1、FEATURE Financing a sustainable transition CFOs in Europe open up on sustainable finance Dr. Michela Coppola and Joep Rinkel Environmental, social and governance (ESG) issues, once considered extra- financial, are now being seen as material risks and opportunities for a companys bottom line. Recogni

2、sing this, financial markets are changing with important consequences for how companies finance themselves and shape their inves- tor relations. The results of the latest European CFO Survey reveal that when it comes to ESG, many companies are missing opportunities to engage with investors effective

3、ly. Finance departments have a role to play. In order to do so, they might need to build new capabilities. Financing a sustainable transition KEY TAKEAWAYS Investors and lenders now expect companies not only to deliver strong financial performance but also to have a positive social and environmental

4、 impact. CFOs can promote the social and ecological transition of their companies by using new financing tools and by supporting sustainability impact projects. Finance executives can help rethink the performance model of their company, using new accounting frameworks (such as the Triple Depreciatio

5、n Line framework) and new measures for triple performance (i.e., economic, social and environmental). Finance functions have a key role to play in ensuring the relevance, compliance and accuracy of sustainability information provided to external stakeholders from risk analysis to governance, interna

6、l control, prevention and mitigation measures, and third-party assurance. CFOs need to steer financial and non-financial performance using new tools and solutions, internal dashboards, individual and collective performance criteria, and group and entities roadmaps. Why sustainability is increasingly

7、 relevant to the finance function Companies and their finance functions have been dealing with the question of sustainability for a long time. However, while the costs and regulatory burdens associated with addressing sustainability were quite evident, the benefits of doing so have until recently be

8、en less visible and quantifiable. That has changed significantly in the past few years as public awareness of the worlds environmental and social challenges has grown and with it the demand for businesses and policymakers to take action. A growing body of evidence shows that a focus on environmental

9、, social and governance issues (ESG) makes companies financial and operational performance better.1 2 Financing a sustainable transition Investors are taking note. Asset managers are holding corporate leaders increasingly accountable for the ESG performance of their companies. By the end of 2019, mo

10、re than 2,500 investors repre- senting over US$80 trillion in funds had signed up to the UN Principles for Responsible Investment (PRI), thereby committing themselves to including sustainability factors in the investment process. New, dedicated debt instruments have emerged over the past decade to s

11、upport the move towards a more sustainable business model. More than US$450 billion in sustainable debt has been issued in 2019 the highest volume in any one year and almost 80 per cent more than in 2018, taking the cumulative volume of issuance well over the US$1 trillion barrier.2 3 Financing a su

12、stainable transitionFinancing a sustainable transition FIGURE 1 Sustainable Finance defi nition of key terms Equities ESG funds/Social responsible Investment Funds: Portfolios of equities and/or bonds for which environmental, social and governance (ESG) factors have been integrated into the investme

13、nt process. Strategies in portfolio construction and asset selection Debt Sustainable debt: The sustainable debt market includes green, social and sustainability bonds and loans that fi nance projects with positive environmental and/or social benefi ts, as well as debt securities that react to the s

14、ustainability performance of the borrower. Climate footprint UN PRI, “An introduction to responsible investment: Screening,” https:/www.unpri.org/an-introduction-to- responsible-investment/an-introduction-to-responsible-investment-screening/5834.article, May 2020. Deloitte Insights | 4 Financing a s

15、ustainable transition The onset of the COVID-19 pandemic has accelerated the rise of sustainable finance, both in equity and debt. In the equity market, investors seem willing to stick to their ESG investments and ride out uncertain economic times. Across the globe, more than US$45 billion flowed in

16、to ESG funds during the first quarter of 2020 while the overall fund universe experienced outflows of more than US$380 billion.3 Furthermore, ESG funds are outperforming their non-ESG equiva- lents so far,4 suggesting that companies which address sustainability are more resilient during periods of m

17、arket turmoil. In the debt market, the pandemic seems to have brought the “social” component of the ESG basket of factors into the limelight. From January to May of this year, issuance of social bonds whose proceeds are intended for socially beneficial activities soared to a record US$32 billion, al

18、most twice as much as in the whole of 2019.5 In addition, many governments are making sustainability central to their COVID-19 economic recovery packages.6 To get a sense of how companies perceive the role of sustainability in their financing deci- sions and in their investor relations, the latest e

19、dition of the European CFO Survey interviewed about 1,000 CFOs across Europe (figure 6). ESG and the cost of capital ESG MATTERS FOR THE COST OF CAPITAL BUT IS NOT YET CRUCIAL AT LEAST FOR PRIVATE COMPANIES ESG performance seems to affect companies cost of capital. A vast majority of CFOs (87 per ce

20、nt) believe that the overall performance of their company on ESG issues has at least some impact on its cost of capital today (figure 2). However, less than 50 per cent believe the impact to be moderate or high, although there is a significant difference between publicly listed companies and family-

21、owned or closely held ones. Almost 60 per cent of CFOs of listed companies report that ESG performance has a high or moderate impact on the cost of capital, but only 42 per cent of family-owned businesses. This gap is evident even when businesses of similar size (in terms of annual revenues) are com

22、pared. For now, then, ESG performance seems to be less relevant to the cost of capital of private companies as they may be less dependent on financial markets for their financing. Source: Deloitte European CFO Survey, Spring 2020. Note: Respondents were given a 6-level Likert scale that went from: n

23、ot at all/very low/low/moderate/high/very high. Throughout the report “very high” and “high” responses have been combined into a single “high” category. Similarly, “very low” and “low” responses have been combined into a single “low” category. Due to rounding, percentages may not always appear to ad

24、d up to 100%. Deloitte Insights | FIGURE 2 Perceived eff ect of the companys performance on ESG issues on the cost of capital today Do you believe the overall performance of your company on ESG issues has an impact on the cost of capital it faces today? 39%13%12%36% 31%12%17%40% 41%11%11%35% 12%42%1

25、5%31% 41%16%14%29% 45%13%6%36% Sample average Listed and traded on a public stock exchange Private equity/Venture capital backed Government or state owned Closely held (excluding family-owned) Family-owned ModerateLowHighNo impact 5 Financing a sustainable transitionFinancing a sustainable transitio

26、n ESGS IMPACT ON THE COST OF CAPITAL IS LIKELY TO INCREASE The picture changes, however, when CFOs look three years ahead. Across the whole sample, 70 per cent of CFOs expect their ESG performance to have a moderate or high impact on the cost of capital in three years time. One in three CFOs expect

27、the impact of ESG to be high in the near future three times as many as those who already see a high impact today (figure 3). This shift in perception is not confined to those who already believe ESG affects the cost of capital. Twenty per cent of the CFOs who see no impact at all today expect ESG cr

28、iteria to have a moderate or high impact on their companys cost of capital in three years time. CFOs across Europe seem therefore to agree that sustainability issues are likely to affect their companies soon. Similarly, asked about the role that third-party ESG ratings will have on investors and len

29、ders decision-making, about two-thirds of CFOs (63 per cent) expect a significant increase in their relevance. There is no standardisation in the criteria used to produce ESG ratings, and ratings firms regularly update these criteria to incorporate new trends. For example, the recommendations of the

30、 Task- force on Climate-Related Financial Disclosures (TCFD) are now generally incorporated into ESG ratings. Agencies also increasingly use alternative data to identify material risks and opportunities.7 Finance functions therefore need to build new skills and capabilities to stay ahead of the game

31、 and retain their ratings. EUROPEAN INNOVATION FUND FINANCIAL OPPORTUNITIES FOLLOWING THE EU GREEN DEAL FOR THE ENERGY SECTOR In 2019, the European Union established a 10 billion Innovation Fund to assist its efforts to make Europe the first climate-neutral continent by 2050. The fund is part of a w

32、ider landscape of both national and EU funding instruments that provide financial incentives to support companies pursuing innovative and sustainable projects. The Innovation Fund focuses on highly innovative technologies that can bring about significant reductions in carbon emissions. To meet the c

33、riteria, the projects need to be sufficiently mature in terms of planning, business model and financial and legal structure. The fund finances up to 60 per cent of the additional capital and operational costs linked to innovation, mainly in the form of grants that are disbursed flexibly, based on pr

34、oject needs and milestones achieved over the projects lifetime. Up to 40 per cent of the grants can be disbursed based on pre-defined milestones before the whole project is fully up and running. CFOs should consider the implications of all incentives available, such as the Innovation Fund, when cons

35、idering a carbon-reducing project. The finance departments of those companies which apply successfully will need professionals with sufficient knowledge of sustainability and related laws and legislation, in order to comply with ESG reporting requirements. Source: Deloitte European CFO Survey, Sprin

36、g 2020. Deloitte Insights | Impact in three years 6% Impact today FIGURE 3 Perceived eff ect of the companys performance on ESG issues on the cost of capital today and in three years time Do you believe the overall performance of your company on ESG issues has an impact on the cost of capital it fac

37、es today? And in three years time? High 13% 39% 36% 12% 24% 37% 33% ModerateLowNo impact 6 Financing a sustainable transition When we look at the survey sample from an industry perspective, key differences emerge. CFOs in energy and utilities, for example, are much more likely to report that ESG fac

38、tors have a significant impact on the cost of capital now, as well as in three years time (figure 4). Investors and shareholders began to turn their FIGURE 4 Perceived eff ect of ESG performance on the cost of capital in diff erent industries Do you believe the overall performance of your company on

39、 ESG issues has an impact on the cost of capital it faces today? And in three years time? (Net balances*) Source: Deloitte European CFO survey, Spring 2020. Deloitte Insights | *Note: A net balance is the diff erence between the percentage that perceive the impact of the ESG performance on the cost

40、of capital as high or very high, and those who consider it as having no impact at all Tourism Robert Eccles, Ioannis Ioannou, and George Serafeim “The Impact of Corporate Sustainability on Organizational Processes and Performance,” 2014; Morgan Stanley “The business case for sustainable investing”,

41、2015; Bank of America Merrill Lynch, “ESG Part II: A Deeper Dive,” 2017, accessed June 24th, 2020. 2. BloombergNEF, “Sustainable Debt Sees Record Issuance At $465Bn in 2019, Up 78% From 2018”, January 2020, accessed June 24th, 2020. 3. Morningstar, “Global Sustainable Fund Flows Report”, May 2020, a

42、ccessed June 25th, 2020. 4. United Nations Environment Programme, “Implications of the COVID-19 Pandemic for Global Sustainable Finance”, May 2020, accessed June 25th, 2020. 5. BloombergNEF, “Covid-19 Indicators: Sustainability”, June 2020. Available on Bloomberg Terminal, accessed on June 24th, 202

43、0. 6. See for example the proposed recovery plan for the European Union: https:/ec.europa.eu/commission/press- corner/detail/en/ip_20_940, accessed June 25th, 2020. 7. Deloitte 2020, “Advancing environmental, social, and governance investing”, accessed June 25th, 2020. 8. See also the results of the

44、 previous edition of the Deloittes European CFO Survey dedicated to climate change, accessed June 24th, 2020. 9. Deloitte “Navigating the energy transition from disruption to growth”, May 2020, accessed June 25th, 2020. 10. Based on the answers given to the survey, we label as “advanced” companies t

45、hat include ESG considerations into their strategy decisions, use ESG indicators to make the long-term case for their business and have a good understanding of the disclosures that matter most to their investors. 11. Moodys, 2020, “ESG risks material in 33% of Moodys 2019 private-sector issuer ratin

46、g actions”, April 2020, accessed June 25th, 2020. 12. Deloitte, 2016 “Crunch time: Finance in a digital world”, accessed June 24th, 2020. 12 Financing a sustainable transition About the authors Dr. Michela Coppola | micoppoladeloitte.de Michela is a senior economist and the research lead within the

47、EMEA Research Centre. She liaises with partners around the firm to identify, scope and develop international thought leadership. Michela leads Deloittes European CFO Survey, working closely with local teams to ensure the European report provides relevant and valuable insights from both regional and

48、national perspectives. Before joining Deloitte, Michela developed thought leadership for Allianz Asset Management, with a focus on demographic changes and long-term savings and investments. Before that, she worked at the University of Mannheim and at the Max-Planck-Institute as a post-doctoral resea

49、rcher. Michela has a PhD in economics. Joep Rinkel | JRinkeldeloitte.nl Joep is a sustainability oriented finance transformation professional, based in the Netherlands Amsterdam office. Being purpose-driven, he challenges CFOs and their finance functions, to enrich their core finance processes and to focus on stakeholder value. He is a Dutch Chartered Auditor and contributed to the NBA Public Management Letter Climate is Financial.