The European Leveraged Finance Association (ELFA) and the Principles for Responsible Investment (PRI) have today launched their third set of sector-specific guidance on environmental, social and governance (ESG) disclosures for sub-investment grade corporate borrowers. The latest ESG Fact Sheets outlines the most important areas of ESG disclosure for the Transport and Healthcare sectors.
The ESG Fact Sheets are designed to support borrowers when preparing ESG disclosure, and to facilitate engagement between investors and the companies to which they lend on important ESG topics. These best practice guides outline key topics under the three ESG pillars, along with the related policies, processes, controls, and associated metrics that could be relevant to an investment decision. They have been compiled after discussions with credit analysts, portfolio managers, credit rating agencies and ESG specialists following industry-wide engagement.
The Transport Fact Sheet highlights disclosure on environmental and climate change policy, use of new technologies in relation to environmental targets, policies for sustainable sourcing of materials and operations in or near biodiversity-sensitive areas. It encourages environmental disclosure on scope 1, 2 and 3 greenhouse gas emissions, nitrogen oxide and sulphur oxide emissions, energy, water consumption and waste. Areas of focus within the social pillar include occupational health and safety metrics for employees, managing relationships with local communities and IT security.
The Healthcare Fact Sheet provides general guidance as well as sub-sector guidance for pharmaceuticals, medical devices, and hospitals and care homes companies. For pharmaceuticals and medical devices, disclosures focus on monitoring product safety, environmental certifications, and pricing. Disclosure on recyclability and rechargeability of products is also listed for medical devices companies. Hospitals and care homes disclosure focuses on the social pillar and includes patient safety monitoring, managing customer information and data, and ensuring fair pricing.
The ELFA and PRI have previously published sector specific Fact Sheets on chemicals, industrials, retail, software, communication infrastructure, debt collectors, paper and packaging and telecoms companies. All ESG Fact Sheets can be downloaded from the ELFA’s website and notes from the most recent workshops can be found here on the PRI website, as well as here on the ELFA website.
The ELFA and the PRI believe the ESG Fact Sheets can help align market expectations and streamline the disclosure process. They are intended to serve as a starting point for ESG discussions between issuers, the buy-side, the sell-side and third-party service providers, but are not intended to be the definitive industry ESG disclosure standard nor replace customised investor ESG due diligence.
Sabrina Fox, Chief Executive Officer, European Leveraged Finance Association, commented: “ESG factors have quickly grown to be a critical part of credit analysis in European leveraged finance, but efforts have been fragmented as the market lacks consensus on the necessary types of disclosure. Through the introduction of the ESG Fact Sheets, we intend to bring greater consistency by introducing a standard set of sector specific disclosures. We are delighted to be publishing new guidance today for a further two relevant sectors, supporting the ongoing development of ESG investing by facilitating greater collaboration between companies, investors and wider industry participants.”
Carmen Nuzzo, Head of Fixed Income at the PRI, commented: “We are thrilled to have broadened the focus of the PRI’s ESG in credit risk and ratings initiative on the challenges that credit analysts and borrowers face in the sub-investment grade space through the collaboration with the ELFA. By providing opportunities to enhance communication amongst market practitioners, as well as promoting consistency and best practice in ESG disclosure through the Fact Sheets, we are creating synergies with concrete deliverables.”
The next sector specific ESG workshop will be held on Thursday 30th September and will focus on the autos, services, building materials and construction sectors. Investors who would like to participate should contact firstname.lastname@example.org to register their interest.