06.16.2020
By Shanny Basar

ESG Due Diligence To Rise In ECM

Environmental, social and governance disclosures for issuers raising equity capital are becoming increasingly important to investors and banks running these deals are likely to require them to be verified by an independent expert panel in the future.

The Association for Financial Markets in Europe held a webinar this morning – ESG Disclosure and Due Diligence: Through the Lens of Equity Capital Markets.

Ben Plant, head of corporate finance transaction governance at Barclays, said on a panel that ESG disclosures have become increasingly important for companies as they can demonstrate long-term resilience and be a competitive advantage.

Ben Plant, Barclays

Plant said: “It is increasingly rare to plan an equity capital market transaction without addressing ESG in the marketing material.”

He highlighted two current transactions – a rights issue for Whitbread, which owns the Premier Inn hotel chain, and a share placing from Ted Baker, the clothing retailer. Both have standalone ESG disclosures, which are not a regulatory requirement.

In addition, he said all long-term investors in London have an ESG team who will be consulted before the manager buys shares in a rights issue or an initial public public offering.

In the US there has already been a return of IPOs in healthcare, technology and software. Plant said: “Our New York syndicate team said there is a massive appetite for ESG-related stories.”

He expects that the responsibilities for banks who sponsor ECM deals will increase as more ESG disclosures are mandated by regulators. In March the UK Financial Conduct Authority launched a consultation on climate-related disclosure for listed issuers.

“I expect sponsor responsibilities will expand,” added Plant. “Banks may require expert reports on issuers’ ESG policies and disclosure.”

Matthew Townsend, partner at law firm Allen & Overy, said on the panel: “The legal warranties for deals will widen out but we are in the early days.”

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