Sustainable finance’s next big act will tie social targets to returns 

 Alfonso Garcia Mora

COMPANIES’ efforts to improve their environmental, social and governance credentials have given birth to a new type of debt that links interest rates to ESG performance. But the majority of these instruments’ targets are mostly linked to issuers’ environmental impact, and not the impact they may have on the people they employ or the communities they affect. With the pandemic bringing social issues to the fore and calls for the transition to Net Zero to be just, this could soon be about to change. 

As key decision makers from central banks, sovereign wealth funds, financial institutions, private banks, government agencies and businesses from around the world convene this week for the Singapore Sustainable Investing and Financing Conference, organised by BlackRock, International Finance Corporation (IFC) and Temasek as part of Ecosperity Week, a question on the minds of many will be what’s next for the sustainability-linked finance market. It now boasts over US$1 trillion of issuance since 2017, making it the world’s fastest-growing type of sustainable debt. While more prevalent in Europe and North America, its rise in Asia is gaining traction, with big-ticket issuers from carbon-intensive sectors with green ambitions and ESG-focused investors driving demand. But as of April, just 22 per cent of these loans and bonds globally have included social and governance targets. Gender equality and worker safety are the most prevalent social targets. Other examples of social metrics include labour rights, education, and supply-chain performance.