Corporate treasury teams within British businesses have shrugged off the liquidity challenges presented by the COVID-19 pandemic. This is one of the key findings in the Corporate Debt and Treasury Report published by Herbert Smith Freehills and the Association of Corporate Treasurers (ACT). Data also suggests the dramatic rise of ESG and sustainability up board agendas has resonated within corporate debt raising, with sustainability-linked loans becoming a mainstay of the corporate debt capital structure.

Debt markets open

Market conditions for raising debt remain positive and corporate treasury operations and debt raising have not been impacted by Brexit. According to the report, 55% of respondents plan to refinance their debt this year (up from 40% in 2020), partly due to pent-up demand from processes that were deferred due to the pandemic.

A significant proportion (38%) also intend to raise new capital - a figure that has risen from 30% 12 months ago.  The data suggests that their confidence stems from most claiming that they are not experiencing more cautious behaviour from creditors, suppliers or customers.

Asked how they expect their organisation’s expenditure will compare to last year, 33% suggested greater spending on acquisitions, up from 25% in 2020. A quarter of those asked also indicated that increased capital will be used to pay dividends, up slightly from 22% in 2020 and reflecting the unwinding of the widespread dividend suspension policies seen in 2020.

Impetus for ESG

The Corporate Debt and Treasury Report also charts the increasing importance of ESG factors when organisations formulate their debt strategy. When the question was first asked in 2018, just 17% of treasurers said ESG was a factor when formulating their debt funding strategy. In 2021, this figure has jumped to 61%. A slightly higher proportion (65%) now also intend to include ESG features in their next financing. At 35%, sustainable loans are the most likely source of ESG financing, followed by green bonds (17%) and sustainable bonds (15%).

"The key driver is not pricing; it is fundamentally a response by company boards to these issues as raised by their customers, investors and other stakeholders; it’s a key part of corporate strategy," commented Kristen Roberts, finance partner at Herbert Smith Freehills. "As a result of their flexibility, sustainability-linked loans offer the most straight-forward route for corporates to dip their toes into ESG debt financing. Over the longer term there is a sense that green loans and bonds could see much broader application as corporates pursue specific aspects of their ESG agendas via green-lending. Compared to 2020 the impediments to incorporating ESG elements into financings are weakening. This should be the case as the markets continue to develop and refine ESG financings and they become better understood."

Methodology

This research comprises a survey of, and follow-up interviews with, finance and treasury professionals of 100 large UK corporates (primarily FTSE 100, FTSE 250 and equivalents) conducted in January to March 2021.