Clifford Chance

From junk bonds to just bonds - the increasing importance of ESG financing in European high yield

26 July 2019

In this article, we discuss the emerging demand from investors for Environmental, Social and Governance (ESG) financing and its potential effects for stakeholders in the leveraged finance market.

Increasingly, investors want to know that their capital is contributing to a more sustainable future, and the capital markets have responded with a wide range of financial products to meet this investor demand. While historically there has been substantial focus on "green" financing products that raise funds for projects with tangible environmental benefits, investors are increasingly looking to issuers' broader ESG credentials as part of their commitment to sustainable investing. Issuers have the ability to design a product that conforms with "green" principles, such as Getlink SE's green bond to provide capital for clean transportation and energy efficient projects, or to focus on improving their overall ESG rating through initiatives like carbon emissions reduction or closing the gender pay gap. As such, the Financial Times has declared 2019 "the year when environmental, social and governance considerations are moving out of a specialised niche into the mainstream."

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