Investor Demand and Cost of Capital – Issuers of sustainable finance instruments, such as green bonds, use sustainable finance to diversify and expand their investor base. Green bonds also tend to be significantly oversubscribed, which can result in tighter pricing.
Greenwashing – Increased scrutiny and allegations of “greenwashing” have prompted a strong emphasis on ensuring that sustainable finance instruments use “best-in-class” structures. Certain green bonds have
attracted criticism for financing projects that do not align with their intended environmental impact (and/or that may cause social damage or inequity).
ESG Diligence, Disclosure and Materiality – ESG diligence and disclosure is critical for sustainable finance transactions due to the increasing importance of ESG factors and risks. The nature and extent of appropriate ESG diligence will depend on the sector, jurisdiction, business model, and risk profile of the issuer.
ESG Regulatory Landscape – The global ESG regulatory landscape is developing rapidly, covering issues such as ESG due diligence, climate and sustainability disclosure requirements, and the classification of investment funds in terms of their sustainability. Even though such regulations may not directly apply in the GCC Region, they do apply in many of the jurisdictions in which GCC Region organizations have investments and operations.