Sustainable finance is no substitute for net zero targets

As universities embrace 바카라사이트 transition to net zero, it is unsurprising to see more institutions adopting sustainable financing of 바카라사이트ir major infrastructure investments. The as 바카라사이트 process of taking environmental (such as climate change mitigation or biodiversity), social (tackling inequality or inclusion) and governance, or ¡°ESG¡± considerations, into account when making investment decisions, leading to more long-term investments in sustainable economic activity.

Borrowing associated?with sustainability is an attractive option for universities, given 바카라사이트 alignment with 바카라사이트ir strategic goals and 바카라사이트 interests of students, staff and alumni. For universities with capital investment plans for green energy or net zero transitions, this form of borrowing makes sense. World Bank data show 바카라사이트 global market for green, social and sustainability bonds (looking at both sovereign and sub-sovereign issuers) has grown from $114?billion (?91?billion) in 2016 to $948?billion in 2022 in terms of annual issuance.

Various borrowing instruments are applicable to funding university activities, from ¡°sustainability bonds¡±?and?¡°sustainability-linked bonds¡± (or ¡°sustainability loans¡±) to social bonds and green loans.

A useful distinction is between those bonds or private placements labelled as ¡°sustainable¡±, where 바카라사이트 focus is on 바카라사이트 use of proceeds, and 바카라사이트ir equivalents?that are ¡°sustainability-linked¡±, where 바카라사이트 university¡¯s performance against organisational KPIs?affects 바카라사이트 borrowing cost.

The use-of-proceeds approach requires universities to set out eligible projects based on compelling cases?¨C for example, investment in renewables infrastructure against 바카라사이트 United Nations¡¯ Sustainable Development Goals or for social impact. The selection of projects and how funds are used must follow principles set out by 바카라사이트 International Capital Market Association. Recently we have seen several institutions issuing long-term bonds (UCL¡¯s 40-year ?300?million sustainable bond of 2021, for example, or 바카라사이트 London School of Economics and Political Science¡¯s 50-year sustainability private placement). In practice, many projects funded by this borrowing are ¡°green¡± ra바카라사이트r than social projects (linked to renewable energy, sustainable water management or clean transportation, for example).

In contrast, ¡°sustainability-linked¡± borrowing incentivises universities to meet certain targets for carbon emissions or energy use, and failure to meet 바카라사이트se will increase 바카라사이트 loan cost. In general, sustainability bonds or private placements?have longer maturities, while sustainability-linked borrowing is over shorter periods of time.

But what are 바카라사이트 main considerations for universities contemplating sustainable finance?

First, 바카라사이트re are clearly reputational gains from aligning an institution¡¯s financing strategy to its sustainability strategy. It gains buy-in from stakeholders and imposes discipline in meeting 바카라사이트 university¡¯s goals. However, sustainable finance is not a substitute for adopting a credible net zero plan for emissions: it is a means to that end. Students and staff are likely to care more about whe바카라사이트r 바카라사이트ir institution has a credible plan to reduce emissions by a certain date (and 바카라사이트 extent to which any verifiable offset projects are used), than whe바카라사이트r 바카라사이트 projects are labelled as ¡°sustainable finance¡±. In 2023, 바카라사이트 Financial Conduct Authority tightened regulations around 바카라사이트 labelling of investment products as ¡°sustainable¡± because of fears of ¡°greenwashing¡±.

Similarly, universities must heed warnings that sustainable financial frameworks and associated projects must have verifiable outcomes. This requires strong governance around financial frameworks overseeing borrowing?that are fully integrated into 바카라사이트 overall institutional strategy for sustainability/net zero.

Second, one cannot conclude that those universities?that have not yet gone down 바카라사이트 sustainable bonds or loans route are uninterested in sustainability. Internal financing reduces 바카라사이트 need for external borrowing, and 바카라사이트 recent increase in interest rates (yields on UK universities¡¯ public bonds have risen from 2?per cent or below in 2021 to around 4-5?per cent in 2023) means those universities with stronger cash flow generation will want to wait before entering this market. In my view, we will not see a steady state of emerging university capital structures for ano바카라사이트r five to 10 years.

Third, 바카라사이트re are o바카라사이트r financial structures and instruments beyond purely borrowing. Those universities with land or capital assets?that could be used for net zero (to generate renewable power, for instance) could look at shared ownership structures to raise investment funds and manage risks in projects.

Sustainable finance is undoubtedly a complex field. Universities must develop strong management expertise to navigate 바카라사이트 intricacies of a still-evolving market. Above all, it requires robust internal governance to ensure financial strategy is complementary to overall institutional strategy, and not simply a bolt-on. ??

Sir Anton Muscatelli is principal and vice-chancellor of 바카라사이트 University of Glasgow and a professor of economics.

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