Sustainable Finance

Sustainable finance is a new and growing force in financial services that is impacting all sectors and geographies. Green and social bonds were amongst the first products to come to market. The ESG financial product range has broadened significantly, creating both opportunity and risk for sellside and buyside firms and corporates, and ultimately for consumers.

A wave of regulatory change has been launched in the EU and UK with the purpose of integrating ESG factors into investment decision making, reducing risks of green washing and facilitating the flow of capital into sustainable economic activities. We are supporting asset manager and fund clients to meet these complex new obligations.

Linklaters works with clients every day on the full gamut of sustainable finance. Our global reach and multidisciplinary approach combines:

  • broad, deep and market-leading practice on ESG regulation;
  • outstanding financial and prudential regulatory expertise;
  • unrivalled corporate, banking and capital markets transactional practices; and
  • a highly experienced environment practice recognised for its environmental, climate, human rights and governance expertise,

delivered as one team, seamlessly, with a consistently pragmatic and commercial approach.

How Linklaters can help you

Green, social and sustainability bonds

Our green, social and sustainability bond work is led out of our market-leading DCM practice, offering cutting-edge expertise across the full range of capital markets products. We regularly advise corporate issuers and banks on their green, social and sustainability bond transactions and have regular dialogue with a range of market participants, including issuers, structurers and investors.

Our green, social and sustainability bond practices and experience span our European, North American and Asian offices and draw on the support of the firm’s market-leading tax, corporate, environment, energy and regulatory capital practices.

Sustainability-linked and green loans

The growth of green and sustainability linked loans has been gaining increasing prominence in the global lending market. Linklaters is a leader in green and sustainability linked lending and our market-leading banking lawyers regularly advise borrowers, issuers and investors on all aspects of green and sustainability linked loan transactions. Our sophisticated understanding of the markets in which our clients operate and the challenges they are likely to face, enables us to deliver innovative solutions on a global scale. We are at the forefront of legal and regulatory developments in ESG across Europe, Asia and the US, as national and regional regulators drive changes to the banking landscape. Our banking lawyers also draw on the support of the firm’s market-leading capital markets, corporate, tax, environment and climate change, energy and regulatory capital practices to provide clients with a full-service offering.

Derivatives and structured products

The derivatives and structured products space has seen increased interest in sustainable investment opportunities. In particular, we are seeing “green” regulatory capital transactions and synthetic securitisations, green structured notes (including repackagings of sustainable commodities, repackagings of green and blue bonds and structured notes with payouts linked to green benchmarks and funds) and sustainable swaps. The DSP team have also been advising benchmark administrators on the application of the new ESG benchmark disclosure requirements. They work closely with the environment team whose carbon and forestry commodities practice complements their own.

Structured finance

Our market-leading structured finance practice advises on a range of green, social and sustainability products. We have acted for a number of UK corporates (Anglian Water, Thames Water, Yorkshire Water and South East Water) on green bonds, green private placements and sustainability bonds and most recently for Cadent in March 2020 on its debut EUR 500 million transition bond, which was the first transition bond issued in the UK.

In the broader structured finance market, we have also acted on SR-Boligkreditt and SEB’s issuances of green covered bonds and prior to that in 2016 we acted for Bank of China on its green covered bond issuance.

Commodities – carbon

Our specialist carbon team has been at the forefront of the carbon markets for over 15 years. Linklaters is one of a very few firms which continued to actively support clients in this field throughout the carbon market downturn of the past few years. And as a result we have acted for governments, public-private organisations, multilateral organisations, finance institutions and private entities alike on the market’s most significant carbon transactions, such as advising the World Bank on an innovative rainforest bond used to finance a REDD+ project in Kenya.

We are proud to have advised across the full spectrum of potential deal structures, including carbon offtakes, intermediations, pre-pays, carbon financings, equity investments, carbon funds (compliance and financial), credit packages, carbon-structured notes and carbon-linked notes. We have acted for clients in developing carbon offset programmes and climate finance arrangements, including innovative forestry transactions.

Sustainable Finance regulation (e.g. EU Sustainable Finance Package)

Having a broad, deep and multi-disciplinary understanding of the span of demanding and fast-paced regulatory reforms, we advise many buy-side, sell-side firms and corporates on the way in which the new EU Sustainable Finance Regulation requirements will impact their institutions and on the compliance programmes and disclosures necessary to achieve compliance at both entity and product level.

The focus on this regime is particularly strong for the asset management sector and investment funds given the extensive disclosure requirements that will change its approach to ESG from March 2021. We are advising several large asset managers and investment funds on how to comply with the new requirements. Closely watching the development of detailed, technical standards in this space, and with strong links to many industry associations, we are able to provide rigorous legal analysis of the complex package of legislation, rules and policy guidance with the ability to benchmark their practical implementation in the market.

As with every major area of regulatory reform, governance and control to embed it within an institution will be a core concern of the regulators. With an eye on the Commission’s Sustainable Finance Strategy, and our understanding of our clients’ existing organisational framework and governance structures, we are able to advise senior management teams on how responsibility for ESG risks and opportunities should be mapped, managed and harnessed across the institution.

There are also significant opportunities for well designed financial products that satisfy the EU Taxonomy, and we have advised clients on a number of “Taxonomy-eligible” funds to date.

As investees, companies will be on the receiving end of ESG information requests from asset managers and funds impacted by the Sustainable Finance regime and from data analytics providers and ratings agencies. They will face increased scrutiny of this information, and ultimately they may find their ESG performances affects how they access finance.  Listed companies will also be more directly affected by changes to the Non-Financial Reporting Directive, the Financial Conduct Authority’s consultation on whether to introduce mandatory climate risk reporting from 2022 and the impact of the EU’s Green Deal.

Our key Sustainable Finance experience

Sustainable Development Goals linked bonds offer

Advising ENEL Finance International N.V.’s issue of three series of bonds for a total amount of €2.5bn, linked to the United Nations Sustainable Development Goals (SDGs), the first ever issued in Europe. This was a general corporate purpose bond which introduces a penalty in the form of increased interest rates if ENEL fails to comply with its targets in achieving sustainable development goals.

Sustainability-linked loans

  • Advising the lenders on a US$5bn sustainability linked multi-currency revolving credit facility.
  • Advising a utilities company on its €3.5bn sustainability linked multi-currency revolving credit facility.
  • Advising an automotive manufacturing company on its €4bn sustainability linked multi-currency revolving credit facility.

First of a kind bond structure

Advising the World Bank on the Pilot Auction Facility (PAF) on its first of a kind bond structure encompassing a put option auction to leverage public finance for methane (and other) emissions reductions. We have now advised on Phases 2, 3 and 4 of this Facility. The PAF is an innovative instrument which has been under development for many years and was designed to ensure the maximum use of limited public resources for climate change mitigation, while leveraging private sector financing.

Application of Sustainable Finance Disclosure Regulation

  • Advising various asset managers on the application of the Sustainable Finance Disclosure Regulation and on the components of a related compliance project.
  • Advising asset and fund managers on the application of the Sustainable Finance Disclosure Regulation to their remuneration policies.
  • Advising a commercial bank on governance and risk management under the PRA supervisory statement on climate change.
  • Advising a commercial bank on product governance and ESG.
  • Drafting ESG policies.
  • Advising on the development of Taxonomy compliant funds

Derivatives and structured products

  • Advising benchmark administrators on the application of the ESG disclosure requirements set out in the Low Carbon Benchmark Regulation.
  • Advising the investor in the first ever green synthetic securitisation.
  • Drafting and negotiating various sustainable structured/repackaged notes.
  • Establishing repackaging programmes designed solely for repackagings of sustainable commodities.
  • Advising on various access products to facilitate lending to emerging market countries/government entities.

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"ESG" in the broadest sense covers environmental, social and governance issues but consensus on details of the meaning can vary and public perceptions are changing rapidly.

Our ESG team has a robust understanding of the regulatory and policy drivers of the market and experience across a wide range of sectors and contexts. We take a holistic approach, covering a wide range of areas - from climate change and resource efficiency, human rights and community engagement, antibribery and corruption, transparency and disclosure, product governance, and risk management more generally.

Key Contacts
For more information on how our Sustainable Finance team can support you, please get in touch with one of the contacts below.

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