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Sustainable Debt Global State of the Market H1 2020

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Sustainable Debt Global State of the Market H1 2020 SUSTAINABLE DEBT GLOBAL STATE OF THE MARKET H1 2020 GREEN SUSTAINABILITY PANDEMIC SOCIAL Prepared by Climate Bonds Initiative. Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 1 The world in 2020 Contents 2020 has been an exceptional year so far. The 3 Executive summary COVID-19 pandemic may have caught many off- 5 Part 1: Sustainable debt market analysis guard, but the reality is pandemics are only one of the 6 Introduction many negative impacts we can expect to occur with increasing 7 Sustainable debt market regularity in the face of environmental degradation. 8 Thematic deep dives The COVID-19 pandemic is another confirmation of the inter- 8 Green relationship between social and environmental issues, of the 11 Sustainability dangers we face as a species, and of our unpreparedness to deal 13 Social with shocks in a robust and resilient manner. 16 Pandemic But a crisis is also an opportunity. And what has become clear 18 Part 2: Policy and market development in the midst of this crisis is that it could also be a catalyst for 18 COVID-19 and the climate crisis systemic change to the global economy to address our most 22 Framework, harmonisation, and common pressing environmental and social challenges. definitions 24 Wider sustainable finance developments in major regions 24 Europe About this report 24 China 25 USA Climate Bonds has been producing State of the Market reports focused on analysing the 27 Central banks playing a bigger role green bond market since 2011.2 This report goes beyond previous reports in this series to 30 Global stock exchange developments cover the full range of social, sustainability and green labels for this first time. It is broken up into two parts: 31 Conclusion: lessons for the critical 20s Part 1 provides an overview of green, social and sustainability bonds. This includes a full 32 Appendix A analysis of green bonds issued in H1 2020 and an in-depth historic analysis of other debt 33 Appendix B themes – sustainability, social and pandemic bonds – from 2014 to H1 2020. This is made possible by the expansion of Climate Bonds’ market coverage to include other debt labels, 34 Endnotes which will culminate in the launch of a separate database for such instruments still this year. Part 2 presents a detailed overview of policy measures from around the world related to sustainable finance. These cover a diverse set of stakeholders, from governments to central banks to investors, and reiterate the need for a green and sustainable recovery globally in a post-COVID world. The overall aim is to provide a more comprehensive overview of sustainable debt markets, connecting this with policy and related initiatives, and ultimately supporting the growth of sustainable finance. About the Climate Green Bond Data Playground Bonds Initiative To complement this report, we have created The Climate Bonds Initiative (Climate a chart-based Green Bond Data Playground Bonds) is an international, investor- through which you can analyse and view focused, not-for profit organisation the green bond market in various ways. It working to mobilise the USD100tn bond is available here – we invite you to spend market for climate change solutions. some time playing. Our mission is to help drive down the cost of capital for large-scale climate and Financing Credible Transitions paper green infrastructure projects, including supporting governments seeking Climate Bonds recently launched this increased capital markets investments to groundbreaking whitepaper,1 partnering with meet climate goals. Credit Suisse. Its two main purposes are: to define transition as a concept; and to put forward a framework for identifying credible transitions aligned with the Paris Agreement, for use of the transition label in practice. Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 2 This report covers the full spectrum of sustainable finance themes PARIS AGREEMENT GREEN SOCIAL SUSTAINABILITY USD86bn USD868bn USD210bn 106 Issuers 90 Issuers PANDEMIC See page 13 1,036 Issuers See page 11 USD75bn 447 Issuers See Page 8 Excluded: Performance- linked instruments and Transition labels NB: Each deal only included under one See page 16 theme. Pandemic is a subset of Social but separated for the purposes of this report. See Appendix A for labels used in each theme. Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 3 Executive summary Part 1: Sustainable debt market analysis Overall Most even thematic split in H1 2020 The sustainable debt market has been 350 dominated by green, but the share of other themes has grown in recent years, both in Green Sustainability 300 terms of amount issued and number of issuers. Social Pandemic Overall, the market performed strongly in 250 H1 2020, with over USD250bn issued versus USD341bn for the full year of 2019. 200 Due to COVID-19, however, the market’s composition is noticeably different this year, 150 with a much more even split between themes than previously. Further, the fact that a large part of social and sustainability bond issuance in H1 100 2020 financed COVID-19 response measures means that most non-green volumes – and likely 50 around half of the total sustainable debt market – financed pandemic-related investments in H1 USD Billions 0 2020. (See Methodology for more detail on our analysis process and definitions.) 2014 2015 2016 2017 2018 2019 H1 2020 Highlights by theme Green Sustainability Social • Green bond volumes were the most • Sustainability bond volumes have • Early impact investing strategies gave (negatively) impacted of all themes, been rising consistently. In H1 2020, rise to social bonds in 2006, even but there were positive signs in they achieved a similar level as 2019. earlier than their green counterparts. the market that point to increasing Driven by COVID-19 response • Supranationals represent most of demand and better performance of measures, social bonds achieved far cumulative issuance (58%), and green vs. vanilla debt instruments. higher volumes in H1 2020 than any over three-quarters (77%) of H1 other full year. • H1 2020 volumes dropped to below 2020 – their highest share since half of 2019 levels in every region, with 2015. Otherwise, the top three • Issuance came exclusively from the exception of Latin America due to domiciles are European: Germany, the supranationals in early years, then continued sovereign issuance from Chile. Netherlands, and Spain. expanding to issuers from Europe and, The bulk, however, came from Europe, increasingly, Asia-Pacific. Nonetheless, • Development banks – mainly MDBs – which represented more than half of the both sovereign issuers are from Latin are the dominant issuer type, largely global total (55%) for the first time ever. America: Ecuador and Guatemala. driven by the World Bank. Corporates • Globally, issuance was less affected in account for a much smaller share • 40% of the cumulative volume has developed versus emerging markets. than in the green bond market. come from government-backed entities, mostly European. • Public sector issuers experienced a • 95% of the volume denominated in smaller decline than private sector hard currency, the same holding true • Similarly to sustainability bonds, ones, to some extent expected given for H1 2020. relatively short tenors are used their less flexible investment plans and compared to the green bond market. lower vulnerability to market dynamics, particularly in the short-term. • Increasing share of top 3 UoP categories: Pandemic Energy, Buildings, and Transport. • Pandemic bonds emerged in China in February 2020 (according to our definition). Transport was clearly the driver, led by rail investments from sovereigns • Chinese issuers made up an overwhelming majority of pandemic-themed bond and government-backed entities. issuance, with nearly 90% of volume and 441 out of 447 issuers. Supranational issuance is the next most common. • Increased volume among the top currencies – most of which are hard • Issuance is dominated by non-financial corporates, with several industry sectors – which may reflect the preference represented. for ‘safer’ currencies in a time of • Almost all volume is short-dated. 96% has a tenor of five years or less. market uncertainty. Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 4 Part 2: Policy and market development Evolving market An opportunity born out of In any case, it is critical that recovery plans necessity include alignment with long-term emission The sustainable debt market, including the reduction goals, factor in resilience to breadth of instruments available to issuers If climate change and wider environmental climate impacts, slow or stop biodiversity and investors, is evolving. Labelled securities degradation are not enough to motivate loss, and increase circularity of supply will continue to play a major role, and are bolder action at scale, perhaps the chains. Green stimulus programmes could already expanding their coverage beyond immediate and global danger of COVID-19 help to restart economies while reducing the ‘traditional’ green, social and sustainability will unite the international community under risk of future recessions caused by climate debt to capture more transition investments. a shared understanding of the IPCC’s 1.5°C change and/or degraded ecosystems (such They will be complemented by others, such as report and its urgent call to mitigate (and as pandemics). performance-linked instruments. adapt to) climate change. Linked to this,
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