What’s Happening in Sustainable Finance: GSSS Market Rebounds, Sovereign Sustainable Debt, and Much More

ESG in Conversation

Episode Summary

Hosts:

• Sabrina Tang Sales Associate, Sustainable Finance Solutions
• Nicholas Gandolfo, Vice President, Corporate Solutions

Is the Sustainable Finance Market Rebounding in 2023?

In this month’s episode, Nick and Sabrina dig into the sustainable finance market’s rebound in Q1. Despite the market pressures caused by inflation and the banking shake-ups at UBS and Credit Suisse, sustainable finance activity saw an upward trend in the first part of the year. Although Nick and Sabrina stop short of making any predictions about where volumes will land by the end of the year, they do note some interesting dynamics in the market: green use of proceed bonds remain strong, social and sustainability focused bonds are down slightly, and sustainability-linked finance appears to be gaining some ground again despite continued market scrutiny.

Scrutiny Continues for Sustainability-Linked Bonds

Despite the rebound in sustainability-linked bond (SLB) activity in Q1 this year, concerns remain about this sustainable debt instrument. Several recent articles and reports discuss the credibility of SLB targets, whether coupon rates offer enough of a penalty if targets are missed, and whether the performance targets and indicators have an impact on sustainability.

There’s also some media coverage on SLB issuers missing their stated sustainability performance targets. Although not ideal, missed targets among SLB issuers could be viewed as a sign of their rather than an indication of something being fundamentally wrong. For issuers considering sustainability-linked debt instruments and seeking additional guidance, check out the latest market references from Climate Bonds Initiatives (CBI).

The Sustainable Sovereign Debt Club Continues to Grow

CBI’s 2022 market summary highlights the growth of sovereign bond issuances. This is great to see because sustainable debt from sovereigns catalyzed the market in many cases. Sabrina highlights the recent activity from Turkey, Austria, Italy, and Cyprus as well as the sovereign green bond program being considered by the Australian government. In addition to more countries seeing the opportunities in sustainable debt instruments, regulators across a growing number of jurisdictions are ramping up sustainable finance activities in their countries. Developments are ongoing in India, Indonesia, Malaysia, Sri Lanka, Japan, and Vietnam to name just a few.

Key Moments

0:00:59

Market overview

0:02:07

Q1 market overview

0:03:25

CBI 2022 state of the market report

0:05:22

Continuing SLB scrutiny

0:06:46

Climate transition plan transparency

0:08:34

More updates to the EU taxonomy

0:09:34

Additional articles and reports to read (see links below)

0:11:34

SLB and SLL overview

0:14:15

Audience questions

0:18:14

Green bonds overview

0:21:13

Green loans overview

0:22:30

Social bonds and loans overview

0:23:25

Labeled products, transition bonds and regulatory updates

Links to Select Resources

• Climate Bonds Initiative – Green and Other Labelled Bonds Fought Inflation to Amass USD858.bn Volume in 2022
• Climate Bonds Initiative – Sustainable Debt: Global State of the Market 2022
• Environmental Finance - ‘It’s time to stop step-up-only sustainability-linked bonds’
• Environmental Finance – Union Investment: SLBs Can Have Impact
• Environmental Finance – CBI Launch Sustainability-Linked Bond Certification Scheme
• Energy Monitor – Are We About to See a Surge in Sovereign Sustainability-Linked Bonds?
• Environmental Finance – Sustainability-Linked Targets Could Add ‘Discipline’ in Green Bond Markets
• Retail Banker International – CaixaBank Rolls Out Metaverse Initiative to Promote Sustainability
• Responsible Investor – Market Hails ‘Surprisingly Helpful’ SFDR Clarifications from European Commission
• GreenBiz – Should Sustainability Teams Report Directly to the CEO?
• Climate Action 100+ - Climate Action 100+ Releases the Latest Evolution of the Net Zero Company Benchmark
• Financial Times – New Standards Keep the Greenwash off Green Bonds
• The Strait Times – Companies Risk Penalties as Asia and Australia Target Greenwashing
• Environmental Finance – ‘Greenwashing is rife’ in Green Bonds, Says EU’s Tang
• IPCC – AR6 Synthesis Report: Climate Change 2023
• Environmental Finance – Nature-Related Sovereign Issuances Set to Grow, Insight Predicts
• Climate Bonds Initiative – Sustainability-Linked Debt Instrument Certification
• Sustainalytics Second-Party Opinions
  • Hera Group’s Green Financing Framework Second-Party Opinion
  • Council of Europe Development Bank Social Inclusion Bond Framework Second-Party Opinion

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