ICMA publishes paper on role of commercial paper in the sustainable finance market

On 7 October 2024, the International Capital Market Association (ICMA) released a paper exploring the development of the sustainable commercial paper (CP) market – worth up to EUR 300 billion according to ICMA’s estimates – and the potential this market may play as part of an issuer’s wider sustainable financing strategy.  

The paper provides an overview of the two main categories of sustainable CP in the market (i) use of proceeds CP, where net proceeds (or an equivalent amount) are used to finance or refinance eligible green, social or sustainable projects in alignment with an issuer’s sustainable financing framework and (ii) sustainability-linked CP, a more nascent category, where the CP is linked to ESG ratings or an issuer’s performance based on either of key performance indicators that are consistent with the issuer’s broader sustainability strategy or sustainability-linked financing framework.  

In discussing the feasibility of commercial paper as a sustainable financing instrument, the paper touches on some of the challenges presented by the short-term nature of CP (and how this can be reconciled with longer-term sustainability goals) and the difficulties presented for reporting for an instrument that is typically continually refinanced. 

The paper then presents certain recommendations from ICMA and the Commercial Paper Taskforce, informed by current market practice for use of proceeds CP issuances, whilst making observations for the sustainability-linked CP market. The paper underlines these recommendations and outlines current best practice which may evolve as the market develops.