but also – if not more importantly – their suppliers, communities, and employees – and what support each corporate provides for each of its stakeholders. 
• Labelled capital markets instruments are useful tools to support transition strategies: Many investors rate the issuer rather than single issuances, and therefore the financing framework becomes the focus. A good financing framework will align with the business and transition strategy, it will have clearly defined transition projects and will explicitly state the look back periods. For each labelled issuance, issuers will have to show where these projects fit in the overall transition strategy. Generally, Use of Proceed Bonds are still preferred by investors over sustainability-linked formats due to their more directly measurable and reportable impact. However, sustainability-linked issuances can be helpful instruments to raise capital for transition projects if the issuers choose relevant, material, and ambitious KPIs. More from our “What ESG investors want” series

More from our “What ESG investors want” series

Please follow this link to access the recording of this webinar, and for previous webinars in this series, as well as to get more insights about ESG investors, please check out our dedicated website.