Global concerns about inequality and climate change, as well as global concerns about the COVID-19 epidemic, contributed to the rise of societal expectations for responsible business practices. Companies across all sectors tried to balance their efforts to measure, report and address these issues while maximizing long-term stability, growth, and sustainability as governments, investors, communities, and other stakeholders put them in the spotlight.
We advised clients, including companies, sovereigns and investors, on issues that ranged from evolving ESG reporting and regulatory requirements to sustainability-linked financing. Below are some of our top concerns for clients in 2021.
Social factors are more weighty
Climate change, and the regulations and policies designed to mitigate industrial activity’s effects on the climate, have underscored the importance of environmental protection, often overshadowing the importance of the “S” in ESG. But, there is a growing recognition of the importance of environmental protection. a company’s failure to address social factorsThere are serious risks to human rights, labor practices, community relations, diversity and inclusion. Supply chains, for example, can pose risks to companies that could have a negative effect on ESG goals. This can lead to reputational damage which can impact share prices.
To encourage action, lawmakers are also taking an increasing roleThis is especially true in Europe. Companies that want to fulfill their social obligations must be aware of the changing regulatory landscape.
Investors in infrastructure and mining should take note
Investors are looking for projects that can be sustainable and profitable in a variety of sectors. For example: Priority has been given to ensuring that borrowers consider ESG factors. Many mining financiers and investors are aware of this fact. ESG issues are a major concern for many mining investors and financiers.
A similar story was told by 2021 survey of infrastructure investors. Both The USAThe Asia-Pacific regionA majority of investors agreed that ESG considerations were important when choosing infrastructure projects.
The infrastructure bill in the USA opened the door to large-scale spending. More social infrastructure projects were planned for investors to be backed by investorsSchools and healthcare facilities are included in the mix, as well as traditional road, tunnel, and bridge projects. COVID-19’s lessons were a great help. ESG concerns also had an impact on investors in the Asia-Pacific region.The other was the same: plans to invest at a higher rate in social infrastructure.
Trade and competition issues are on the horizon
International trade agreements largely assume that companies are only interested in making a profit. Companies that focus on wider benefits, such as ESG goals, will reap greater benefits. It is important to weigh whether current trade laws can help or hinder themBoth in trade disputes as well as in their ability remain competitive while pursuing ESG goals.
ESG-friendly trade policies are implemented by some countries. These incentives could be in violation of US trade laws, such as anti-dumping laws. This law prohibits products from being sold in the US for less than their fair value. Many companies in the US and around the world may be affected by the fact that they do not receive ESG related inducements from their government and must instead assume additional costs to comply with international ESG standards.
The US Antitrust Front During heightened merger scrutinyAntitrust laws should be used to encourage social change. Social factors should be considered by companies—such as a deal’s impact on the environment and jobs—when seeking merger clearance. While it is unlikely that social factors alone will determine merger clearance outcomes, they could play a role in US enforcement agencies’ decisions on which transactions to investigate.
Sustainable financing accelerates
ESG features will be more prominent in investments and deals across all asset classes in 2021. The debt markets have been influenced by the growing importance of ESG.As borrowers realized that investors would be more open to a clear ESG strategy, they could also access new capital pools and lock in favorable pricing. Deals the largest-ever sustainability-linked financing. ESG-linked issuance was dominated by North American and European issuers. Sustainability and ESG Debt are rapidly gaining ground in all regions, even Latin America.Asia-Pacific.
A range of ESG-linked credit products has made great strides. Green bonds, which raise capital specifically for climate-linked and environmental projects, and sustainability-linked bonds and loans, which are not linked to specific green projects but are issued to incentivize sustainability performance objectives, all saw growing investor interest throughout 2021. As sustainability-linked financing products proliferate, the next challenge for borrowers and issuers will be standardization, to make it possible to compare the value of deals that cover different environmental and social impacts.
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