The International Capital Market Association (ICMA) released a paper, “The role of commercial paper in the sustainable finance market,” highlighting the growing recognition of the potential of sustainable commercial paper (CP) to form an integral part of sustainable finance strategies.
With the market for sustainable CP potentially reaching €300 billion, this paper provides crucial insights into its development and the best practices shaping its future.
As issuers continue to seek innovative and flexible financing options to support their sustainability goals, the paper outlines how sustainable CP can serve as an important short-term funding mechanism in support of long-term environmental, social, and governance (ESG) objectives.
The report also addresses some of the key challenges in this evolving market, including the contribution of short-term CP to long-term sustainability goals and reporting transparency, as well as the integration of sustainable CP into issuers’ broader sustainable financing frameworks.
Key Highlights:
- Sustainable CP has a growing role in issuers’ overall sustainability strategies, supplementing sustainable bonds, which currently dominate the market.
- Use of Proceeds CP and Sustainability-Linked CP are the two emerging categories in this space, reflecting the increasing demand for financial products that cater to both immediate financing needs and ESG commitments.
- Recommendations from ICMA and its Commercial Paper Taskforce (“the Taskforce”) provide issuers with initial and preliminary best practices for the structuring and reporting of Use of Proceeds CP issuance, while making initial observations pending further development of the Sustainability-Linked CP market.
“Estimated at as much as €300 billion, the sustainable CP market is significant, even if it is a fraction of the sustainable bond market. Within it, Use of Proceeds CP is the more established product, while Sustainability-Linked CP is emerging. This market has developed by leveraging the well-established voluntary practices in the sustainable bond market represented by the Principles, as many of its recommendations are directly relevant or can be adapted for its purposes,” according to the report.
“The sustainable CP market presents a flexible, short-term financing option that can complement issuers’ long-term sustainability strategies,” said Nicholas Pfaff, deputy CEO and head of Sustainable Finance at ICMA, in a statement. “This paper outlines initial and preliminary best practices for issuers seeking to expand their sustainability toolkit to Use of Proceeds CP, while acknowledging that the Sustainability-Linked CP market may evolve further.”
Katie Kelly, senior director for Market Practice and Regulatory Policy at ICMA, said in a statement “The Taskforce’s insights into market trends and standards highlight the potential for sustainable CP to play a much larger role in the sustainable finance ecosystem. As the market develops, ICMA will remain at the forefront of facilitating best practices and promoting transparency.”