McDermott Comment | Climate Change Discussion Reaches New Depths at 26th Annual Conference of Parties (COP26)

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Carl Fleming, partner at law firm McDermott Will & Emery, said:

“Financing the transition to a low carbon world will take center stage at COP26.  These discussions will focus heavily on sustainable investing.  The three practical outcomes I see emerging from COP26 are: (i) a tidal wave of green bond issuances, both private and government; (ii) a surge in the supply of sustainability-themed debt issuances; and (iii) an even further heightened focus on climate-related ESG disclosures.  I say this since we covered each of these items when McDermott was asked by the US government to bring private sector private equity firms and investment banks to meet the US and UK delegations at the London embassy last month in preparation of each government’s attendance of COP26.

Bonds: On the bond side, I expect to see a tidal wave of green bond issuances, both private and government, following COP26 as sustainable finance will be front and center at the event. The green bond market has been explosive heading into COP26, and this growth has spurred private companies, as well as the public sector, to take a closer look at the manner in which they access and raise their capital.  This is due to the fact that green bonds assist investors in aligning their financial objectives to achieve ESG targets since such the proceeds of such issuances are exclusively applied to projects with a focus on environmentally sustainable activities. In the U.S. for instance, over the past two years we have seen Clearway Energy Inc. issue its green bonds and implement its green bond framework with great success and we are working with several other developers on potential green bond issuances.  Such green bond issuance proceeds can be used to finance new project or refinance existing projects.

Debt: On the debt side, I expect to see a surge in the supply of sustainability-themed debt issuances following COP26.  We are already seeing this going into COP26.  In July, DWS announced the launch of its new institutional ESG Infrastructure Debt Fund, targeting all European sustainability themed infrastructure sectors which contribute towards making society and economies more sustainable.  And today, Global Infrastructure Partners announced that it is planning to launch a credit fund focused on the green energy transition.  Others are sure to follow.  Each of these will deliver more depth and liquidity to the market and allow investors a greater ability to assess deals and structures.

ESG: On the ESG side, I expect to see an even further heightened focus on climate-related ESG disclosures following COP26. Such ESG initiatives are a key component of sustainable finance and such climate-related disclosure will be required to both promote informed decisions at the hands of stakeholders in the financial sector as well as to better understand the exposures to climate-related risks.  Going forward, issuers will likely face great pressure to disclose more detailed sustainability information, set validated third-party decarbonization targets, and also articulate credible pathways for their transition.  So much so that McDermott Will and Emery has doubled-down on its ESG group which is headed by one of the pioneers in the ESG field and current Harvard fellow leading the industry’s evolution on corporate sustainability and environmental, social and governance issues.”