Sustainability – base level for financial products, not a bonus. Market adapting to increased investor demand and recent regulatory changes

By Mika Puurunen

11-2019

Investors, business partners and employees are pushing issuers to facilitate the brown-to-green transition. At the same time, banks are facing increasing pressure to finance this transition. The future will tell how the market will adapt to increased green demand and recent regulatory developments.

Nordic capital markets are in transition. Some very interesting discussions took place on the current market trends concerning sustainable financing and certain regulatory developments having effect on Nordic players going forward, as we organised a capital markets breakfast seminar earlier this week in our Helsinki office.

The financial services industry has a key role in providing investments for sustainable solutions

The European Commission has estimated that preparing for climate change requires an annual €270 billion in investments to renewable energy and various other sustainable solutions. A significant part of this sum should come from the financial services industry.

So why the financial services industry should be interested in sustainable development? We concluded that sustainable development is not just for responsibility and reputation, but also for risk management and profit. Investors and lenders will have to ask themselves: what is my role as a financier in fighting climate change? This appears to be a game where you will have to make a stand.

Demand for instruments designed to finance green projects is increasing rapidly

Issuers are facing increasing demand and pressure to finance their sustainable projects with special purpose financial instruments such as green bonds. While it seems that the issuer's pricing power in green bond emissions does not materially differ from ordinary bond issuances, there are a number of other benefits to be gained by entering the market – green bonds can be effective instruments for increasing investor diversification and attracting a wider investor base. In addition, further benefits can be gained in longer maturities and the secondary market performance being more stable.

At the end of the day the question might well be: what kind of message you convey by not entering the market?

Market players are digesting the new EU prospectus regime and the new transparency requirements for Finnish public listed companies

At the seminar we also discussed the effects of the new prospectus regulation as well as the transparency requirements of the Finnish Corporate Governance Code 2020 and the Shareholder Rights Directive II. Key takeaways were the following:

The new prospectus regime has introduced reliefs valuable for Finnish issuers. E.g. the "20 % exemption" for admissions to trading, the new simplified prospectus for secondary issuances and the increased national prospectus threshold of €8 million were raised as examples. By contrast, there were doubts whether the universal registration document or the EU growth prospectus will be utilized that broadly in Finland. Further, we also discussed the related Swedish perspectives and concluded that even though it has taken time for the Swedish market to fully realise the potential of directed share issues, during 2018 and 2019 such issues have clearly taken off accompanied by the reliefs of the new prospectus regime.

With respect to the transparency requirements, the new remuneration policies will be approved for the first time by the AGMs in the spring of 2020. Further, the first reports concerning the new remuneration policies will be presented to the AGMs in 2021. Thus, it remains to be seen how the market will incorporate the new requirements into their remuneration disclosure. Public listed companies will surely seek for benchmarks and adapt their disclosure to meet the market standard to be formed.

Our speakers at the seminar were Counsels Mika Puurunen and Iina-Mari Supperi from Bird & Bird Finland as well as Partner Ola Lidström from Bird & Bird Sweden. In addition, we had the pleasure of having Associate Director Leena Kassinen as a guest speaker from OP Corporate Bank plc. The event was opened by co-head of the Finnish Corporate team, Partner Maria Carlsson and Partner Kimmo Reina.

Thank you all for attending the event and our speakers for the interesting presentations!