Green bytes: tech as your ESG ally

13 February 2020

Dr Arthur KrebbersHead of Sustainable Finance, Corporates

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5 minute read

Technology can be a potent ally for the carbon transition. Most value chains require digitised solutions to identify, enable and track environmental improvements.

Furthermore, tech products themselves are in need of low-/zero-emissions solutions, with data centres set to surpass air travel in carbon usage (Source: Guardian).

Against this backdrop there’s a strong case for the Sustainable Finance asset class to move from analogue to digital, embracing investments in tech solutions.

Here we look at the practical steps treasurers can take to facilitate this:

First step: expand your green project portfolio to include tech

With ICMA’s green bond principles explicitly supporting research and development, we’ve seen companies starting to include technological investments as a potential use of proceeds. These types of higher-risk investments can help highlight how a firm is being more ambitious in driving a sustainability agenda than its peers. In some cases, such as Philips, the entire fundraising is even framed as “Green Innovation”.

Projects you could consider include:

  • Generate “Dark green”: new, carbon-neutral products, services and fuel sources (cars, planes, biogas etc.)
  • Generate “Light green”: AI/machine learning solutions to help optimise energy usage; carbon capture and storage
  • Green transparency: data solutions/methodologies that help track the sustainability impact of projects
  • Green tech delivery: more energy efficient data centres and data networks

Second step: get tech experts on your green committee for project selection and due diligence

Governance around evaluation and selection of your green tech projects requires appropriate internal stakeholders. A number of companies are therefore incorporating technology experts into their green (bond) committees. National Grid’s committee, for example, includes representatives from their “Ventures” unit, which helps support start-up initiatives.

In addition, be aware that selecting tech projects often involves distinct diligence considerations that are different from physical capex. Risks around data privacy and cyber security become particularly pertinent.

Third step: selling your tech project to investors

Following the project selection, the key question is how you can best finance these new green tech projects, including how to best position your green tech ambitions with investors. Traditionally, bond investors would be reluctant to be associated with high-risk projects with an unclear net present value – out of concern this could lead to a wealth transfer to shareholders.

But there’s positive news. As more debt investors incorporate the climate transition into their strategic and fiduciary duties, such concerns will be less applicable to environmentally-focused projects. Arguably, the bigger long-term risk is that their debtors do not prepare themselves for the technological and environmental challenges facing their industry.

We therefore expect strong appetite for further “Green tech” debt offerings, whether in private or public format. And they may well emerge as block chain bonds as well!

Final step: use external information sources to help with the reporting on the technology impact

Investors expect transparency on results post-issuance. Whereas most tangible environmental capex involves a clear impact (“my windfarm will generate X Kwh of electricity”), technological R&D, particularly in the first few years of development, is not always as straightforward to quantify.  

The following elements can help with the reporting on your green tech projects:

  • Use case studies, which show the applicability of the technology
  • Research and present scientific proof points (such as academic papers) around the potential of the technology being tested
  • Include any information that showcases how the technology can help the wider value chain, encompassing suppliers and clients

We’re looking forward to a generation of sustainable tech financing emerging - byte by byte!

ESG/Sustainability


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