Having taken a leading role historically in bringing ESG to its equity research franchise — starting as early as 2006 — and in its global banking and advisory business under Pierre Palmieri, Societe Generale was in prime position and delivered many of the landmark transactions of the year.
“There is a very clear message from Frederic Oudea all the way through the organisation that ESG is not the particular responsibility of any department, but a responsibility for all of us,” says Luis Vaz-Pinto, global head of ECM at Societe Generale. “Within ECM we’ve made pitching on ESG a focus of everything that we do and we work hand-in-hand with our world class ESG corporate advisory team, who not only support clients, but also help them to disrupt within the new paradigm.”
The bank’s ESG equity research under Yannick Ouaknine, provides ESG ratings on around 500 stocks — putting the ratings on the front cover of research reports alongside the usual positioning recommendations — and in 2019 it began integrating ESG into all of its equity publications.
“Putting ESG ratings on stocks generated tremendous interest not just with the buyside but with corporates,” says Vaz-Pinto. “Having been the first team to systematically do that, we’ve now taken another innovative step forward and overlay our target price with the ESG quantitative score, providing investors with transparent justification for the ‘E’, ‘S’ and ‘G’ components. This is done by each individual research analyst on the stocks that he/she covers, and in some cases has had a double-digit impact on the final share price target.”
In 2020, that interest began to coalesce into transactions. Vaz-Pinto describes the unique role the firm played as it worked on both of 2020’s ground-breaking ESG convertible bonds. It acted as a joint global coordinator and green structuring bank on the €170m deal issued by renewable energy firm Neoen in May, a CB issued under a green use of proceeds framework that was the largest of its type globally, and the first in Europe. And it was a joint bookrunner on the €650m deal issued by Schneider Electric in November, a sustainability-linked CB that included key performance indicators on climate, gender equality and social inclusion.
The green label on the Neoen convertible helped attract additional demand from long-only investors, says Vaz-Pinto, with the book covered in less than an hour and pricing coming at the best end of terms for Neoen.
“This was a real validation of the green CB product,” he says. “It made it even more attractive to the existing convertible bond investor base while corporate treasurers and CFOs saw the impact that it had on pricing.”
The Neoen deal was followed by Schneider Electric’s inaugural sustainability-linked convertible bond, a €650m offer in November, that was also enthusiastically received by investors.
For companies like Schneider that want to set meaningful ESG targets but don’t perhaps have the green capex requirements, the sustainability-linked format offers clear advantages, says Vaz-Pinto. “By associating themselves with a green framework they were able to generate investor interest over and above that which would have been achievable with a conventional CB,” he says.
ESG factors are also becoming increasingly important to investors in primary equity transactions. Vaz-Pinto thinks that the 2019 IPO of Française des Jeux, the state gambling monopoly, although not billed as an ESG deal, was a telling moment. “Ten years ago, a gambling IPO would have been an impossibility, but the global investment community was able to get comfortable because of the framework around responsible gambling that the company and the government put into place,” he says. “It was a prelude that showed that investors are very much paying attention to these issues.”
Investor appetite for companies with ESG credentials was again highlighted in the largest IPO in France in 2020, the €300m listing of 2MX Organic, a special purpose acquisition company (SPAC) brought to market by high-profile sponsors Xavier Niel, Matthieu Pigasse and Moez-Alexandre Zouari. The SPAC is targeting an initial business combination to create “a new European player in sustainable, alternative and responsible consumption”.
The deal in December, with Societe Generale as joint bookrunner, was a hit with investors enticed by the focus on sustainability. “The very strong credibility of the sponsors combined with what was thought to be a very attractive theme meant that the books were covered in just two days and transaction upsized from €250m,” says Vaz-Pinto.
