Sustainable finance, how EU companies use green financial promissory notes

Sustainable finance never ceases to amaze. After green bonds and linked-bonds, there is another financial instrument that is making its way into Europe. These are commercial papers, which in Italy we know by the name cambiale finanziaria. According to an October study by the International Capital Markets Association (Icma), it is estimated that in Europe the use of commercial paper has already reached about EUR 300 billion; far from the USD 4.5 trillion of the sustainable bond market, but they could soon be in turbo mode, given the flexibility of the instrument, especially from the legal point of view, and the lower costs. "Commercial papers, including sustainable ones," points out Alessandra Pala, counsel in A&O Shearman's global financial markets practice, "are first and foremost exempt from the provisions of the Prospectus Regulation. Moreover, issuers only need legal support in the initial phase of setting up the programme. On the investor side, on the other hand, it is a tool intended for the wholesale segment and thus for banks and insurance companies, for example'.

Icma mapped 33 sustainable commercial paper programmes in Europe. It emerged that companies issue two categories of commercial paper: 1) the first are those similar to green bonds issued to finance a specific project; in English they are called 'use of proceeds', when the proceeds are tied to the financing of a specific green or social plan; 2) the other category of commercial paper highlighted by Icma, is that similar to sustainability linked bonds, i.e. bonds linked to certain indicators (Kpi) and performance.

Project-linked commercial paper is the most numerous: there are no fewer than 23 emission programmes with a countervalue of $265 billion. The other category, on the other hand, has 10 emissions projects with a countervalue of 34 billion.

Commercial paper is in itself a short-term financial instrument that somewhat clashes with the very concept of sustainability: the long term is right in the DNA of the green world. "Commercial papers, in terms of duration, do not exceed one year," Pala reiterates, "and very often have a revolving nature: they are issued on an ongoing basis, financing previous ones with subsequent ones. More generally, a commercial paper programme can last up to three years'.

So how does one combine the short term of financial bills with the long term of sustainable finance? The key junction is the sustainable financing framework, i.e. the company's plan for sustainable issues, issues that can also be green or social bonds. For Icma, the framework in which to place the financing bonds is crucial. "The key recommendation of the Principles," reads the October report, "is that issuers have a framework that provides relevant information 'in the context of the overall sustainability strategy'. As a result, many corporate issuers have developed sustainable finance frameworks that apply to all their financings'.