Debt Finance

Our Project team developed the A4S Essential Guide to Debt Finance following extensive interviews with lenders and debt investors to understand how ESG is currently considered in debt finance decisions, and how the market is expected to shift in the future. 

The project was developed over several years with interim findings discussed with senior representatives from the fixed income, banking and pensions communities in June 2017

Download the guide > 

Project aims

The aim of the project is to:

  • explore how risks and opportunities relating to major environmental and social trends impact debt financing decisions
  • to consider actions that might be taken by companies and other capital market participants to integrate these issues more systematically


Faced with a common set of global economic, social and environmental challenges, in September 2015 the international community agreed an ambitious set of Sustainable Development Goals (SDGs). These Global Goals provide a focus to develop solutions and channel investment towards areas such as decent work and economic growth, the provision of clean water and sanitation, reducing inequality, and developing sustainable cities, and recognize the interdependence of many of these aims. Finding a way to finance the SDGs will be a huge challenge. The World Investment Report highlighted that global investment of between five and seven trillion US dollars per annum will be needed to support their delivery, the majority of it in developing countries, and much of it in infrastructure. The public sector, on its own, cannot meet this demand. The activities of the investment and business communities over the coming decade are going to be crucial.

Further, to make a successful transition to a low carbon economy, significant capital will have to be divested from high carbon assets and reinvested into new technologies and infrastructure to drive the energy transition. The scale of the necessary reinvestment is huge. The International Energy Agency estimates 318 trillion US dollars will need to be invested to adapt to climate change under a six degree trajectory. They estimate that an additional 40 trillion US dollars is needed to transition to a global low carbon energy system in the two degree scenario. This represents less than 1% of the cumulative global GDP over the period from 2016 – 2050 and is expected to lead to fuel costs savings of 115 trillion US dollars.   The debt markets and banks will have a significant influence on the outcomes achieved. Markets in green bonds and loans are growing fast, but remain small in overall terms and will not be sufficient to finance the transition.

In addition, macro environmental and social trends may pose a significant risk to existing loans and other sources of debt finance. Climate change alone risks negatively impacting future cash flows through physical impacts such as flood damage, or water scarcity, and changes in policy and technology raise the risk of assets becoming 'stranded'. A number of sectors with high dependence on debt finance are particularly exposed. 

By tilting their debt portfolios towards "high-ESG" (Environmental, Social and Governance) corporates, debt providers can reduce risk levels and take advantage of emerging opportunities. For example, research from Barclays shows that a diversified high-ESG portfolio of US Investment Grade Corporate Bonds steadily outperformed the equivalent low-ESG portfolio and demonstrates the beneficial effect that ESG-conscious investing can have on bond portfolio performance.

Despite these trends, an integrated approach to ESG is far from mainstream and the current, albeit encouraging, actions being taken by a number of leading pension funds, asset managers, banks and others are yet to redirect substantially the allocation of capital towards sustainable, socially productive investments.


  • A research summary sharing insights from a series of one-to-one interviews and roundtables with representatives from banks, asset managers, credit rating agencies and asset owners exploring current practices and any challenges faced to integrate sustainability considerations into lending decisions and capital allocations, as well as practical recommendations and actions
  • Practical guidance will be developed with a range of tools, case studies and tips for treasury teams

Projects members are essential to the running of all A4S projects, and represent CFOs from the A4S CFO Leadership Network.

The members for this project were:

  • Jane Pilcher, Group Treasurer, Anglian Water
  • Sarah Barzycki, Group Treasurer, British Land 
  • Jonathan Clay, Head of Corporate Banking, National Grid
  • Chris Tregenna, Head of Treasury, Pennon Group
  • George Duncan, Head of Group Funding, SSE