NatWest backs women-led sole traders and SMEs

The day before International Women’s Day, on March 7, NatWest Group issued a bond linked to funding women-led enterprises. The bank’s third social bond raised €500m for refinancing existing loans and funding new loans to women-led sole traders and small and medium-sized enterprises (SMEs). It was the first of its kind from a European financial institution.

The gender-related bond has been in the works for some time, as Caroline Haas, head of climate and environmental, social and governance (ESG) capital markets at NatWest, and Scott Forrest, head of treasury debt capital markets for NatWest Group, began discussing a gender-led transaction in 2019.

Ms Haas says the structure was close to their hearts because the idea emerged from the Rose Review. The UK Treasury commissioned Alison Rose, CEO of NatWest Group, to lead an independent review of female entrepreneurship. The report was first published in 2019 and is reviewed on an annual basis.

“When we were on a road show with our inaugural ESG bond, investors were already calling out the Rose Review, as they had a specific mandate that was focused on female entrepreneurship,” adds Ms Haas. Female entrepreneurs represent significant economic potential for the UK, with a £250m opportunity if women matched men in starting and scaling businesses, according to the report.

While this was not the first global gender-led transaction, the bond was different in aiming to help sole traders and entrepreneurs in accordance with the Rose Review, rather than targeting the boards of large companies.

The order book reached a peak of more than €1.75bn after the issue was announced in the morning on March 6 and priced in the afternoon of the following day. NatWest Markets — the green, social and sustainability (GSS) structuring advisor and joint lead bookrunner — and additional bookrunners ING, Natixis and UniCredit, did not want the transaction to be in a volatile market for too long.

Investors’ questions were mainly related to how NatWest measured impact, such as how the bank would encourage women to apply for this financing, as well as which industries and types of sole trader would be helped. Ms Haas says the bank also received questions around the breakdown of ethnicity, as well as plans for further engagement with women that face difficulties when accessing finance. “The bond proceeds equates to about 17,000 loans, which gives an idea of the granularity and the work that goes behind engaging with these customers,” Ms Haas adds.

Mr Forrest explains that issuing green bonds is more straightforward than social bonds, as the bank can show carbon emissions that have been avoided as a result of lending activities. However, for social bonds, the bank has to pull data from various systems and spend a lot of time managing the data to achieve comfort over the granularity of information.

NatWest will report outcomes for the issue using a standardised methodology in accordance with the International Capital Market Association once all the proceeds have been allocated. This will include metrics such as the number of loans, average size and geographical split. Mr Forrest adds that 85% of the bond proceeds has been allocated to loans, while the remaining 15% will be allocated over the next 12 months.

The bank is aiming to evolve its reporting in the coming year. “For instance, we would like to consider including a survey from customers to articulate the difference the loan has made to their activities,” Mr Forrest says. “It will be more work but it would be very helpful, as we need to be mindful of investor reporting requirements when we are borrowing money from them."

Although it takes more work to collate the relevant data, Mr Forrest argues that one of the advantages of issuing a social bond is investor diversification. When issuing GSS bonds, the bank looks to prioritise allocations to those investors with a “darker green” scorecard, which is something it has worked on with NatWest Markets and the other banks who are given mandates on the group’s GSS issuances.

This year, NatWest is aiming for 25% of the group’s senior debt issuance being either green or social, and has so far reached approximately half of this target. Mr Forrest says: “Social bonds have been underserved relative to green bonds, so I think it is a very interesting dynamic and opportunity in the market.”

Ms Haas adds there has also been a lot of interest from other issuers following this bond, with incoming calls from the full range of customers including sovereigns, supranationals and agencies, financial institutions and corporates.

“I think we will see European financial institutions following our example once they have the framework to track the impact on female-led enterprises,” Ms Haas adds. “The number of investors on our call is an excellent testament to the interest.”