White & Case Advises G20 SFSG on Landmark Initiative to Create Sustainable CLO Market

Global law firm White & Case LLP has advised the G20 Sustainable Finance Study Group (G20 SFSG) as sole legal adviser and co-author of a White Paper which calls for the creation of a sustainable Collateralised Loan Obligation (CLO) market to support the world's transition towards a sustainable economy and combat irreversible climate change.

The White Paper is available here. The recommendations it contains were welcomed in the G20 Leaders' Declaration of December 1, 2018, available here.

"A new sustainable CLO market is the only mechanism to finance sustainable infrastructure projects at the pace and scale required to achieve the goals of the Paris Agreement," said White & Case partner Chris McGarry, who together with professional support counsel Mindy Hauman, worked with the G20 SFSG on the White Paper.

An investment of US$100 trillion in sustainable infrastructure is required over the next 15 years to support the world's move towards the sustainable economy envisaged by the Paris Agreement. "The capital required to meet the challenge is so large that it cannot be provided solely by banks," said McGarry. "There is a clear opportunity for institutional investors, which have access to a deep pool of capital as key participants in the US$100 trillion bond markets, to play a central role in the development and growth of a sustainable CLO market."

The bond market currently provides little of the overall funding to the infrastructure sector, around 15 percent of the total. The White Paper argues that the development of a sustainable CLO market is the natural and optimal capital markets solution to redress the balance.

In a new market of sustainable bonds issued by CLOs, asset managers will turn sustainable infrastructure loans into a liquid asset class connected to the world's bond markets and with support from key central banks. Moving existing sustainable loans into CLOs will free bank balance sheets to finance what will be an accelerating construction phase of new sustainable projects, which in turn will be acquired by the bond market through CLO bond issuance on the completion of projects.

"While the US has presently withdrawn from the Paris Agreement," said McGarry, "the G20 Leaders' Declaration paves the way for central bankers and regulators in the rest of the G20 – for example in China, the UK, the EU and Brazil – to get to work in earnest in 2019. Our proposals show how to finance the implementation of the Paris Agreement and deploy nearly $100 trillion over next 15 years."

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