Introduction

This report examines the role of commercial paper (CP) in the sustainable finance market. Although smaller than the sustainable bond market, the sustainable CP market is valued at approximately EUR 300 billion. It discusses the potential of CP to support issuers’ sustainability strategies while providing flexible funding. The report focuses on the two emerging types of sustainable CP: Use of Proceeds CP and Sustainability-Linked CP, offering insights into their current market practice, challenges, and initial best practice recommendations.

The feasibility of CP as a sustainable financing instrument

CP’s characteristics—such as its short-term nature (typically up to 365 days)—present challenges for aligning it with long-term sustainability objectives. Despite these challenges, the market has developed practical approaches to allow CP to contribute to an issuer’s sustainability strategy. One key consideration is aligning CP with a Sustainable Financing Framework, which enables CP to complement longer-term financing tools. Issuers often use CP for short-term liabilities, but it can support broader sustainability goals when tied to green, social, or sustainability projects.

Market data relating to sustainable CP

There are 33 sustainable CP programmes in the European Union, with a total issuance capacity of approximately EUR 300 billion. These programmes are divided into 23 Use of Proceeds CPs and 10 Sustainability-Linked CPs. Of the Use of Proceeds CP programmes, 60% are focused on green initiatives, and 68% are entirely dedicated to sustainable projects. The Sustainability-Linked CP programmes have a capacity of EUR 34 billion, and 70% of these programmes are linked to sustainability Key Performance Indicators (KPIs), such as greenhouse gas emissions reduction and renewable energy usage.

High-level considerations relating to Use of Proceeds CP

The Use of Proceeds CP model is aligned with the practices established in the bond market, particularly under the Green Bond Principles and Social Bond Principles. Issuers must have a Sustainable Financing Framework that links CP proceeds to eligible green, social, or sustainability projects. Best practice recommendations include providing transparency on the allocation of CP proceeds and the estimated share between financing and refinancing activities. Reporting challenges arise due to the short-term nature of CP, but issuers are encouraged to report on allocations annually, using a cumulative mechanism.

High-level considerations relating to Sustainability-Linked CP

Sustainability-Linked CP has grown significantly, and its structure is closely tied to the Sustainability-Linked Bond Principles. Issuers are encouraged to align their CP programmes with an overarching Sustainability-Linked Financing Framework, ensuring consistency between short-term CP targets and long-term sustainability goals. Most Sustainability-Linked CP programmes focus on KPIs related to emissions reduction and gender diversity in leadership. However, there is still a need for further guidance on the use of ESG ratings as KPIs, as methodologies for these ratings can vary, and issuers may have limited control over their ratings.

Overall conclusions

The sustainable CP market, though smaller than the bond market, is an important and growing part of sustainable finance, with EUR 300 billion in issuance capacity. Use of Proceeds CP is more established, but Sustainability-Linked CP is gaining momentum. Issuers are advised to align their CP programmes with sustainable financing frameworks and apply best practices from the bond market to ensure transparency and accountability. Recommendations for future development include refining reporting practices and considering external reviews to ensure robust sustainability outcomes.