SUSTAINABLE DEBT GLOBAL STATE OF THE MARKET H1 2020
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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, work to develop sustainable The need to kickstart economies worldwide The bigger picture finance has intensified noticeably in the presents a valuable opportunity for change Beyond stimulus measures, however, there last couple of years, and this will likely through the ‘build back better’ agenda. To is a clear need to ‘think bigger’ if we are accelerate given the ongoing pandemic and achieve this, governments can use their own to achieve the structural transformation increased attention on sustainability themes. balance sheets or make efforts to reduce the required to align economic health with cost of private capital through various forms Important breakthroughs have been made social and environmental health. One might of financial support and policy measures. on the adoption of taxonomies to determine argue the existing set up has fuelled success whether investments contribute to climate This may include an increased use of labelled so far; in some ways this might be true, but change mitigation or other environmental debt among governments and other public a system that leads to its own destruction objectives. The EU and China, which sector issuers – by labelling debt, as several ultimately cannot be considered successful. collectively account for approximately sovereigns have already done, governments The wider policy landscape must evolve. 35% of global GHG emissions, respectively could send a clear market signal while Central banks, for example, must work published the EU Taxonomy and PBoC Green contributing to the development of domestic closely with finance ministries to set a Bond Endorsed Projects Catalogue (the latter sustainable financial markets, and attracting post-COVID recovery that integrates the originally launched in 2015 and updated and a more diversified investor base. ‘build back better’ agenda of green stimulus released for consultation this year). Such Their ability to do so, however, will largely packages – for instance, through targeted documents can serve as the blueprints for depend on fiscal constraints. For many DM purchases of ‘green-resilient’ assets and the net-zero GHG emissions economy we countries, this should not pose a significant preferential loans complementing the must rapidly transition towards. problem given record low interest rates and progress being made on climate and other Other players, such as stock exchanges, relatively strong debt affordability. risk assessments. This will need to be central banks and other regulators, are supported by broader economic policy and Furthermore, the pandemic has also increasingly involved around the initiatives by regulators, stock exchanges, maintained or even reduced the already world, including through the creation of financial institutions, and related networks. low interest rates at which many DM collaborative networks to share knowledge governments can borrow, while increasing Negative shocks such as COVID-19 are and implement joint initiatives. One example the risk premium paid by private sector here to stay. The question is for how long, is the Network for Greening the Financial players as well as countries perceived as and to what extent. And that depends on System, and we cover many more in Part 2. ‘riskier’. EM countries are therefore likely our response. Even so, there is clearly still a need to to have it harder, which is exacerbated by do much more to structurally integrate the fact that emerging economies are also ‘sustainability dimensions’ into the core of already suffering from severe drops in FDI economic activities and decision-making. as a result of the pandemic.
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Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 5 Part 1: Sustainable debt market analysis Introduction
The intensified perception of and concern It is important to note that this paper • Deal must be labelled for environmental threats has permeated analyses labelled debt financing. Unlabelled • All net proceeds must meet Climate the financial sector and given rise to deals may also finance a range of sustainable Bonds’ definitions of green (based on a variety of financial instruments that projects but are not the focus here. Our Climate Bonds Taxonomy)6 provide environmental and social, benefits upcoming report on climate-aligned issuers alongside financial returns. Such instruments explores this topic for the green theme. Thus, for green debt instruments we review demonstrate the potential for financial the green credentials of the activities financed. Finally, the comparison versus previous years markets to fund solutions to global problems for the green theme is only indicative. There Other such as climate change and COVID-19. may be seasonal variations which prevent For other themes, the use of proceeds has The majority of this has come in the form of full year on year comparability. For this not been screened. For now, the label is the labelled debt, predominantly through bonds reason, we have prioritised analysis in terms only prerequisite. Which theme the deal is in and loans. Within these, an array of labels of relative changes in amount issued (i.e. % depends only on the label, as follows: and structures can and have been used, shares) over absolute changes. typically at the issuer’s discretion. Sustainability: label describes a combination For reference, the USD91.5bn issued in H1 The diversity of labels continues to grow with of green and social projects. e.g. Sustainable, 2020 represents a 65% drop versus the COVID-19, for example, creating shifts in the SDG, SRI, ESG, etc. USD258.9bn total in 2019 or a 28% drop use of sustainable debt instruments. versus H1 2019. Social: label is exclusively related to social In the last ten years, Climate Bonds has projects. e.g. Housing, Gender, Women, worked almost exclusively on developing Methodology overview Health, Education, etc. green finance. While we continue to focus For the purposes of our work and this report, Pandemic: label is exclusively related to the on green, it is impossible to ignore the the sustainable debt market is defined by debt COVID-19 pandemic. e.g. COVID-19, Fight inter-relationships between environmental instruments that (a) have a label, and (b) COVID-19, Response, Pandemic, etc. and social issues, even more so given the finance sustainable projects/assets. Sustainable Development Goals (SDGs). Thus, if a bond only finances green Debt labels describe the type of projects projects, it is included in the Green theme In this context, we have been expanding financed or their benefits. ‘Green’, ‘social’ regardless of its label. On the other hand, our data coverage to other labelled debt and ‘sustainability’ labels are the most a sustainability-labelled bond that only instruments – particularly sustainability common in each theme, but a wide range is finances social projects is considered as and social bonds – and a separate database used (see Appendix A).4 Sustainability. Due to this, our analysis of covering these will be launched in 2020. other themes is merely an indicator of capital Green Scope of analysis markets funding aimed at each theme, based All deals in green theme have been on the deal label (see Appendix B). Due to this unprecedented year, we have screened for ‘greeness’. Screening is based brought forward an evaluation of the broader on the Climate Bonds Green Bond Database sustainable debt market (including all years) Methodology5 using the following two criteria: to supplement a deeper-than-usual interim analysis of H1 2020 green bond issuance. There are two exclusions to the data We cover three overarching sustainable debt themes based on the projects/activities Performance-linked instruments Transition labels financed:Green, Social, and Sustainable. A recent development pushing the Transition finance refers to investments that However, 2020 has seen the emergence borders of sustainable finance beyond are not yet low- or zero-emission (i.e. not of deal labelling related to the pandemic. the use-of-proceeds model is the growth green) but have a short-term role to play in Being health-related, this would normally sit of performance- or KPI-linked debt decarbonising an activity or supporting an under the Social theme, but given the scale instruments. As opposed to financing a issuer in its transition to Paris Agreement of issuance and the significance globally, we specified pool of assets and projects, these alignment. This widely debated concept is built consider Pandemic a separate theme for the instruments raise general purpose finance on the premise that “transition bonds” can fill this report.3 We therefore use the following but the coupon/interest rate is tied to the a market gap by extending the labelling to a themes: issuer meeting predefined, time-bound KPIs. more diverse set of sectors and activities. Green: dedicated environmental benefits CBI does not yet hold comprehensive Many of the candidates are currently highly (tracking began 2012) data on performance-linked loans (only a polluting, hard to abate, and do not fall Social: dedicated social benefits (tracking handful of issuers have used the format within existing sets of green definitions but began 2020) in a bond so far), preventing analysis are key to meeting global climate targets. at this stage. We are planning to have Examples include extractives like mining; Sustainability: includes green and social full coverage of performance-linked materials such as steel and cement; and (tracking began 2020) instruments in 2021. industrials, including certain types of Pandemic: deals with COVID-19 related labels transportation, e.g. shipping and aviation.
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 6 Sustainable debt market overview
The infographic on page 3 shows a In 2020, the first pandemic bond was issued The spike in the sustainability theme in April sustainable debt market dominated by green. on 5 February, a RMB1bn (USD143m) deal by was due to sizeable issuance by the World Bank However, the share of other themes has Zhuhai Huafa Group from China. Pandemic- (USD14.7bn from six deals) and a USD4.25bn clearly been growing, both looking at amount themed issuance peaked in February and deal by the Inter-American Development Bank issued and number of issuers (see below). has declined since. Meanwhile, there were (IDB). Among the World Bank’s six deals was significant drops in all other issuance in a record-breaking USD8bn issue, the largest 2020 has seen the overall sustainable debt February and March as COVID-19 spread, ever deal across all themes. While labelled market growing, with a total half-year figure although volumes rebounded in April. ‘Sustainable Development’ and included in of over USD250bn versus USD341bn for the the Sustainability theme, the proceeds were full year of 2019. However, its composition is Green volumes were clearly impacted most financing COVID-19 response measures; the noticeably different, with a more even split of all. In H1 2020, issuance was well under same is true of the IDB’s bond. The spike in between themes than previous years. The half the size of 2019. The largest drop came in Sustainability-themed bonds in April can be pandemic theme, which only emerged this March, with monthly issuance subsequently broadly attributed to COVID-19 investments year, is the second-largest in 2020 and already failing to rise above pre-March levels. Even outside of China. In China, more robust guidance almost as large as the entire social theme. The so, there were positive signs in the green on issuing pandemic bonds from the PBoC has 447 issuers of pandemic bonds are also more bond market that point to increasing demand led issuers to largely use pandemic-related than double the 221 green bond issuers in 2020. and better performance among green debt labels to finance COVID-19 expenditures. instruments. For example, our pricing research Further, given that a large part a large part of suggests that green bonds experienced record The World Bank and IDB deals are two social and sustainability bond issuance in H1 levels of book cover and spread compression good examples of financing for COVID-19 2020 financed COVID-19 response measures, in the primary market, and on average response measures not included under the it can be concluded that most non-green performed better than vanilla equivalents pandemic theme due to the label used; volumes – and likely around half of the and indices in the secondary market (see the another is the USD1bn social bond issued by total sustainable debt market – financed H1 2020 Green Bond Pricing report).7 Bank of America in May. pandemic-related investments in H1 2020.
Most even split in H1 2020; Green volume fell most in March 350 35
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Amount issued (USDbn) Amount issued 0 0 2014 2015 2016 2017 2018 2019 H1 2020 Jan Feb Mar Apr May Jun Green Sustainability Social Pandemic
Pandemic represents >60% of issuer count in H1 2020; Issuer count less volatile than volume
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Number of issuers 0 0 2014 2015 2016 2017 2018 2019 H1 2020 Jan Feb Mar Apr May Jun Green Sustainability Social Pandemic
NB: ‘Number of issuers’ reflects the number of issuers in each individual theme. Some issuers ‘appear’ in more than one theme (see Methodology).
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 7 Thematic deep dives
Europe >50% of issuance for first time
Asia-Pacific 250 Supranational
200 North America Africa
Latin America 150 Green 100 Europe As covered in our recent Green Bonds Global State of the Market 2019, last year saw: 50 • Record issuance, topping USD200bn &
USD250bn for the first time USD Billions 0
• All regions and most issuer types and UoP 2014 2015 2016 2017 2018 2019 H1 2020 categories growing least 80%, while issuers from Malaysia, New Like previous years, Europe dominates the • 8 new issuer domiciles and 291 new Zealand, Thailand, and Saudi Arabia have yet remaining top issuer domiciles, with the issuers, including debut sovereigns from to come to market in 2020. Netherlands and Germany followed by Spain, the Netherlands, Chile and Hong Kong a top five for the first time. Spain derived Green bond issuance was less affected in almost half of its volume from deals by • Important market and policy developed markets (DM) versus emerging Iberdrola and Banco Santander. developments, most notably further work markets (EM).9 DM volumes reached their on market harmonisation through the EU highest (81%, 72% in 2019) and EM their The bottom half of the top 15 features some Taxonomy and Green Bond Standard lowest (13%, 23% in 2019) shares yet, while less expected countries. Chile, Portugal, Supranational issuance increased slightly to and Luxembourg entered this group for the This dive into green is meant as an interim 6% (5% in 2019). This is somewhat expected first time, respectively driven by issuance 2020 update in a markedly different year. given that pandemic-related expenditures from the Republic of Chile (USD3.7bn), It digs deeper than our usual H1 Summary take special priority in EM (including at the EDP (USD1.7bn), and CPI Property Group and highlights the asymmetric impacts of expense of green), whereas in several more (USD1.3bn). The fact that the volume in each COVID-19 on different market features.8 mature DM markets green investment is is still dominated by a single issuer suggests Regions ‘stickier’ and thus less vulnerable to shocks. these countries’ green bond markets still have much to develop, but these are Volumes in H1 2020 dropped to below half Countries certainly positive signs. of 2019 levels in every region. The exception The USA and France comfortably make up the The comparison of amount issued with was Latin America, whose USD4.5bn is very first two places in the issuer domicile ranking, issuer count reveals striking differences close to the USD4.7bn achieved in 2019 due to although their volume is still less than half between some countries. The USA, continued sovereign issuance by the Republic of that of 2019. The most evident change in the Sweden, China, Japan, and Norway have Chile. Subsequent deals from LatAm in H2 have ranking is the drop of China, which has fallen a relatively high number of issuers while already taken issuance well above 2019 levels. to 7th place (excluding Supranational). No France, Netherlands, and most notably Chile Overall, however, the bulk of issuance doubt this is partly due to China having been experience the opposite. Issuers from ‘Other’ came from Europe. The region represented hit by COVID-19 earlier than other countries, countries tend to be relatively small, which more than half of the global total (55%) and thus also likely having spent relatively makes sense given that the vast majority of for the first time ever. Two-thirds (63%) of more on pandemic-related investments (at large issuers are from countries with mature European issuance stemmed from non- the expense of others, such as green). green bond markets. financial corporates and government-backed entities, more than the usual 40-45%. European domiciles move up the ranking in H1 2020 North America remained relatively stable. 20 40 Its 66% decrease was in line with the overall Amount issued Issuer count 65% decline and to a large extent driven 15 30 by lower Fannie Mae (FM) issuance, which totalled USD2.6bn from 90 deals. 10 20 Apart from Africa, which had no issuance in H1 2020, Asia-Pacific was the weakest region, with only USD12bn compared to the 5 10 USD64bn in 2019. Although this was mainly due to the large drop in Chinese issuance, various other countries in the region also USD Billions 0 0 Number of issuers experienced sharp falls. Australia, India, the UK USA Chile Philippines, Singapore, South Korea, Hong France Spain China Japan Other Sweden CanadaNorwayPortugal Kong, and the UAE all had volumes decline at Germany Netherlands Luxembourg Supranational
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 8 Issuer types Public sector issuers increase share Overall, public sector issuers experienced a 100% smaller decline than private sector ones, which to some extent is expected given they often have less flexible investment plans and are less 75% vulnerable to market dynamics, particularly in the short-term. A large rail project financed 50% and developed by a state-owned enterprise, for example, is less likely to be postponed or cancelled due to COVID-19. Furthermore, 25% some public sector issuers, namely government- backed entities, are dedicated entities operating in specific sectors, especially related to long- 0% term infrastructure projects and unable to 2014 2015 2016 2017 2018 2019 H1 2020 redirect their funding to other project types. Sovereign Loan Development Bank Indeed, government-backed entities have Non-Financial Corporate Government-Backed Entity ABS remained robust in the face of the pandemic, with USD22bn in issuance, well over half Local Government Financial Corporate the USD35bn for the full year of 2019. SNCF (USD5.3bn), SNCF (USD1.4bn), and The profile of issuer types may evolve in H2 likely to be affected by a pandemic EUROFIMA (USD909m) were the largest 2020. Changes could arise if private sector outburst, especially in the short-term issuers in this group, and all finance rail entities manage to rebound versus the and a continuing environment of very low projects. If the trend continues, government- public sector, and national and international interest rates. They are also more likely to backed entities are set to comfortably recovery packages could also have an impact involve long-term planning and be harder to achieve record green bond issuance in 2020. depending on when they materialise and postpone, and, in the case of Transport, are Sovereigns were the next most ‘resilient’ how much of the debt is labelled green. largely financed by state-backed entities less issuer type, also issuing more than half of subject to market volatility. Similarly, but to 2019 volumes (USD13bn vs. USD25bn). Use of proceeds (UoP) a lesser extent, investments in renewable France (USD5.1bn), Chile (USD3.8bn), and energy seem to have been hit slightly less In our 2019 report, we highlighted the the Netherlands (USD3.4bn), Indonesia than the overall market. increasing share of the top three UoP (USD750m), now a regular issuer, and categories: Energy, Buildings, and Transport. Financing for large infrastructure-based Lithuania (USD53m), which returned to projects could therefore be affected market after its 2018 debut, were the five This consolidated in H1 2020, with the share more the longer the impacts of COVID-19 issuers. After tapping its 2033 bond in 2019, of the top three increasing to a record 87%. are felt, but we expect the greater Belgium hasn’t returned to market this year. Led by rail investments from sovereigns and understanding of links between social government-backed entities, Transport was Among private sector issuers, non- and environmental impacts, combined clearly the driver, achieving half of 2019 financial corporates proved less volatile with various planned green recovery volumes (50% drop) while Energy and than financials in H1 2020. Non-financials packages, to counter this effect. Buildings respectively fell 62% and 71%. remained the top issuer type, increasing their Other UoP categories, although much share to 25% from 23% in 2019. Financial Large, long-term infrastructure projects – smaller, experienced more significant drops corporates, which dropped 71% driven by most Transport investments – are the least of at least 70%. much lower issuance from Chinese banks, were among the most impacted issuer types. Top 3 UoP categories reach record 87% share Apart from securitised deals (ABS), development banks were the worst hit, falling 100% 82% to attain a 6% share compared to 11% in 2019. However, this was largely driven by much lower volumes from national institutions 75% over multilateral development banks (MDBs). Issuance by national development banks – such as KfW, FMO, Swedish Export 50% Credit, China Development Bank, etc – fell dramatically from USD15bn (2019) to USD1bn (H1 2020), with no issuers from China or the 25% rest of Asia coming to market.10 Finally, loans – almost always obtained by private sector entities – fell 73% to USD3bn 0% while ABS experienced the largest decline 2014 2015 2016 2017 2018 2019 H1 2020 (-86%) due mainly to a substantial drop in Fannie Mae (FM) issuance (USD2.6bn vs. Energy Buildings Transport Water Waste USD22.8bn last year). Land use Industry ICT Unspecified A&R
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 9 Currency EUR rises while USD and RMB fall The green bond market’s currency profile 100% remained broadly similar, but with increased volume among the most used currencies (most of which are hard). This may reflect 75% the preference for ‘safer’ currencies in a time of market uncertainty. The contribution of hard currencies 50% increased to 87%, the highest level since 2015. The share of the top three – EUR, USD, and RMB – also grew versus 2019, from 81% 25% to 83%, but this is below the 84%-90% achieved between 2015-18. 0% The strongest performer in this group was by far EUR, whose USD50bn was 2014 2015 2016 2017 2018 2019 H1 2020 close to half the USD108bn of 2019 and 54% of the overall volume in H1 2020. This EUR USD RMB SEK JPY GBP CAD NOK Other represents the EUR’s highest ever share since 2007. Meanwhile, both USD- and External reviews Monthly analysis suggests the share of SPO RMB-denominated issuance dropped more remained fairly constant throughout H1. On We see a changing profile of external reviews than the overall market (respectively 73% the other hand, there was an uptick in issuance in 2020, with SPO clearly gaining share. and 78%). The substantial fall in USD with no external review after March, with They accounted for 83% of issuance in H1 volume was partly due to lower Fannie Mae 71% of the amount without external review 2020 versus 60% in 2019 – itself a relatively issuance, whereas the decline in RMB is (USD5.9bn of USD8.3bn) issued between high share – as they become the norm in a unsurprising given the very weak all-round April-June. This would make sense given the market that increasingly ‘demands’ some volume from Chinese issuers. effects of COVID-19, including on the ability of form of external review. external reviewers to provide a service. The share of the top eight currencies share rose to 97% from 94% last year. SPO at highest share yet Its composition was relatively unchanged, the only difference being the entry of NOK 100% (8th place), replacing AUD (6th in 2019). AUD volumes fell from USD5.4bn last year to a mere USD113m in H1 2020, with only 75% two Australian issuers coming to market – Queensland Treasury Corporation and Local Government Super – and no issuers from 50% outside the country issuing in AUD.
Deal size 25% The trend in deal size profile is a continuation of what we have seen in the 0% last few years: a gradual increase in the 2014 2015 2016 2017 2018 2019 H1 2020 share of larger, benchmark-sized deals (USD500m+). Versus 2019, the proportion None SPO Certification Assurance Green Rating Multiple of the USD500m-1bn and USD1bn+ ranges respectively grew from 32% and 28%, to Benchmark size keeps growing 37% and 31%, while dropping for USD0- 100m and USD100m-500m deals. 100% 350
Curiously, this is coupled with decreasing average and median deal sizes. The 80% 280 comparison is not like-for-like given that the average and median exclude Fannie 60% 210 Mae, but it does suggest there is a growing number of small deals despite larger ones 40% 140 accounting for a greater share of the market (which seems to be driven by an increasing 20% 70 number of very large deals, especially from sovereigns and government-backed entities).
0% 0 & Medium) USD Millions (Average *Average and median deal sizes exclude Fannie 2016 2017 2018 2019 H1 2020 Mae due to its high frequency of small deals, which skews figures. 0-100m 100-500m 500m-1bn 1bn or more Average* Median*
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 10 MDBs step up sustainability issuance
70
Supranational Asia-Pacific 60
North America Africa 50 Sustainability Latin America 40 Sustainability bond issuance continues to reach new heights in 2020. The category Europe encompasses a variety of labels related to a 30 host of environmental and social objectives, often characterised by – and mapped 20 against – the SDGs. The sustainability label is arguably more suitable for some issuers 10 than its green counterpart due to the broader
range of potentially eligible use of proceeds USD Billions 0 categories. Corporate issuers in a variety 2014 2015 2016 2017 2018 2019 H1 2020 of industry sectors are leveraging this to meet overall company-level sustainability Regions and social categories by Turkish development / CSR objectives, which often span issues and investment bank Turkiye Sinai Kalkinma like income (in)equality, decent work Until 2014, sustainability bonds were Bankasi.13 The Development Bank of Japan and livelihoods, and health and wellbeing issued exclusively by European entities, followed with a USD-denominated benchmark throughout the corporate value chain. which now make up just over a quarter of the to finance on-lending to companies cumulative volume and six out of the top 10 Similarly, and most prominently, MDBs and building projects meeting a set of countries discussed below. Supranational utilise sustainability bonds as a key financing environmental and social criteria.14 APAC now issuers joined the sustainability bond race mechanism to achieve environmental goals represents 10% of total sustainability volumes. in 2014 with volumes driven, for example, by whilst simultaneously advancing human landmark deals from the World Bank. They North America’s share has been small to development. MDBs are responsible for accounted for 77% of the total issuance in H1 date, reaching a cumulative 4% as at the more than half (58%) of all sustainability 2020. This is a reflection of MDBs stepping up end of H1 2020. Despite its small deals, volume issued to the end of H1 2020, which their efforts to maintain the progress made the region boasts an impressive 25 issuers amounts to a grand total of USD210bn. on sustainability issues, especially given (21 from the US, 4 from Canada). Close to The development of the sustainability segment the myriad economic and social effects of half of these (12) are local governments or of the market was marked by the release of the COVID-19, including attempts to address the government-backed entities. Sustainability Bond Guidelines (SBG) by ICMA interlinkages between climate change and in June 2018.11 The SBG extend good practice infectious diseases.12 Countries recommendations around transparency The Asia-Pacific (APAC) region has grown The top three sustainability bond issuing and market integrity, drawing upon the since the inaugural deal from the region in domiciles all hail from Europe: Germany green project categories of the Green Bond May 2016, a USD300m senior unsecured (USD13.3bn), the Netherlands (USD12.2bn) Principles (GBP) and the social categories of sustainability bond financing a mix of green and Spain (USD8.7bn). the Social Bond Principles (SBP).
European domiciles dominate again, but under different ranking
20 20
Amount issued Issuer count 15 15
10 10
5 5
USD Billions 0 0 Number of issuers
UK USA Italy Spain Japan China Chile France MexicoTurkey Austria Nigeria Belgium Canada Sweden Thailand Germany Australia Malaysia Columbia Singapore Netherlands South Korea Phillippines Switzerland Supranational New Zealand
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 11 An interesting example from Germany is the Share of corporates much smaller than in green large textile, homeware, and appliance retailer Otto GmbH & Co KG, whose total USD442m sustainability volume helping to finance Non-Financial Sovereign 0.2% the purchase of responsibly produced and Corporate 7% sourced cotton and wood products.15 The largest deals from Germany come from the North Rhein-Westphalia (Land NRW) Local state government. Land NRW has issued Government a total of USD9.6bn (or just under 75% of 15% overall German sustainability volume) to finance categories including education and Government- research; inclusion and social coherence; and Backed Entity 16 sustainable urban development. 3% Financial Development Bank Notable Dutch issuers include, for instance Corporate 63% grocery retailer Ahold Delhaize, which entered 12% the market in July 2019 with a EUR600m/ USD678m deal to fund the procurement of sustainably produced products, reduce the company’s climate impact, and to promote healthier eating.17 The largest sustainability bond issuer in the Netherlands is BNG Bank (NV Bank Nederlandse Gemeenten), Issuer types appear in the top three: the Community of a dedicated public sector lender, whose 15 Madrid and Ile de France are the second sustainability bonds (total USD10bn) issued As noted, a substantial chunk of the and third-largest issuers respectively with between 2015 and 2020 have financed cumulative sustainability volume comes USD5.7bn and USD3.5bn, respectively. projects adding to three main pillars of ‘capital’: from development banks. A prominent Headline sustainability bond issuers in ecological, social-cultural, and economic. example is the European Investment Bank the government-backed entity segment (EIB) – also a regular issuer in the green Spain’s sustainability bond issuer pool to the include, among others, the Japan Railway bond space through its longstanding Climate end of H1 2020 was exclusively comprised Construction and Technology Agency Awareness Bond (CAB) Programme – of local governments. The Community of (JRTT), which is also a green bond issuer which began its Sustainability Awareness Madrid issued the most deals as well as the under the Programmatic Certification Bond (SAB) issuance programme in 2018. largest individual deal (eight deals, largest scheme of the Climate Bonds Standard.20 Although the only eligible projects for its EUR1.3bn/USD1.4bn). Madrid’s sustainable JRTT’s sustainability volume amounts to a SABs were initially in the water infrastructure financing spans climate change mitigation total USD1.3bn equivalent. The largest deal, and health and education categories, the and initiatives aimed at fostering social of AUD1.8bn (USD1.2bn), was brought to framework’s eligibility pool will be extended development in the Spanish capital’s region. market in November 2019 by Australia’s to allow lending to projects and assets New South Wales Treasury Corp – another The remainder of the top five country list related to a number of other categories in Certified Climate Bond issuer.21 branches out into other regions: South Korea line with emerging EU legislation.19 EIB’s ranks fourth, in part due to a USD500m sustainability bond volume amounts to In the corporate space, financials issue sovereign sustainability bond issued in June USD19.9bn equivalent. sustainability bonds slightly more 2019, which was the first of its kind. The than their real economy counterparts. The World Bank is the largest sustainability remainder of South Korea’s sustainability Australia’s ANZ issued the largest deal bond issuer, with USD96.3bn total volume. volume comes from financial corporates, with its Tier 2 SDG bond, which came to It has also issued the largest individual including KEB Hana Bank, Kookmin Bank market in late November 2019 (EUR1bn/ bond to date (USD8bn, April 2020), which and Woori Bank – all within the five largest USD1.1bn). BNG Bank – also the largest carried a ‘Sustainable Development’ label domestic banks in the country. Dutch issuer – is number one in this category despite financing the COVID-19 response with USD9bn total volume. Among non- The US follows in fifth place, driven in large and recovery via various health programmes. financial corporates, Pfizer’s deal is the part by several large non-financial corporate This demonstrates that the myriad labels largest, whereas Starbucks boasts the most issuers, including three-time sustainability and uses of proceeds can have considerable cumulative issuance volume. bond issuer Starbucks (total USD2.3bn). overlap, and that classifying instruments The company’s sustainability funding focused into different themes is not always Despite their small share in the issuer on categories including the sustainable straightforward. type mix to the end of H1 2020, sovereign sourcing of coffee, and loans to coffee farmers sustainability bonds are gaining traction. The third-largest issuer in this category is the via the USD50m ‘Global Farmer Fund’. The After the Republic of Korea pioneered Inter-American Development Bank (IDB), latest US corporate entrant – and the world’s this instrument type in mid-2019, a total with a cumulative volume of USD6.6bn. first biopharmaceuticals company to do of USD3.6bn additional volume has so – was Pfizer in March 2020 (USD1.3bn). Local governments follow with 15% of followed from Q3 2020 deals by Thailand, Its funding will be directed to improving cumulative volume. The largest issuer Mexico and, most recently, Luxembourg, underserved communities’ access to medicines is again Land NRW, whose March 2019 which issued the first European sovereign and vaccines, as well as natural resource EUR2.3bn (USD2.6bn) deal is also the sustainability bond (these are not included in conservation and waste reduction efforts.18 largest of the category. Other familiar names this report’s figures).22
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 12 Currency Many very large deals in H1 2020 Cumulatively, 95% of all sustainability 100% bond volume is denominated in hard currency, and the same holds true for 75% H1 2020. USD and EUR are the most popular currencies, comprising nearly 50% 80% of cumulative volumes. The largest USD-denominated deal is from Pfizer 25% (USD1.3bn), whereas the top EUR deal comes from France’s Action Logement 0% Services (EUR1bn/USD1.1bn), financing energy efficient social housing projects 2014 2015 2016 2017 2018 2019 H1 2020 across the country. 0-100m 100-500m 500m-1bn 1bn or more The next most popular denominations include GBP (8%), CAD (3%), and Deal size Tenor AUD (2%). The World Bank also shows up prominently in providing currency Most global cumulative sustainability bond The sustainability labelled universe is diversification to the sustainability universe, volume (84%) has come to market via characterised by shorter-term bonds: being responsible for the largest deals in all of benchmark-sized instruments (USD500m nearly half (47%) of the cumulative volume the remaining top five currencies: GBP1.8bn or above). The largest category of USD1bn has a tenor of up to 5 years. A further 35% (USD2.3bn, February 2020); three CAD1.5bn or more prevails, with just under two-thirds has a term of issuance has a term of between (USD1.1bn) deals (January – July 2019); and (64%) of cumulative issuance. This size five and 10 years. AUD2.6bn (USD1.9bn, February 2019). bucket has so far been the most prevalent also Longer-dated volume (10 – 20 years) in 2020, with a sizeable jump from around The less frequently appearing currencies comprises 12% of issuance to the end of 50% in previous years to over 80% this year, generally match those of the green bond H1 2020. The longest-tenor sustainability driven by large development bank deals – universe with the exception of the Romanian bond is a 43-year, EUR100m/USD113m deal most notably the USD8bn World Bank bond. Leu (RON), which is a new addition in this from November 2018. The only perpetuals segment: the World Bank issued a RON Smaller deals are rare, with the 0-100m and with a sustainability label come from South denominated bond (20m/USD5m) in 100-500m categories combined only making Korea’s Kookmin Bank (total USD1bn, June February 2018. up 16% of cumulative issuance. – July 2019).
USD1.7bn equivalent and funding credit lines Social Bond Principles (SBP) to eligible Small and Medium Enterprises - what is eligible? (SMEs) in regions across the country. The ICMA SBP are aimed at outlining The creation of ICMA’s Social Bond Principles guidance for issuers whose projects and in 2018 fostered the expansion of social assets are targeted to achieve positive bond issuance globally across different issuer social outcomes especially (but not types by providing clarity on eligible project Social exclusively) for a target population. The categories and a comparable transparency With early impact investing strategies project categories include, but are not and disclosure framework to that of green giving rise to the concept of ethical and limited to, providing and/or promoting: bonds in the GBP. Prior guidance for social ‘socially responsible investment’ (SRI), bonds had been released by ICMA in 2016, and • Affordable basic infrastructure labelled bonds under the social theme have instruments following the earlier guidelines (e.g. clean drinking water, sewers, been around for even longer than their green are considered aligned with the SBP. sanitation, transport, energy) counterparts. The inaugural deal of the social bond universe carried a ‘vaccine’ label and The largest social bond to date (EUR4bn/ • Access to essential services was issued by the supranational International USD4.5bn) was brought to market by debut (e.g. healthcare, education and Finance Facility for Immunisation (IFFIm) in issuer Unédic Asseo, France’s unemployment vocational training, finance and November 2006 (USD1bn). insurance management body, in June 2020. financial services) The bond’s proceeds were allocated to Other early movers also emerged from the • Affordable housing extending unemployment programmes in MDB space: for example, IFC issued the first France, but also to a special job retention • Employment generation including bond carrying a “social” label in November scheme to subsidise part-time employment through the potential effect of SME 2013 (TRY164m/USD81m) as it launched its as part of the COVID-19 response – another financing and microfinance Banking on Women (BOW) Bond Programme, example of overlap within the sustainability / focused on creating opportunities for women • Food security social / pandemic themes.24 entrepreneurs in EM.23 Spain’s Instituto de • Socioeconomic advancement Crédito Oficial followed in 2015 and again A total of USD86bn of social themed bonds and empowerment in 2016, with the two deals amounting to have been issued to the end of H1 2020.
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 13 Regions Countries Government-backed entities top issuer type In the early years of the social bond With a strong position in the market, segment, issuance came exclusively from France leads the country ranking in Local Government 3% supranationals, which still comprise almost a social issuance, with 18% of cumulative Non-Financial fifth (17%) of cumulative volume as at the end volumes. More than half of France’s Corporate 9% of H1 2020. The expansion of issuance from issuance comes from Unédic, whose two Sovereign 3% regions started in 2015 with European issuers. deals total USD8.9bn. The Netherlands Like with green and sustainability bonds, Europe follows in second place with USD11.2bn is a prolific issuing region, making up exactly (13% of total) contributed exclusively by Development half of cumulative social bond volume. It was public sector funding institutions NWB Bank especially prominent in the earlier years; the mix Bank and BNG – both financing social 19% has since diversified with APAC’s share growing housing. Japan comes in third with 10% to just under a quarter (24%), with big growth of the total, brought to market by 13 spurts in 2019 and the first half of 2020 – in part issuers representing a mix of issuer types. attributable to seeking relief against the effects The largest deal from Japan (JPY70bn/ Financial of the the COVID-19 pandemic. USD651m) was issued by East Nippon Corporate Expressway Co Ltd in April 2020 to 26% The Americas contribute a further 9% develop safer and more accessible and (LAC: 6%; North America: 3%). Notably, resilient expressways, thereby stimulating two Latin American sovereigns have issued local economies. social bonds: first Ecuador in January 2020 (USD727m), followed by Guatemala in April Spain and South Korea make up the (USD1.7bn). Only one African issuer thus far remainder of the top five countries Government- has issued social bonds: Mauritius’ Bayport with USD6.4bn (7%) and USD5.6bn Backed Entity 40% Management (total USD340m). (6.5%), respectively.
Europe dominating in recent years Issuer types Perhaps unsurprisingly given some social bond trends, the issuer type mix is dominated by Supranational government-backed entities at 40%. Besides North America Unédic, the Dutch public funding institutions, Africa Latin America and Spain’s Instituto de Crédito Oficial, the next largest deals come from France’s local government funding agencies SFIL (EUR1bn/ USD 86 bn Asia-Pacific Europe USD1.1bn – February 2019) and Caisse Francaise de Financement Local (EUR1bn/USD1.1bn – May 2020). NWB Bank is, in cumulative terms, 0 20% 40% 60% 80% 100% the biggest government-backed social bond issuer, with USD8.8bn equivalent of volume.
Japan features highest number of issuers
15 15
Amount issued Issuer count 12 12
9 9
6 6
3 3
USD Billions 0 0 Number of issuers
UK USA Italy India Chile France Japan Spain China Turkey Canada EcuadorAustria Mexico Iceland Germany Australia Indonesia Mauritius Guatemala Singapore Netherlands South Korea Luxembourg Supranational Saudi ArabiaNew Zealand
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 14 Corporates contribute a further 35%, of Growing share of large deals, USD1bn+ >50% which 26% comes from financials. The largest financial corporate issuer is France’s 100% BPCE Group – also a repeat issuer of green bonds – with USD2.5bn equivalent. The top individual deal comes from Saudi Arabia’s 75% Islamic Development Bank (USD1.5bn – June 2020) financing projects across five eligible categories aligned with the SBP.25 On the non-financial side, the top issuer (USD3.7bn) 50% and deal both come from Japan’s East Nippon Expressway Co Ltd – the latter as outlined in the Countries section above. 25% The share of local governments stands at 9%, with issuers from the US and Japan prevailing. The top deal is from the City of Los Angeles 0% (USD276m, July 2018) to finance shelters and 2014 2015 2016 2017 2018 2019 H1 2020 facilities for the city’s homeless population; the top issuer is Japan International 0-100m 100-500m 500m-1bn 1bn or more Cooperation Agency (USD1.1bn cumulative). Ecuador and Guatemala are currently the only sovereign issuers of social bonds USD125m). The proceeds were earmarked Tenor (two and three deals, respectively). for support to SMEs and microfinance for Most social bond issuance is short-dated. The Ecuadorian sovereign is dedicated eligible companies and entrepreneurs. Tenors of up to five years comprising to advancing the country’s affordable just under half (46%) of the cumulative housing mortgage programme, whereas Deal size volume. As discussed below, a similar the Guatemalan framework includes a mix In keeping with the sustainability-themed trend is visible with pandemic-themed of COVID-19 mitigation and containment universe, most social bond volume has bonds; both are likely due to a need to efforts as well as targeting social outcomes come through larger instruments, with disburse funding more quickly than for outside the context of the ongoing pandemic. benchmark-sized transactions accounting large infrastructure projects and assets Currency for 72% of the total volume. that make up a large part of the green bond funding sphere. Large deals from Unédic and others tip the The vast majority of social bond issuance balance in favour of the largest range, and the Bonds with 5-10 year maturities represent (94%) is denominated in hard currencies.26 1bn or more bracket is indeed the most common 42% and the remainder is split between EUR leads the pack with a whopping 55% of (38%). On the smaller side, bonds between 10-20 years (7%) and more than 20 years total volume, followed by USD (19%) and JPY USD100m-500m contribute some 23% more, (5%). The shares have remained reasonably (12%). The top five is completed by AUD (3%) with examples from a multitude of issuers. consistent since 2015. and GBP (2%), with the largest deals in these In June 2020, for instance, National Housing denominations coming from NAB (AUD500m/ As at the end of H1 2020 there were no Finance and Investment Corporation (Australia, USD391m, March 2017) and Lloyds Bank perpetual social bonds; however, two with AUD562m/USD386m), the Ford Foundation (GBP250m/USD380m, June 2015). a more than 40-year tenor exist: the Ford (USA, USD300m), and the Japan Student Foundation (USD700m, June 2020 – June The social-themed bond universe saw the set Services Organization (JPY30bn/USD278m) 2070; 50 years) and Reykjavik Social of currencies expand with a Macau pataca came to market. 2016 was the first year with Housing (ISK6.4bn/USD53m, March 2019 – (MOP$) deal issued by the Bank of China as issuance from supranationals as well as more March 2066; 47 years). an offshore bond in March 2020 (MOP1bn/ than one region (APAC, Europe, and LAC).
EUR accounts for >50%, JPY in 3rd Other KRW CAD NZD GBP AUD
EUR USD JPN
0 20% 40% 60% 80% 100%
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 15 Almost all volume from Chinese issuers and MDBs Sweden Supranational Spain South Korea Pandemic USD 75 bn China Leveraging bonds to fund pandemic responses was first seen in the World Bank’s launch of the Pandemic Emergency 0 20% 40% 60% 80% 100% Financing Facility (PEF) in 2017. The PEF is a type of insurance window – in part Regions and countries Sweden’s medical supplies manufacturer backed by a bond sale worth USD330m – Getinge issued SEK1bn (USD106m) of aimed at providing risk mitigation and relief The first issuers of pandemic bonds came COVID-19 commercial paper in April to to the poorest countries in the event of a from China – likely due to the virus’s early expand its production of ventilators and pandemic.27 The Facility has come under epicentre in the country – with the initial other life-saving equipment.32 So far it is scrutiny for the stringency of requirements deals recorded in February 2020. While the the only non-Chinese medical supplies that need to be met for funds to be released, pandemic label is self-attributed, it follows company to do so. which resulted in funding for the current early guidance from the PBoC. COVID-19 pandemic being allocated through Real estate developer Zhuhai Huafa Group Issuer types the mechanism only in late April 2020.28 was the first with RMB1bn (USD143m) raised Pandemic bond issuance is dominated by Using our definition of the pandemic to alleviate the liquidity pressure induced non-financial corporates: more than half theme (i.e. deals with a label related to by the pandemic on the company and its fall in this category. They represent several COVID-19), pandemic bonds emerged subsidiaries, as well as to provide direct industry sectors, including pharmaceuticals in early 2020 as actors across the global relief in the form of, for example, temporary and medical device/personal protective economy organised themselves to facilitate hospitals. As of the end of H1 2020, Chinese equipment (PPE) providers. Examples of the an immediate, effective response to the issuers made up an overwhelming majority former include Sichuan Kelun Pharmaceutical COVID-19 outbreak and subsequent of pandemic-themed bond issuance, with Group and Jointown Pharmaceutical Group pandemic. The first half of the year saw a nearly 90% of volume and 441 issuers out of (both with RMB2bn/USD300m equivalent total of USD74.9bn of such thematic bond a total of 447. The largest Chinese pandemic cumulative issuance) from China. issuance centred around the mitigation bond was the USD1.9bn deal from China and containment of, as well as recovery Development Bank in February; China Import- In addition, a host of essential from, the virus. Export Bank is the largest issuer overall. infrastructure and industrial companies have utilised the pandemic label – usually The sustainable finance community reacted Supranational issuance is the next most as a combination of liquidity relief to mitigate swiftly and showed its support: in late common (8% of total), exclusively made up the economic shocks as well as contributing March 2020, ICMA published additional of development banks. So far, at least the directly to the virus response in the form communication and guidance in the form of a AfDB, the NIB and the Council of Europe of PPE, logistics and transport support, the Q&A for issuers to underscore the importance Development Bank (CEB) have tapped into construction of temporary field hospitals and and direct applicability of thematic bonds pandemic bonds. shelter, etc. Some notable examples include – especially social labelled bonds – in Individual bonds from Spain (1.5%), the China Shipbuilding Industry Corporation weathering the variety of pandemic-induced South Korea (0.7%), and Sweden (0.1%) (RMB5bn/USD715m, February 2020), the societal storms across the globe.29 comprise the rest of pandemic issuance Power Construction Corporation of China, Corporates dominate, unlike to the end of H1. Ltd (RMB3.5bn/USD498m, February 2020), and Hunan Provincial Expressway Group social and sustainability themes Spain’s BBVA was the first private financial Co., Ltd (RMB2.5bn/USD360m, March institution in Europe as well as the inaugural 2020). Several companies operating in issuer to bring a pandemic bond to the EUR China’s domestic aviation sector, including Development credit market with its early June EUR1bn Shenzhen, Sichuan, Spring and Xiamen Bank (USD1.1bn) COVID-19 Social Bond. The Airlines, have also leveraged pandemic- 14% instrument was issued under the bank’s labelled financing to combat the near- Non- existing green, social and sustainable bond complete vanishing of air travel in China and Financial framework and will provide funding to beyond in the first half of the year. Corporate Financial alleviate the direct and indirect social and 57% Corporate economic impacts of the pandemic with Financial corporates, especially banks, make 25% categories including healthcare, education, up a further 25% of volume. More than a SME funding, and affordable housing.30 fifth (21%) of this is contributed by China’s Export-Import Bank. BBVA is the only non- South Korea’s Kookmin Bank issued a Chinese financial institution active in this USD500m benchmark in early May, with market segment. Another Chinese financial most of the proceeds earmarked for lending institution showing significant pandemic bond to SMEs, home offices and other small Government-Backed activity is Hua Xia Bank (RMB7bn/USD1bn businesses hit by the pandemic.31 Entity 4% cumulative) – also a green bond issuer.
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 16 Development bank issuance spans several Lack of diversity driven by issuance from China continents, with AfDB in the lead due to its USD3bn deal from early April 2020. AfDB 35 indicated it would spend the proceeds of its ‘Fight COVID-19 Social Bond’ on “access to 30 health and to all other essential goods, services and infrastructure”, including water and 25 sanitation as well as a number of emergency lending initiatives to support job creation and maintain livelihoods.33 China Development 20 Bank is the largest Chinese issuer. The Nordic Investment Bank issued its 15 ‘Response’ bonds in April (EUR1bn/USD1.1bn; SEK4bn/USD423m). NIB’s framework 10 spanned lending to the public, financial and real economy sectors to support healthcare, social 5 expenditures and on-lending by governments and financial institutions to support companies operating in essential industry sectors.34 (USDbn) Amount issued 0 February March April May June Fellow development bank CEB debuted in April and returned with a second RMB USD EUR SEK ‘COVID-19 Response Social Inclusion Bond’ in June (EUR1bn/USD1.1bn and USD500m, respectively). The deals fell under the Contrasting AfDB’s largest deal, the smallest Prologis Investment (Shanghai) Co., Ltd. Bank’s existing Social Inclusion Framework, until the end of H1 came from China’s (RMB1.9bn/USD271m; 17.8 years). the use of proceeds focusing on micro-, Suzhou High-Tech Zone State-Owned Assets As the pandemic response progresses, the small- & medium-sized enterprises Operation Company, at just RMB200m market may well witness more long-dated debt, (MSMEs) operating in the health sector (USD28.5k, February 2020). especially from governments and sub-sovereign to create and preserve jobs.35 Tenor actors that are focusing on recovering from the Currency longer-term impacts of the health and economic Almost all the thematic pandemic issuance crises. It remains to be seen which labels issuers Unsurprisingly, RMB dominates pandemic is short-dated, with 96% of volume having will adopt for these purposes. bond currencies at 90%, with all issuance a tenor of less than five years – the shortest Building resilience into societal and economic denominated in Chinese yuan during the first include commercial paper with a maturity of structures can be done via any number of quarter of 2020. April saw entrants issuing one year. The shorter tenors are logical given labels falling under the current main themes in USD, EUR, and SEK, which respectively the urgency of disbursing funds at the active of green, sustainable, and social – pandemic make up 5%, 4% and 1% of cumulative stages of the pandemic, although they are being a subset of the last. The perspective – volumes. These deals come exclusively also relatively common in China (particularly and objectives – matter, and project selection from the non-Chinese issuers – including among commercial banks). Only two of the will be key to this as more robust and supranationals – listed above. deals issued in H1 will mature in more than comprehensive definitions of resilience 10 years: Baowan Logistics Holdings Co., The contrast of only 10% issuance in emerge, and as the policy and recovery Ltd. (RMB1.4bn/USD198m; 18 years) and hard currency versus more than 90% for landscape evolves. sustainability and ‘traditional’ social bonds again underscores the pandemic bond Earlier deals (from China) smaller phenomenon primarily being a Chinese one. 100% Possible changes in labels and further issuers tapping into the market as the fight against and recovery from the virus progress may see a 80% more diverse set of currencies. Climate Bonds will continue to monitor these developments and report on them as part of our full 2020 60% coverage during the course of 2021.
Deal size 40% Deal sizes have varied across the first half of the year, with the early months seeing more 20% smaller deals than May and June, on average. The cumulative shares across the first six months show the 100-500m bracket with 0% 50% of total volume and 100m or less at February March April May June 24%. The remainder is benchmark-sized split into 1bn or more (17%) and 500m-1bn (8%). 0-100m 100-500m 500m-1bn 1bn or more
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 17 PART 2: Policy and market development
Part 2 of this report goes beyond the market figures in part 1 to give a detailed summary of the main policy developments from around the world that are shaping the evolution of sustainable finance. As well as governments, this includes initiatives by other actors, such as central banks and stock exchanges. First, however, we take a close look at the impact of COVID-19 on policy responses and recovery mechanisms.
COVID-19 and the climate crisis
COVID-19 and the ensuing global economic crisis have highlighted how vulnerable – and inter-related – our economic, social and environmental systems are globally. Due to the virus, the year of 2020 will see the first increase in global poverty in over twenty years, delaying the goal of ending poverty even further. The economic disruption and damage will persist as governments clamour to stimulate a recovery. Tied to this, there is a risk that COVID-19 could impede efforts to decarbonise our economies, especially in the short-term as the priority is to stem negative health impacts and enable national health systems to handle the – it is often at times of crisis that new, better Digital Financing of the SDGs recently pandemic. The International Energy Agency ways of doing things are born. warned of the need to develop principles to (IEA), for example, has already announced govern digital finance.42 The severe global financial crisis just over a that the pandemic is having a major impact decade ago presented a valuable opportunity on energy systems around the world, curbing Building back better, together to rethink our systems. Yet it was largely lost, investments and threatening to slow the with too few structural changes implemented To achieve this will expansion of key clean energy technologies; as a result and many social and environmental require planning, and this affects both developed (DM) and problems persisting, if not reinforced. collaboration, and emerging markets (EM).36,37 vision. Governments If climate change and wider environmental Calls for a better, socially and environmentally have a responsibility degradation are not enough to motivate responsible recovery are being heard at an to ensure that all bold action at scale, perhaps the immediate exponential rate. Earlier this year, doctors and recovery investments, and global danger of COVID-19 will unite medical professionals from around the globe grants, and other types the international community under a shared called on world leaders to stimulate a better of spending or fiscal support, contribute understanding of the IPCC’s 1.5°C report recovery by investing in a low-carbon and to meeting the Paris Agreement and the and its urgent call to mitigate (and adapt to) resilient economy that would bring substantial SDGs.43 Overall, whether through regulation climate change. health, social and environmental benefits.38 or voluntary commitments, governments In May 2020, the Energy Transitions The pandemic presents opportunities for must encourage transparency and drive Commission sent a letter to governments companies, and potentially policymakers, sustainability throughout their public around the world to ‘help the global economy to implement ‘back-to-work’ strategies procurement activities, while also sending recover while building a healthier, more that align with these goals. For example, an clear policy signals for the private sector resilient, net-zero economy’.39 S&P paper from April estimated that a 7% to follow. Additionally, public recovery reduction in freight shipments in the shipping measures should leverage the private sector Natural capital underpins economies and sector and 40% reduction in business travel – particularly in emerging economies. livelihoods all around the world. We will in the aviation sector could help align the therefore not be successful in building Alignment on definitions will be vital, and industries with a 2°C climate scenario by healthy, green, resilient societies unless we the taxonomic approach to setting criteria 2030, while a 3-day work-from-home policy tackle the issue head on, embedding respect on whether investments are aligned with in the professional services sector would for the planet and nature in all our activities. the Paris Agreement – established in China align emissions from passenger transport through the PBoC Green Bond Endorsed over the next five years.40 An opportunity born out of Projects Catalogue and the European Union necessity Furthermore, digitalisation could help through the EU Taxonomy – is gaining close the financing gap needed to fulfil the traction around the world. This will Crises like COVID-19 Sustainable Development Goals (SDGs), be supported by discussion of how to affect a huge number for example improving data availability and ‘build back better’ and related guidance, of people and cause a quality, enabling reduced transaction and for example through the Principles for great deal of suffering, intermediation costs, and fostering more Recovery & Resilience developed by the but they invariably also innovative, efficient and circular business EU’s Technical Expert Group on Sustainable present opportunities models.41 A UN-mandated Task Force on Finance (TEG).44
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 18 This report outlines various policy constraints, especially in an environment in opportunity to provide cleaner – and likely developments in the green finance space. which DM governments are also borrowing more secure – energy in the country. In particular, we stress the importance of heavily. In the EU, the pandemic recovery Governments around the world must work creating a financial system that is adapted fund may allow more indebted countries to to achieve this with a renewed mindset and and resilient to climate change and the recover with support from Europe’s larger closer engagement from market actors and physical, biological, and transitionary risks economies, but the lack of such a bloc civil society alike.56 it entails. Particular attention is given to globally means that other mechanisms key initiatives developed by market actors, are needed to prevent meltdowns in many Green securities could play a major role. By namely central banks and stock exchanges. developing countries. labelling debt as ‘green’ (or ‘sustainable’), as several sovereigns have already done, This is exacerbated by the fact that emerging Financing the stimulus governments could send a clear market economies are also already suffering from signal while contributing to the development Pandemic-related severe drops in foreign direct investment of domestic green bond markets, and financing has taken off (FDI) as a result of the pandemic. According attracting a more diversified investor base. in 2020, with our data to a recent UNCTAD report, “global FDI These and other potential benefits of issuing and definitions flows are expected to fall sharply from ‘green’ are covered in our inaugural Green showing USD75bn 2019 levels of USD1.5tn, dropping well Bond Treasurer Survey 2020.57 raised through below the trough reached during the global Pandemic bonds and financial crisis.”51 Flows to EM have been perhaps just as much from Social and hit especially hard due to export-oriented Sustainability bonds as of end H1 (see Part and commodity-linked investments being 1). To quote another source, according among the most affected. To make matters to BloombergNEF, ‘Coronavirus bonds’ worse, the analysis also showed that had raised USD163.5bn as of June.45 The international private sector flows to four out vast majority of this financed immediate of ten key SDG areas have failed to increase response measures, especially in EM, but substantially since the adoption of the goals as the near-term health impacts become in 2015. contained, the focus will be on planning and Development finance institutions can play implementing a recovery that emphasises a crucial role in ensuring that such action ‘building back better’. extends to developing countries facing To drive this massive wave of investment, higher risk premiums. Initiatives like the governments can use their own balance EBRD’s EUR21bn Solidarity Package can be sheets, or they can make efforts to reduce complemented by others that integrate the the cost of private capital through various private sector, such as the USD1bn Impact forms of financial support and policy Rescue Facility targeting SMEs in Africa, measures.46 Their ability to do so, however, Latin America and Southeast Asia.52,53 These will largely depend on fiscal constraints. can be effective, especially in the short-to Stimulus measures are set to sharply medium-term, but are still likely not to be increase debt burdens as nominal GDP enough and will need to be supplemented Green recovery measures and growth slumps and deficits widen.47 The UK’s by more robust longer term solutions packages debt, for example, exceeded 100% of GDP in (potentially including debt restructuring). EU Recovery Plan June for the first time since 1963.48 Greening the stimulus The European Union For many DM countries, this should not is leading the green pose a significant problem given record low A recent OECD recovery, at scale. In interest rates and relatively strong debt report highlights the May, the European affordability. Moody’s expects debt burdens need for ‘build back Commission proposed of advanced economies to stabilise at higher better’ agendas to a major plan – Next levels in 2021-22 if nominal GDP growth include alignment with Generation EU – that aims to ensure the returns broadly to pre-crisis levels.49 long-term emission COVID-19 recovery is sustainable, even, reduction goals, Furthermore, the pandemic has maintained inclusive and fair for all Member States.58 factoring in resilience to climate impacts, or even reduced the already low interest Composed of several facilities, it is based on slowing biodiversity loss and increasing rates at which many DM governments can three pillars:59 circularity of supply chains.54 Green borrow, while increasing the risk premium stimulus programmes could help to restart 1. Supporting Member States to recover paid by many private sector players as well economies while reducing the risk of future as countries perceived as ‘riskier’.50 2. Kick-starting the economy and helping recessions caused by climate change and/or private investment EM countries will likely have it harder, degraded ecosystems. given many developing economies (China 3. Learning the lessons from the crisis In the Philippines, for instance, where the excluded) started the crisis in a weaker central bank is the newest member of the 30% of the EUR750bn recovery fund – the position and therefore less able to absorb Network for Greening the Financial System world’s largest ever green recovery pledge the fiscal cost. While DM governments (NGFS), the government’s recovery plan – will be earmarked for climate-related can run substantial deficits without driving has been criticised for not incorporating expenditure and guided by the EU Sustainable interest rates and inflation higher, most renewable energy policies.55 It is a missed Finance Taxonomy, which will be covered.60 EM economies have tighter borrowing
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 19 This could entail EUR225bn in green bond the Do No Significant Harm (DNSH) the Task Force on Climate-related Financial issuance, which would represent an 87% and Minimum Safeguards required by Disclosures (TCFD), including how their increase in the green bond market versus the EU Taxonomy to all investments, future operations will support environmental 2019 levels. 61 i.e. not just those specifically linked to sustainability and national climate goals. climate spending.67 This could offer a much-needed nudge to The decision on how governments spend the many oil and gas companies operating money is typically a political one, even Others from around the world in Canada, which would now be forced to more so in so in an environment of high A somewhat different report if applying for bailout funding. indebtedness and tight fiscal space. Since scenario is unfolding green bonds specifically address the issue In South Korea, the in the USA, where the of responsible finance and long-term government has Federal Reserve is set to sustainability, they may help to increase the announced it will have the world’s largest acceptance and willingness for an increase invest USD61.9bn by balance sheet at USD9- in debt levels as a way to stimulate growth, 2025 to strengthen 12tn after emergency especially in countries where the topic is digitalisation, eco- measures (greater than that of Blackrock, more sensitive. friendly growth and currently the largest investor globally). The social safety nets – this follows a USD1.5bn Overall though, major EU bond issuance, Fed announced measures to relieve strain sovereign deal from 2019 which contained including a boost in EU green bond supply, in the trading of US Treasuries, agency a USD500m green and sustainability could encourage more green bonds from a mortgage-backed securities and commercial tranche.73 Earlier this year, South Korea broader set of issuers, helping to deepen and paper, as well as municipal and corporate became the first Asian nation to make a net diversify the market.62 This would come at bonds – but lacking fossil fuel screens, such zero GHG emissions pledge – by 2050 – the same time as the ECB puts green policy emergency measures are not only failing to under a newly adopted Green New Deal.74 at the top of its bond buying agenda with grasp the opportunity to build back better, The pledge is reflected in the latest green aggressive asset purchasing, in favour of but also reinforcing associated systemic risks bond by the Export-Import Bank of Korea green assets.63 at the heart of the system. (KEXIM), a EUR700m deal issued in April.75 The pandemic recovery fund could transform The UK’s economic The export-focused state development the investment landscape because fiscal recovery plan includes agency already had a green bond issuance co-ordination at the core of the plan may a GBP3bn green programme, with five issued between 2013- effectively create a sovereign fixed-income investment package 19 amounting to USD1.4bn, but this is its market for the eurozone worthy.64 European which aims to support biggest yet. bonds, currency and stocks could become around 140,000 Also in Southeast Asia, much larger features of international green jobs, upgrade Thailand recently portfolios, with bonds benefiting particularly. buildings and reduce GHG emissions by issued a THB30bn 65m kg CO e.68,69 Efforts are being made Currently, less than a quarter of European 2 (USD988m) sovereign to incorporate climate mitigation into the sovereign and supranational bonds carry sustainable bond as recovery. For example, a GBP2bn Green triple-A ratings – the recovery programme part of its COVID-19 Homes Grant scheme will allow homeowners could increase this amount to around response measures. and landlords to apply for vouchers to pay EUR1.4tn. Europe’s riskier sovereign bonds Containing various eligible environmental for green housing improvements such as loft, might also become sturdier investments, and social categories, the 15-year deal is wall and floor insulation, and low-carbon not least if the recovery fund were to expected to allocate approximately two heating installation that could save some succeed in sharing the costs of economic thirds of the proceeds towards COVID-19 households hundreds of pounds a year on reconstruction and easing the pressure on support measures, with the rest financing energy bills, while creating thousands of the most indebted nations. If so, southern green projects.76 jobs. The package also includes a GBP900m European government bonds could Getting Building Fund for projects such Norway’s recovery become core holdings for a broader circle as town centre regeneration and green measures include of investors. A more stable Europe and infrastructure provision.70 a NOK3.6bn green a deeper bond market would also boost investment package.77 the Euro’s standing among international Canada has set up It is chiefly aimed at investors and central banks. 65 a Large Employer hydrogen, battery Emergency Financing The EU’s long-term budget, the 2021-2027 technology, offshore Facility (LEEFF) to Multiannual Financial Framework, was wind, and low-emission shipping. The provide short-term proposed in 2018 and reinforced in July funding will be delivered through a liquidity assistance in 2020 in response to the COVID-19 crisis. combination of public and public-private the form of interest- It is now boosted by the Next Generation mechanisms, primarily to medium-to-high bearing term loans to large Canadian EU fund, reaching a record high EUR1.8tn.66 Technology Readiness Level (TRL) activities employers affected by COVID-19. The It is designed to support the recovery supporting industrial competitiveness in aim is to provide bridge financing to large while investing in a green, digital, and emerging solutions. Norway’s hydrogen companies to keep their operations going resilient Europe. strategy recognises the importance of and avoid bankruptcies of otherwise viable innovation to support the decarbonisation of Both the Multiannual Financial Framework firms.71,72 However, the funding is contingent hard-to-abate, energy-intensive industries. and the Next Generation EU fund provide an on several conditions. In particular, recipients The high energy density of hydrogen could opportunity to decouple economic prosperity are required to publish annual climate- allow the electrification of carbon intensive from environmental degradation by applying related disclosure reports consistent with sectors such as the heavy goods industry.78
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 20 The EU’s hydrogen strategy similarly items of expenditure.82 With coronavirus to meet the SDGs.87 The EBRD coronavirus cites the manifold possible applications causing estimates for reaching ‘peak oil’ Solidarity Package, which will provide of hydrogen technology so as to facilitate to be revised ever closer, such policies are EUR21bn covering both emergency liquidity carbon neutrality by 2050, projecting growth likely to be further embraced, to the extent and long-term resilience and infrastructure from the current less than 2% to 13-14% of that oil consumption may not surpass 2019 investment to developing economies, is the EU energy mix by 2050.79 levels again.83,84 The European Commission another effort aimed at preventing COVID-19 is considering similar policies, for example from exacerbating global inequalities, The Nigeria Economic the long called for tax on kerosene alongside addressing multiple SDGs.88 Sustainability Plan sustainable fuel quotas, aimed at reducing (NESP) creates a In a world that is increasingly turning to the climatic impact of aviation.85 stimulus package that capital markets to finance climate projects includes installation To avoid unproductive propping up of and more recently the recovery, green bonds of Solar Home incumbent heavy-emitting companies, can be an important tool to achieve greater Systems (SHS), governments should coordinate efforts to economic and financial resilience and reduce targeting five million households and promote a green recovery in competitive disruptions from both chronic climatic serving approximately 25 million individual and hard-to-abate sectors – in particular change impacts and acute climatic shocks Nigerians who are currently not connected commercial aviation. This would enable like the COVID-19 outbreak. And they can, of to the National Grid.80 Solar equipment more effective resistance against pressures course, be useful both to public and private manufacturers will be required to set to unconditionally address job security sector issuers. up production facilities in the country, and other economic impacts without Likewise, other labelled instruments – supporting the local labour market. President tying support measures to satisfactory social and sustainability bonds and loans, Muhammadu Buhari has also taken the crash performance on environmental (and performance-linked instruments, and in oil prices as an opportunity to cut at least social) metrics. According to Transport & potentially others – can also play a role. Earlier USD2bn in annual fuel subsidies. 81 Environment, only Austrian Airlines and Air this year, ICMA released Sustainability-Linked France have agreed to some type of climate A similar policy has Loan (SLL) Principles and updated its Social conditions under their bailout packages.86 been adopted in India, Bond Principles (SBP), expanding the eligible where the government We are in this together social bond categories and the definition of has increased petrol target populations to a global population, in and diesel prices by Ultimately, cooperation and alignment on line with recent guidance for social bonds Rs 3 (USD0.04) per recovery packages, with a holistic mindset, addressing the COVID-19 crisis.89,90,91 The litre each to garner will be critical. More efforts such as Global trade association also revised its impact about Rs 39,000 crore (USD5.2bn) in Citizen’s mobilisation of USD6.9bn (USD1.5 reporting guidelines to include biodiversity additional government revenue. According bn in cash grants and USD5.4bn of loans and and an impact reporting framework for to the Hindustan Times, the revenue guarantees), involving pledges by numerous social bonds, as well as publishing guidance generated from these duties will be used governments from around the world, will most on mapping green, social and sustainability for infrastructure and other developmental likely be needed to get the world on track bonds to the SDGs.92
GREEN
SUSTAINABILITY
PANDEMIC
SOCIAL
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 21 Framework, harmonisation, and common definitions
Setting standards: being for approximately 35% of global GHG The EU Taxonomy can guide ‘green enough’ emissions,93 respectively published the EU recovery efforts Taxonomy and PBoC Green Bond Endorsed Green bond standards The recommen- Projects Catalogue (latter originally launched introduce finance- dations of the EU in 2015 and updated and released for friendly metrics, Technical Expert consultation this year).94,95 performance Group (TEG) measurement, Generally speaking, both the EU Taxonomy on Sustainable transparency and and the PBoC Catalogue outline the Finance provide validation that enable environmental performance criteria an updated set of investors to make decisions efficiently that economic activities must meet to sustainability crite- and allocate capital where it is needed be considered as making a substantial ria for 70 economic (and where it will create returns), while contribution to climate change mitigation activities under the EU Taxonomy. holding issuers accountable for their market or other environmental objectives. This lays the groundwork for identifying practices. Underpinning these standards Complementing these, the World Bank activities that provide a substantial is a need to align definitions for what is recently produced guidance on how contribution to climate change mitigation considered ‘green’. Taxonomies provide a to develop green taxonomies in EM – and/or adaptation, and sets out minimum common language that informs issuers, as of yet, it is not closely tied to climate ‘Do No Significant Harm’ (DNSH) thresholds investors, and policymakers about whether science and therefore raises questions for each of the EU’s six environmental an economic asset or activity is aligned with on the stringency of resulting local/ objectives: mitigation, adaptation, water the Paris Agreement, preventing proposals regional taxonomies and harmonisation and marine resources, circular economy, from lacking ambition and greenwashing. with other taxonomies.96 pollution prevention and control, and 2020 has been a breakthrough year for Such documents can serve as the blueprints biodiversity and ecosystems. the adoption of taxonomies as means for the net-zero GHG emissions economy we Under the EU Taxonomy regulation, which of determining whether an investment must transition rapidly towards. It now falls comes into effect in 2021, investors and contributes to climate change mitigation on national governments and sub-national companies must disclose the environmental or other environmental objectives. The actors to align their fiscal expenditures and performance of the activities they invest EU and China, which collectively account priorities to these taxonomies. in. As such, and albeit from a binary ‘in or out’ standpoint, the EU Taxonomy may be a powerful tool to help investors assess the Enabling the green transition impacts of their holdings based on taxonomy alignment, and for policymakers to assess Encouraging GHG- term while transitioning whole entities potential expenditures, asset purchases and intensive industry to a pathway consistent with the Paris other investments with a similar rationale. sectors – such as Agreement. Transition bonds can allow In effect, the EU Taxonomy can be seen as a materials, chemicals, companies in emissions intensive procurement plan for a green economy. shipping and industries to raise capital with the goal aviation – to shift to of decarbonising their value chains at the This should support transparency and ‘greener’ business speed required by the Paris Agreement. comparability in the financial sector as models is key to the global effort of Examples include investment in green well as expand the offering of sustainable, keeping the increase in the global average hydrogen, early decommissioning of ESG and impact investment options, and temperature to well below 2°C. Yet fossil fuel power plants and retrofits of ultimately help to direct more financial flows there has been limited engagement of airline fleets to operate with maximum to such assets and projects. these sectors in the green bond market biofuel or synfuel content. The share ESG factors are increasingly integrated to date. Global green finance markets of issuance and investment made in in investment processes, and crucially have scrambled to explore the potential emerging economies like China, India among institutional investors. For instance, to facilitate -green transitions for highly and Indonesia is crucial. members of the Net-Zero Asset Owner polluting sectors through bond issuance. Climate Bonds Initiative is working Alliance – which represent some of the Transition bonds, an emerging new with regulators, investors and other world’s largest investors and a combined labelled debt instrument, are targeted at key market stakeholders to activate USD5tn in assets – recently pledged to emission-intensive industries. There is transition finance for segments that implement GHG emission reductions in their no single definition on what a transition have largely been absent but offer huge portfolios of between 16% and 29% over the bond can finance – raising some concerns emission reduction potential. To this end, next five years as well as carbon neutrality around greenwashing – but there is now we have just released a ground-breaking by 2050, in line with the IPCC’s target of an emerging consensus that any labelled Financing Credible Transitions white limiting global warming to 1.5°C.97 transition bond should be ambitious, not paper which clearly defines transition as But there is still a need to do much more, light green. a concept and presents a framework for especially within some lagging groups. A identifying credible transitions aligned This means making deep emissions recent AIMA and KPMG study, for example, with the Paris Agreement.107 cuts to existing activities in the short showed that 85% of hedge funds have made little or no effort to incorporate ESG into their strategies.98 Hedge funds may
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 22 represent a relatively small share of global The PBoC first issued green bond regulations initially on the first of its six environmental AUM, but only a consistent and coherent in December 2015,104 followed by the NDRC objectives – climate change mitigation – approach will enable the true evolution – or in January 2016,105 and CSRC Guidelines while the Chinese Catalogue has a broader revolution – of finance. in March 2017.106 However, each regulator focus across three objectives – resource adopted separate approaches, meaning that efficiency/conservation, environmental Technical aspects for example state-owned enterprises were improvement, and climate change. The first company reports and investor governed by a slightly different taxonomy to The PBoC’s Catalogue also focuses on disclosures using the EU Taxonomy are due banks and other corporates. projects with substantial environmental at the start of 2022. In the meantime, the EU While addressing climate change has been benefits and in line with industrial policy can be expected to maintain and expand the a feature of China’s national policy for guidance and tries to solve a series of EU Taxonomy to include further economic the past ten years, the domestic focus of challenges such as serious domestic activities via the International Platform on green finance was previously on cleaning environmental pollution, increased resource Sustainable Finance (IPSF), covered in more up pollution, starting with air pollution. constraints, and ecological degradation. The detail on page 24. The original PBoC catalogue includes inclusion of clean coal projects to reduce local While EU Taxonomy alignment is primarily investments in ‘ultra-supercritical’ coal- air pollutions has already been mentioned as intended to be assessed based on company fired power. Ultra-supercritical coal power one discrepancy that may disappear. revenues, it could also use turnover or dramatically reduces particle pollution (i.e. A more harmonised taxonomy expenditures allocated to each taxonomy- air pollution) in places like Beijing, however, internationally would help ensure robust related activity.99 In addition, the approach it only reduces CO2 emissions by around definitions of ‘green’ that adequately could be extended to communicate 25% compared to older coal-fired power address environmental challenges while also contributions to SDGs, for instance among plants, whilst global climate goals depend on supporting a country’s engagement in global impact investor portfolios. This would depend much steeper emission reductions green initiatives. on the availability and reliability of data.100 The updated 2020 PBoC Catalogue not Differences in definitions of ‘green’ reflect In this context, FTSE Russell released a only excludes coal, but there is no mention the distinct challenges faced by countries report in September summarising the of production or utilisation of natural gas and regions, but there are many efforts to development of and approaches taken by the either. It also adds hydrogen, sustainable improve coordination, in particular the IPSF EU Taxonomy and the FTSE Russell Green agriculture, green consumer finance, and (see next page). Furthermore, taxonomy Revenues Classification System (GRCS), a host of other useful sectors like green alignment is an opportunity to ensure that examining the overlaps and differences services and manufacturing. both the EU and China pursue and promote between the two. It also provides a useful The proposed change, while not yet approved, mutually sustainable growth and an inclusive overview of how the GRCS dataset can is arguably one of the most important green recovery. Both sides have made provide a stepping stone for investors to recent developments from China, marking a great strides over the last few years and comply with the requirements of the EU milestone for global harmonisation efforts on have shown a commitment to maintaining Taxonomy regulation, and how the alignment green guidelines and criteria. It also makes environmental objectives. A comparison of business revenues can be determined.101 an important contribution by harmonising between the EU and China taxonomies is due The EU Taxonomy report is complemented guidelines domestically. Previously, and as for publication in 2021. by the Usability Guide for the EU Green noted, different issuer types used different China and the EU are not alone in their efforts Bond Standard (GBS), which aims to green definitions depending on the applicable to develop taxonomies that can ultimately ensure that investments contribute to the regulator (e.g. PBoC for financial institutions, guide public and private sector procurement EU environmental objectives by following NDRC and CSRC for corporates). If the strategies. Countries around the world the criteria outlined in the Taxonomy. The proposed changes are approved, any bond are beginning to look towards taxonomy European Commission closed a three-month can be recognised as green if it meets the development as a vital tool for strategic public consultation period on the GBS in criteria of 2020 PBoC Catalogue, no matter decisions on green and sustainable finance. October 2020 and is expected to decide how which market it is issued in or what type of to take it forward in Q4 2020.102 bond it is.
China strengthens Green Bonds Cooperation on taxonomies Endorsed Projects Catalogue If green finance is to The People’s Bank fulfil its role in helping of China (PBoC), to meet the goals of the China Securities the Paris Agreement & Regulatory then it is important Commission (CSRC), that all global, regional and the National and national green Development & Reform guidelines are also consistent with the Paris Commission (NDRC), have jointly updated Agreement – i.e. that they prioritise assets their Green Bonds Endorsed Projects and projects that substantially contribute to Catalogue (PBOC Catalogue), which governs climate change mitigation and adaptation. China’s green bond market. It was released The EU and China have the most advanced for public consultation in July 2020 and an taxonomies, each with slightly different unofficial English translation can be found on focus areas and resultant green definitions. our website.103 The EU Taxonomy, for example, has focused
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 23 Wider sustainable finance developments in major regions
We cannot fulfil the SDGs with green and friendly technologies, innovation, cleaner EIB Energy Lending Policy sustainable bonds alone, but used correctly, and healthier transport solutions, In November 2019, the European Investment such investments provide competitive decarbonisation of the energy sector, energy Bank (EIB) launched its new Energy Lending financing for large scale investments from efficiency in buildings, and strengthening Policy which will cease all fossil fuel energy the public and private sectors. Further, international partnerships to improve global financing would cease after the end of 2021, while investors may be eager to buy such environmental standards. with all financing activities aligned with the products, there is an equally important need Just Transition Mechanism Paris Agreement by the end of 2020. This for governments to stimulate such climate- is aligned with the Just Transition Fund, aligned investing. The following sections As part of its Green Deal, the EU has created which is planned to finance up to 75% of highlight key developments in Europe, China a Just Transition Mechanism through investments in new energy projects in the 10 and the USA, providing some context on which it will provide financial support and most vulnerable EU countries.114 where the world’s largest economies are technical assistance to help the people, heading on the sustainable finance agenda. businesses and regions most affected by China the move towards the green economy.112 Europe This will mobilise at least EUR100bn over National Policy on the 2021-27 period, seeking to overcome Green Finance The European Green Deal the economic and social costs of the China has developed a On 14 January 2020, the climate transition in the most vulnerable comprehensive framework European Commission carbon-intensive regions and sectors. The for green finance, which is presented the European mechanism employs a Just Transition Fund, expected to support the Green Deal Investment the InvestEU Just Transition Scheme, and country in reaching its recently announced target Plan, set to mobilise at a European Investment Bank (EIB) public of carbon neutrality by 2060.115 The government’s least EUR1tn of sustainable investments over sector loan facility. It is imperative that the regulatory administration and stock exchange the next decade.108 The European Green Deal Just Transition Mechanism is aligned with have played a crucial role in promoting the provides a framework to facilitate public and the EU Taxonomy. development of green finance in the country. private investments needed for the transition Renewed Sustainable Finance Strategy to a climate-neutral, green and competitive The main pillars of this framework include: economy by boosting the efficient use of With the recovery from the economic Green Credit Guidelines for the banking resources and moving to a clean, circular consequences of the COVID-19 crisis system, which were formulated by the China economy, while restoring biodiversity requiring greater investment across all Banking Regulatory Commission (CBRC) and and cutting pollution.109 It outlines the sectors, financing frameworks – both public include a statistical system for measuring and investments needed and financing tools and private – must support this overall policy evaluating green credits.116,117 The guidelines set available, including how to ensure a just and direction. To further meet this need, the EU out how banks should address environmental inclusive transition.110 launched a Renewed Sustainable Finance issues at the board/management level Strategy to provide policy tools to ensure In order to achieve the EU’s goal of carbon- and how to integrate environmental that financial systems genuinely support neutrality by 2050, the proposed European considerations into lending processes. businesses with a sustainable recovery. Climate Law aims to turn this ambitious Guidelines for Establishing the Green political commitment into a legal obligation The renewed strategy will contribute to the Financial System, released in 2016, which and a trigger for investment at scale.111 objectives of the Green Deal Investment consists a series of policy measures to Plan, in particular by creating an enabling Reaching this target will require action support and incentivize green investment. framework for private investors and the public among all sectors of the European economy, These incentivise include, among others, sector to facilitate sustainable investments.113 including investment in environmentally- re-lending operations by the People’s Bank of China, specialised green guarantee programs, interest subsides for green loan- International Platform on European Commission on the technical supported projects, and the launch of a Sustainable Finance screening criteria for the EU Taxonomy national-level green development fund.118,119 and sustainable finance more broadly. In The EU has also launched the International addition, the IPSF will serve to monitor These two guidelines outline the important Platform on Sustainable Finance (IPSF) and report on capital flows towards role of the securities market in financing green to coordinate market developments sustainable investments. investment, require a unification of domestic globally and provide a multilateral green bond standards, support qualified forum for facilitating exchange. It will IPSF Members: Argentina, Canada, green companies to raise funds via IPOs and enable a comparison and coordination of Chile, China, EU, India, Indonesia, secondary placements, assist the development efforts on initiatives and approaches to Kenya, Morocco, New Zealand, Norway, of green bond indices, green equity indices environmentally sustainable finance while Singapore, Switzerland, Senegal. and related products, and require a gradual respecting national and regional contexts. Combined, these represent: establishment of a mandatory environmental The platform is an advisory body information disclosure system for listed • 50% of global GHG emissions composed of experts from the private and companies and bond issuers. This followed the public sector. This group, which is planned • 45% of global GDP inclusion of a ‘green financial system’ in the to succeed the TEG, will advise the ecological civilisation construction strategy of • 50% of world population China’s 13th Five-Year Plan.120,121
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 24 A Revised Code of Corporate Governance • Jiangsu Province formulated a trial policy Nonetheless, the subcommittee has just for Listed Companies in China was whereby 30% of the effective annual interest published a report entitled Managing released by the China Securities Regulatory paid by non-financial corporates issuing green Climate Risk in the U.S. Financial Commission (CSRC). It requires listed bonds is reimbursed for two years.128 For a System, which addresses several topics, companies to take actions based on green single issuer, the maximum reimbursement including challenges in the evaluation and development, to integrate ecological and is RMB6m (USD877k) per year. management of climate-related risks to the environmental protection into development financial sector and markets, how market • In 2019, Lanzhou New District introduced strategies and corporate governance participants can improve integration of the integrated plan for the construction of processes, and to disclose related climate stress tests, and recommendations a Green Finance Reform and Innovation information.122 for regulators and policymakers to Pilot Zone, making it the ninth green improve climate-related disclosure and The Green Investment Guidelines were finance pilot area in China.129 The policy risk management.132 These findings will released in 2018 by the China Securities proposes the use of green bonds to be reported to the Market Risk Advisory Investment Fund Industry Association to finance investment in green industries, Committee within the CFTC for future action, encourage fund managers to pay attention particularly for underdeveloped western but for now US financial markets remain in to environmental sustainability, strengthen regions of the country. somewhat of a ‘holding pattern’. their awareness of environmental risks, and • Another development plan released in clarify the definition and implementation Ongoing SEC Debates over Climate-Related 2019 defines the goal of building a green methods of green investments. They Disclosure Guidelines finance centre in theGuangdong-Hong aim to promote green investment in the While tangible steps to mandate and clarify Kong-Macao Greater Bay Area. This fund industry, improve the environmental climate-related disclosure requirements takes advantage of Guangzhou as a performance of investment activities, and – in line with TCFD – are taken elsewhere, green finance pilot area, supporting the more broadly contribute to green and significant debate remains in the US development of green finance in districts sustainable economic growth.123 about the role of regulators in doing so. In and cities in the area while working January 2020, the Securities and Exchange The Green Industry Guidance Catalogue with Hong Kong and Macao to build an Commission (SEC) put forth a series of (2019 Edition) clarified green definitions international financial hub. amendments to current disclosure rules but through a taxonomy of green industries • The Integrated Plan for the Yangtze River maintained its long-standing position that and projects.124 This forms the basis for Delta region puts forward the strategic goal climate change disclosure should be rooted introducing policies and initiatives in finance, of green innovation and development.130 in materiality. Questions are still floating pricing, taxation and others, providing a Through the development of green among the SEC on whether climate-related strong reference for green investments. finance capabilities, financial institutions disclosures truly meet this standard.133 Local Policy on Green Finance and enterprises are encouraged to issue ESG Investing green instruments – such as green bonds One feature that is unique to China is the – and to explore the establishment of a SEC Movements to Clarify ESG Fund Labelling ambition with which local governments market-oriented mechanism to attract There is growing momentum from the SEC at all levels are actively formulating their social capital towards ecological and on setting standards for ESG funds, with own plans to develop green finance in their environmental protection. the aim of eliminating greenwashing and respective regions. As of 2019, more than pushing asset managers towards an industry 500 green finance policies were issued by USA standard on what it takes to label a fund or provincial and sub-provincial governments product as ‘green’.134 nationwide, including more than 300 Climate-Related specific administrative measures to promote Disclosure Requirements As sustainable investment funds continue the development of green finance within to see record inflows in the US, the SEC CFTC Climate-Related jurisdictions. Green bonds have been a major has become increasingly focused on Market Risk Sub- focus of these local plans. For example: transparency of information in the market so Committee that investors – particularly retail consumers • Beijing issued a Memorandum in 2015 In July 2019, the Commodity – are able to make well-informed investment and began to promote the issuance Futures Trading Commission (CFTC) announced decisions and accurately compare options. of green bonds overseas.125 In 2017, the creation of the Climate-Related Market Risk Implementation Measures were released Subcommittee, a group tasked with examining The regulator is specifically looking to to advance Beijing’s goal of developing a the risks that climate change poses to the determine whether such funds are complying market for green bonds and green ABS financial system and identifying what future with the Names Rule 2 under the Investment (securitised) products.126 These endorse actions policymakers and market participants Company Act of 1940, which was designed green bond standards, support financial must take to mitigate these risks.131 to help ensure that investors are not misled institutions in issuing green financial or deceived by a fund’s name. At the While the threat to financial stability posed by instruments, and advocate third-party moment, there is the possibility that asset climate risk is widely accepted, US regulators assessment. The measures also managers use ‘ESG’ or ‘sustainable’ labels as have been slow to move on concrete uphold green finance in government a signal to attract flows into their investment measures to embed climate risk at the core procurement, direct investments, and vehicles (given the increase in demand of financial decision-making and market public-private partnerships. For example, for such products), but then fail to meet activity. This positions the US as a potential in 2019, the Zhongguancun Science minimum standards for ESG considerations ‘rule-taker’ while regulators overseeing the Park released related policies to promote when making investment decisions within rest of the world’s largest financial markets green bonds, and single issuers can funds. As of yet, however, the SEC has move swiftly on climate-related disclosure apply for subsidies worth up to RMB1m still not made any formal movements to requirements and stress testing. (USD146k) annually.127 implement the recommendation. 135
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 25 Department of Labor Proposed Rule on ESG the S&P 500 during COVID-19, illustrating of climate change more effectively. The Ceres Investing for ERISA Plan Fiduciaries their propensity to provide stable returns Accelerator is designed to be a catalyst for In June 2020, the US Department of Labor even in volatile environments.138 action on systemic financial risks associated (DOL) proposed a rule to update and clarify with the climate crisis and other sustainability It is indisputable that environmental factors the DOL’s investment duties regulation, in a threats, helping to drive large scale change by like climate risk will have a detrimental move intended to provide clearer regulatory achieving Paris Aligned portfolios, regulating effect on asset prices and the stability of guidelines for Employee Retirement climate as a financial risk, financing a net- financial markets if they are not addressed, Income Security Act of 1974 (ERISA) plan zero economy and through board governance so it stands to reason that ERISA plan fiduciaries given the increasing demand for for a sustainable future. fiduciaries should consider these factors – prioritisation of ESG factors in investment just as they would any other material ones decision-making.136 ERISA is a federal law – in investment decisions. Moreover, the that sets minimum standards for most proposed rule is misaligned with the growing private voluntarily established retirement Rocky Mountain Institute’s Center for systemic integration of climate risk into risk and health plans in private industry.137 Climate-Aligned Finance management frameworks, as an increasing The proposed rule, which states that ERISA number of institutional investors recognise Launched in July 2020, Rocky Mountain plan fiduciaries cannot sacrifice returns the potential for climatic impacts to erode Institute’s Center for Climate-Aligned or take on additional risk by incorporating returns and add risk to portfolios. Finance was established as an ‘engine ESG factors into investment decisions, room’ to help financial institutions As the comment period comes to a close, has many fearing that environmental, partner with their clients, industry whether or not the proposed rule will move social and governance dimensions will be leaders, and key buyers, to develop forward remains on standby. deprioritised. Investors are increasingly practical and scalable solutions to the focused on placing ESG factors at the core of Ceres Accelerator for Sustainable barriers to climate alignment. Climate investment mandates, and there is growing Capital Markets alignment is a powerful theory that evidence that these are material financial Launched in October 2019, the Ceres could provide a definitive approach for determinants that must be at the core Accelerator for Sustainable Capital Markets the financial sector to drive long-term, of prudent investment decision-making. targets the policies and practices that govern multi-sector decarbonisation. Further, major ESG funds have outperformed capital markets in order to address the urgency
Taxonomies, Sovereign GBs and NGFS globally
Sweden Poland Germany Hungary Lithuania
Netherlands Belgium Russia Canada UK Ireland EU France Slovenia Mongolia Austria Kazakhstan Spain China Luxembourg Egypt South Korea Mexico India Hong Kong West African States UAE Seychelles Colombia Thailand Nigeria Malaysia Fiji Indonesia Australia South Africa Chile
New Zealand
Network for Greening the Financial System (NGFS) membership Sovereign Green / Sustainability Bond issued
Network for Greening the Financial System (NGFS) membership Sovereign Green Bond planned through economic communities Taxonomy of sustainable activities developed / planned NB: Ecuador and Guatemala have issued Sovereign Social bonds.
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 26 Central banks playing a bigger role
as of the end of 2019.141 Sustainability-linked • Climate scenarios for central banks bonds were recently announced to be eligible and supervisors – the report and as collateral and for its asset purchase accompanying datasets, prepared by programmes from 2021.142 climate researchers, present three representative scenarios on orderly There has been intense debate about and disorderly expansions of climate whether the ECB’s EUR750bn Pandemic mitigation policy, one with significant Emergency Purchase Programme (PEPP) physical impacts.147 should be targeted towards green assets, for instance by purchasing more bonds • Guide to climate scenario analysis – this issued by the EIB, a large part of which fund report helps supervisors make use of green infrastructure projects.143 ECB’s (self- different climate scenarios, such as those imposed) rules restrict its purchases to the in the above report, to assess financial secondary market and require it to operate risks to banks and insurers.148 in a market neutral way, open to any issuer • Guide for supervisors – this sets out the that meets the criteria for credit quality and Over the last couple of years, many central range of actions that NGFS members can liquidity without favour. banks have maintained and extended efforts and are currently undertaking to inculcate to analyse and manage climate risk.139 Nonetheless, the ECB’s President, Christine climate risk awareness within their However, as with other public institutions, Lagarde, who has been spearheading a institutions and within the entities they COVID-19 has prompted monetary global drive to make the environment an supervise.149 authorities from around the world to focus essential part of monetary policymaking, • Risk differential between green, their efforts on stimulating the economy. recently declared climate risk to be a non-green and brown financial assets – Targeting short-term economic boosts, these mission-critical goal for the central bank. She this status report has results from a have often been tangential to the green promises to examine changes to all of the voluntary survey of banks and insurance agenda, focusing instead on health, social central bank’s operations in the response to firms on differential credit risks between and economic priorities. climate change.144 different assets.150 For example, several central banks have Further, Isabel Schnabel, one of the ECB’s recommenced quantitative easing (QE) Executive Board Members, has announced Bank for International programmes by purchasing corporate and that, through its supervisory arm, the ECB Settlements (BIS) sovereign bonds, reducing repurchase could require banks to provide climate risk The BIS – the ‘central agreement (REPO) interest rates, or providing assessments, which could affect their access bank of central banks with credit lines to provide short-term to central bank funding if the assessment has banks’ – introduced liquidity and support distressed loans. Many a direct implication on collateral valuations.145 its Green Bond Fund commentators have called for a greening of She also argued that the ECB should push in September 2019, such stimulus packages, but asset buybacks the EU to add a green element to its long- an open-ended green to date have largely involved buying vanilla delayed project of setting up a capital bond fund to enable and green instruments indiscriminately. markets union, as a focus on green finance central banks to manage their reserves while could give the bloc a competitive advantage. Looking ahead, central banks and other investing in climate-friendly products geared 151 financial supervisors are likely to strengthen Network for Greening the to their needs. This novel instrument their focus on long-term risks with Financial System (NGFS) purchases investment grade (A- and above) exponential characteristics, leading to a USD-denominated bonds to provide central more granular assessment of climate and Another promising banks with a highly liquid and safe green other environmental risks.140 Complementing avenue is the global asset, thus allowing green bonds that this assessment, it is also crucial that they NGFS. Formed in 2017, incorporate climate to be used in a core part incorporate it into asset purchases and this ‘coalition of the of banking regulation. support mechanisms. willing’ had expanded BIS also published an interesting book, to 69 members and Green Swans: Central banking and financial European Central Bank (ECB) 13 observers by July stability in the age of climate change, 2020.146 The network undertakes research and The ECB is already about the inherent unpredictability of shares results amongst its membership. It is moving in this direction. climate risks.152,153 Among other findings, currently organised into three work streams: Under the Corporate it confirmed that central banks are Sector Purchase 1. Mapping current supervisory practices increasingly looking at ‘green’ financial Programme (CSPP) instruments as an additional tool for their 2. Developing climate risk financial scenarios of its Asset Purchase FX reserve management. For instance, apart Programme (APP), 3. Identifying policies to scale up green finance from the ECB’s hefty green asset purchases, which is part of its QE activities, the ECB Sweden’s Riksbank recently decided The NGFS published four major reports had purchased around 20% of the EUR31bn to reject issuers with a ‘large climate between May and June 2020 to assist eligible universe of green, investment grade, footprint’, for example selling bonds issued banks and central banks from both within EUR-denominated corporate bonds – and by a Canadian province and two Australian and outside the network in creating greener 24% of eligible public sector green bonds – states (see next page).154 financial systems:
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 27 Other central banks Agency, entitled Indebted to nature, explores energy efficient homes by 0.3%. The MNB the biodiversity risks to the Dutch financial has justified this policy by citing evidence Other central banks from around the world sector, particularly those associated with showing that green mortgages have lower have introduced various policies in line with damage to critical ecosystem services such risks of default than vanilla ones. Similar recommendations from Climate Bonds as pollination and nutrient regulation.160 The evidence of lower default risks has been Initiative’s Greening the Financial System: new study builds on the Values at risk? report, found in other EU housing markets.163 Tilting the Playing Field.155 published last year by DNB, in which the Own asset purchase Disclosure and risk risks of biodiversity loss were investigated in more qualitative terms.161 The Monetary The Bank of England Authority of (BoE) and Banque de Prudential regulation and collateral Singapore (MAS) has France both announced framework established a USD2bn the release of climate Central banks can have a major impact on fund to encourage risk scenarios for bank lending by adjusting the rules governing private sector fund supervised banks the ‘haircut’ they impose on assets offered managers to create and insurers to use in as collateral, or how they weigh assets when products driving regional environmental their stress tests. The assessing whether a bank is adequately improvements and/or managing scenarios provide a capitalised. So far, central banks have been environmental risks. The first purchase common framework hesitant about departing from the principle by the MAS under this initiative was a to allow comparison of ‘market neutrality’ – the NGFS’s most USD100m purchase of the BIS Green Bond between institutions. recent publication on brown vs. green risk Fund previously mentioned (see previous The UK Prudential differentials reiterates this hesitance – but page).164 This reflects the authority’s strategy Risk Authority sets out there are signs of change, especially when of developing green finance markets and three scenarios for banks and insurers to green assets can be linked to lower default complements existing grant schemes to use in the 2021 Biennial Exploratory Scenario, risks. subsidise the costs of verifying green bonds and Banque de France is doing a similar and loans. exercise.156,157 In China, the People’s Bank of China (PBoC) Sweden’s Riksbank has decided to divest Further, the BoE published climate-related has been implementing bonds issued by sub-national governments financial disclosure in June 2020.158 This a Green Credit with a large carbon footprint in Australia covers internal governance, external roles Performance Evaluation (Queensland and Western Australia) and (climate risk forum and NGFS), regulatory Programme since 2018 Canada (Alberta).165 Announced in early changes (see below), and staff working for the country’s major 2019, the divestment continued over papers on internal research, such as the banks and has included the outcome to the the year, including the sale of stakes in risk differential between housing lenders central bank’s macroprudential assessment Alberta’s tar sands last autumn. Norway’s following extreme events. The BoE holds (MPA) for the banks. The evaluation is Norges Bank Investment Manager, which GBP530bn of assets – chiefly through consisted of both qualitative (20%) and manages the country’s USD1.1tn sovereign its Asset Purchase Facility – of which quantitative (80%) components with five wealth fund (Government Pension Fund GBP500bn are gilts and the remainder are quantitative indicators: the proportion of of Norway), also announced it plans to GBP-denominated corporate bonds. The green loan balance, the proportion of green divest from companies dedicated to oil bank claims the carbon footprint of these loan balance share, the ratio of green loan and gas exploration in 2019 – however, assets is lower than the average for other increment, the year-on-year growth of green the fund manager and Norway’s Finance G7 countries by dint of the UK’s economy loan balance, and the non-performing ratio Ministry made it clear that this is aimed being more decarbonised. It has no policy to of the green loans.162 at protecting the country’s overall actively target green assets. wealth from oil-price risks, rather than In 2018, a recommendation was made to The UAE’s financial for climate reasons, with the scope of the PBoC’s monetary policy committee authorities, including divestment having shrunk following the to lower the risk differentials of green the Central Bank of announcement.166 assets. The PBoC is also actively involved the UAE and the Abu in the discussion and analysis of potential Dhabi Global Market, Other regulators also underlying risk differentials of green and published the country’s increasingly involved brown assets at the NGFS. Guiding Principles on Financial Centres for Sustainability Sustainable Finance, quoting international One central bank to best practice and providing Abu Dhabi’s slightly break ranks The International Network of Financial financial sector with a voluntary guideline to is the Central Bank Centres for Sustainability (FC4S) is a set out the disclosure standards it seeks.159 of Hungary (MNB), group of financial centres from around the which last year world with the objective of accelerating the The Netherlands’ announced portfolios expansion of sustainable finance by enabling DNB has applied of mortgages on financial centres to exchange experience and some of the ideas energy efficient homes will be more drive convergence globally.167 It currently from the TCFD to the leniently treated in its capital adequacy counts 30 members, including public-private theme of biodiversity formulas. Mortgage lenders are being agencies and market associations, some loss. A recent joint asked to share this benefit with borrowers of which have regulatory and supervisory study with the PBL by reducing interest rates on loans for functions in local markets.168 Netherlands Environmental Assessment
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 28 IOSCO’s Sustainable Finance Network Change, and Other Urgent Challenges, What next? finds that sustainable finance has emerged Complementing the work of the NGFS, the Central banks need as a pathway for low-income countries to International Organization of Securities to work closely with de-risk investments and enable the financial Commissions (IOSCO) – a network of finance ministries to flows needed to support climate action and securities regulators from 115 countries set a post-COVID sustainable development.171 – has become more involved in the topic recovery that integrates of green finance. IOSCO established a Other green finance initiatives by the ‘build back better’ Sustainable Finance Network issued reports regulators agenda of green in June 2019. The focus of its work to date stimulus packages, with targeted purchases 2019 saw institutional change from several has been to uncover the range of work of ‘green-resilient’ assets and preferential financial regulators, with the establishment undertaken by members of the network and loans by central banks. of various subcommittees and commissions to understand respective levels of disclosure, on climate risk. Many of the interesting highlights mentioned including guidelines and obligations around above need to become more mainstream. ESG reporting.169 The French Financial Markets Authority For instance, DNB’s work on biodiversity is has created a Climate and Sustainable In the UK, the Pensions Regulator has issued particularly timely given the needs of the Finance Commission to strengthen action a statement clarifying that “climate change is Convention on Biodiversity for conceptual on regulatory and supervisory issues related a risk to long-term sustainability that pension and practical support on mechanisms to to sustainable finance, for example through trustees need to consider when setting and attract private finance for biodiversity and changing practices, increasing transparency, implementing investment strategies”, in ecosystem conservation, as well as a more facilitating capital mobilisation, and response to a long-standing and erroneous systematic appreciation, understanding including sustainability dimensions in perspective held by trustees that their focus and assimilation of the financial risks from financial discussions.172 should be short-term returns.170 conservation failure. Some initiatives by US regulators are Sustainable Banking Network The UK and France are pioneering climate discussed on pages 26-27. An increased stress testing. Now that the NGFS has The Sustainable Banking Network (SBN) is focus on climate risk is also shown by the published guidance, more central banks a voluntary community of financial sector Canadian Securities Administrators, which could start to implement these scenarios and regulatory agencies and banking associations issued a Staff Notice on Reporting of Climate help banks and insurance companies manage from EM supported by the IFC. The SBN’s Change-related Risks to provide issuers such risks, which would be especially useful stated aim is to advance sustainable finance with guidance on identifying and disclosing in the context of TCFD. in line with international good practice, climate risks, in response to increased with its 40-member countries represent investor interest in climate disclosure.173 Lastly, many central banks have called for USD43tn (85%) of EM total banking assets. others to produce a ‘brown’ taxonomy. It Similarly, Germany’s Federal Financial Having released its first Global Progress seems to us that central banks, in their role as Supervisory Authority, BaFin, published Report in 2018, the SBN’s most recent study, prudential regulators, are the primary users good practice guidelines for dealing with entitled Necessary Ambition: How Low- of such a taxonomy. If the market does not sustainability risks.174 It is aimed at improving Income Countries Are Adopting Sustainable develop something that defines assets of risk management among the diverse set of Finance to Address Poverty, Climate dubious value and high exposure to climate financial institutions supervised by the authority. risk, central banks and regulators may therefore need to incorporate such work in their own research agendas, looking for support from governments and sector experts to ensure credibility, relevance, and operability.
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 29 Global stock exchange developments
Stock exchanges from around the world Green Exchange (STAGE), an online portal Meanwhile, Abu Dhabi’s Department of are also becoming prominent supporters of providing greater information, access and Energy (DoE) has launched a Green Bond sustainable finance. Here we cover some transparency on a wide range of sustainable, Accelerator initiative with Abu Dhabi of the major initiatives by stock exchanges, green and social investment products.177,178 Global Market (ADGM) and the Abu Dhabi but it is not intended as comprehensive The portal will also help issuers, asset Securities Exchange (ADX).190 Launched in list. These take several forms and are often managers, investors and professional January 2020, its objective is to establish supported by membership of the UN’s advisers on the positioning, innovation, and Abu Dhabi as a regional hub for green Sustainable Stock Exchanges Initiative (SSE). marketing of sustainable and green finance. bond and green sukuk issuance targeting sustainable projects in the Emirate as well The Korea Exchange launched a dedicated Stock exchanges and indices as across the rest of the Middle East and segment for Socially Responsible Investment Africa. The bonds will be listed on the ADX A recently announced (SRI) bonds, as well as a public information and must support projects that comply with joint effort between portal to provide accurate and transparent the DoE’s new green bonds policy.191 The former BoE governor information on such deals, last June.179 inclusion of blue and transition bonds is also Mark Carney and the Meanwhile, to boost the SRI bond market, said to be under consideration. London Stock Exchange in line with the launch of the new segment, plans to establish a the exchange signed MOUs with external Moving to Latin America, the Mexican global coalition of stock evaluation institutions and provides financial Stock Exchange (BMV) recently launched exchanges supporting climate disclosure, support for SRI bond issuers, such as these the S&P/BMV Total Mexico ESG Index, in line with TCFD recommendations.175 In being exempt from listing fees and annual partnering with S&P Dow Jones Indices (S&P partnership with the SSE, the climate disclosure dues for three years following issuance to DJI).192 The index uses rules-based selection initiative is intended to encourage exchanges reduce funding expenses. criteria based on relevant ESG principles to do more to help issuers transition towards to choose its constituents from the newly Luxembourg’s Green Exchange, self- decarbonisation. The SSE will establish a new launched S&P/BMV Total Mexico Index, a described as “the first exchange to translate workstream that the London Stock Exchange broad benchmark consisting of stocks and industry best practices for sustainable Group will chair, drawing up best practice Real Estate Investment Trusts (REITs) listed financial instruments into mandatory reporting guidance on climate disclosure. on the BMV.193 The objective of the ESG requirements”, is a dedicated platform of These guidelines can then be used by index is to give investors core exposure to LuxSE with strict transparency requirements corporate issuers, wherever they are listed. the Mexican equity market while providing in its eligibility criteria, including external a significant boost in ESG score performance. With investors needing globally consistent, reviews of actual use of proceeds.180,181 This quality climate and sustainability data to follows the long-standing incorporation of Other stock exchanges from the region are inform investment decisions, exchanges can transparency requirements into LuxSE’s also increasingly working to develop and play a critical role to improve the availability governance principles in 2006.182 promote green finance in their respective and consistency of this data and reinforce countries. While there are several examples, The London Stock Exchange (LSE) launched global standards. Costa Rica’s BNV leads the way. It published a Sustainable Bond Market (SBM) in October a Guide for the Definition and Management The Nasdaq Sustainable Bond Network 2019, building on its Green Bond Segment of Green Projects,194 targeted at potential (NSBN) is another important and related launched in 2015. The LSE introduced green bond issuers, as well as a Green development. This newly created initiative mandatory annual post-issuance reporting for Bond Guide and Voluntary Guidance on ESG serves as a global, publicly available, issuers listed on the SBM so as to maintain Reporting, in late 2018.195 The stock exchange web-based platform designed to improve transparency and continued eligibility – it has taken several other steps to develop transparency in the market for green, has so far raised GBP47bn.183,184 At the same the green bond market, such as offering a social and sustainability bonds.176 It is an time, the exchange announced the launch of dedicated and promote wider sustainability online repository that provides issuers of it Green Economy Mark initiative, recognising engagement and market development. It has sustainable debt instruments the ability equity issuers with green revenues of 50% or also released guides for Social Bond196 and to voluntarily publish key information and more, as well as releasing a Guide to Green Sustainability Bond issuance197 and launched data regarding their specific bonds on a Finance and hosting its first Sustainable the BNV Sustainability Awards in 2019 to centralised platform - in turn, this provides Finance Summit.185,186 reward capital market participants across investors, other market actors, and the In a somewhat similar vein, the Johannesburg several sustainability categories.198 general public, with the information they Stock Exchange’s (JSE) Green Bond need to compare bonds successfully. An Further, the Inter-American Development Segment has been expanded to a fully- external review is recommended by the Bank (IDB) is launching a Green Bond fledged Sustainability Segment as of July, NSBN, although not required for inclusion. Transparency Platform (GBTP) which will allowing interested issuers to list social and provide an open access, centralised way of Hong Kong is maintaining its focus on sustainability bonds along with green bonds.187 obtaining details about green bonds in Latin green finance with new policy settings to In the Middle East, the Bahrain Bourse America, including their use of proceeds encourage transition and sustainable finance. has published a new ESG Reporting Guide and environmental impacts, as well as The Hong Kong Monetary Authority and to encourage and assist listed issuers in relevant documentation. Despite not being a the Securities and Futures Commission providing ESG information used to inform stock exchange initiative, it is an important have established the Green and Sustainable investor decision-making while also development expected to drive transparency Finance Cross-Agency Steering Group, supporting companies to align with Bahrain’s and comparability in the market (in some which includes various other members, Economic Vision 2030 and the SDGs.188,189 ways similar to the NSBN).199 as well as launching the Sustainable and
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 30 Conclusion: lessons for the critical 20s
Heraclitus, the Greek philosopher, is coined gains. Furthermore, treating impacts that The ECB’s Schnabel, for example, recently with saying that “the only constant is affect actors not engaged in transactions mentioned that despite the COVID-19 health change”. In human systems, this has never as ‘external’ leaves these out of market shock being entirely unrelated to monetary been more true than it is today. The ongoing considerations. Yet those impacts – be policy, it nevertheless has huge implications – and worsening – environmental crisis, with they GHG emissions, water pollution, or for it – the same being true for climate impacts ranging from climate change to unemployment – are as real as the electricity, change, hence why central banks cannot biodiversity loss, pollution, soil degradation, phones or cars being bought. One might ignore it. She added that “there is the view and pandemics, has brought this to the fore argue this set up has fuelled success so that we should stick very closely to market more than ever, to a level impossible to far; in some ways this might be true, but a neutrality and there is the alternative view ignore any longer. system that leads to its own destruction that markets are not pricing climate risks ultimately cannot be considered successful. properly, so there is a market distortion and The COVID-19 virus naturally poses serious therefore market neutrality may not actually health risks, but we can be thankful that it It is therefore clear we cannot keep doing be the right benchmark.”200 Central banks is nowhere near as deadly as others, such the same, even if we do it more efficiently. can thus be powerful agents of change, as Ebola or SARS. If it were – and it is not Einstein is believed to have said that “we but will need to be supported by broader unreasonable to think that future global cannot solve our problems with the same level economic policy and initiatives by regulators, outbreaks might be – we would be in a much of thinking that created them”. Right now, stock exchanges, financial institutions, and more dire place. The full extent of economic understanding this is crucial to our survival. related networks. impacts, however, still remains to be seen, The effects of this paradigm shift will and will likely still take a while to be fully The bottom line is that greater reverberate across the global economy, understood. cooperation and coherence are needed from small producers to large multinational economy-wide to reach the goal we conglomerates, banks to private equity firms The bigger picture truly desire: meeting our needs while to institutional investors, central banks to local living on a healthy, clean and fair world. Negative shocks such and national governments, and the executive To achieve this, we need to account for as COVID-19 are here on Wall Street to the rice farmer in rural China. the holistic impact of our activities. In to stay. The question particular, we must implement operating is for how long, and Implications for frameworks aligned with this aim, so that to what extent. And sustainable finance individual actors have a clear path and that depends on our Sustainable finance are incentivised to follow it. Improved response. instruments are one disclosure and common definitions, for On one hand, this means adapting to avenue for channelling instance through the use of taxonomies, the effects of environmental damage, for funds into projects and are useful in informing decisions and example by investing in climate adaptation assets with positive measuring progress, but are still only and implementing systems to respond more environmental and/or part of the puzzle. quickly and effectively to shocks, especially social impacts, both to Complementing this, introducing effective among more vulnerable populations and meet the needs of private and public sector feedback loops – largely absent under the regions. This is a vital question of resilience – entities. Work in this space has intensified current economic MO – to encourage and environmental, social (including health), and noticeably in the last couple of years. discourage certain behaviours, as close as economic. COVID-19 has clearly highlighted The market is evolving, and this will likely possible to their source, is vital. This would our unpreparedness in this domain, with accelerate given the ongoing pandemic and also help address the fact that even though various countries struggling to know how to increased attention placed on sustainability activities are climate- or Paris-aligned, such react and/or not reacting fast enough. themes. The transparency and accountability as those included under the EU Taxonomy, On the other hand, mitigation of climate of the ‘use-of-proceeds’ model have worked this does not mean they cannot be made change and other sources of environmental relatively well so far, but such instruments better, both on the environmental and stress is critical. Our response on this must will most likely not be enough to meet the social fronts. Thus, regardless of eligibility come through a much deeper appreciation large financing needs of the transition; others under a given category or taxonomy, such of life on this incredible planet, of our place – such as transition bonds or performance- improvements should be encouraged; in it, and of the systems we have created linked products – will be necessary. echoing the point made at the start, change – as a means of developing and evolving. and evolution – are constant. In the context of governments, the urgent Recognising this, we must be open to need for stimulus packages to kickstart Natural systems, including biological challenging the foundations and inner economies worldwide presents a valuable organisms, use feedback loops in abundance. It workings of those systems, because therein opportunity for change through the ‘build is only logical that our economic system does lie the root causes of many – probably most back better’ agenda, which may include an the same - a form of biomimicry - in order to – of our crises. increased use of labelled debt. But beyond reflect the real impacts of our activities within While a powerful force for production, essential stimulus measures, which will economic decisions. Individual entities are innovation and development, capitalism in understandably be focused on stemming the rarely ‘bad’ even if they do bad things, however its current form ignores broader systemic immediate negative health and economic we define these; rather, they respond to the health by treating private actors – be they impacts of COVID-19, there is a clear need architecture of the system they operate in. If individuals or entities – as independent from to ‘think bigger’, and for the wider policy it pays to do bad things, some will, and can each other, seeking only to maximise their landscape to evolve. hardly be blamed for it.
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 31 Appendix A
The following charts show the composition of labels in each theme. For simplicity, only the top 10 labels are shown for the green and social themes (the rest combined into ‘Other’).
Green labels Climate awareness
Green USD 868 bn Green rewards
0 20% 40% 60% 80% 100%
Solar Environmental Water Climate Positive impact Environmental sustainability Other
Sustainability labels SDG
USD 210 bn Sustainability Sustainable development Sustainable
0 20% 40% 60% 80% 100%
SIRI ESG Sustainability awareness Green and social Affordable housing
Social labels Education, youth and employment (EYE) Social inclusion SDG housing
USD 86 bn Social Social housing Vaccine
0 20% 40% 60% 80% 100%
Wellbeing Gender Healthcare Women Other
Pandemic labels Response COVID-19 reponse social inclusion Fight COVID-19
USD 75 bn Pandemic
0 20% 40% 60% 80% 100%
COVID-19 COVID-19 response sustainability
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 32 Appendix B
Methodology notes & caveats – this reflects the number of issuers in each 4. In addition to the exclusion of individual theme. The total number of issuers performance-linked instruments and 1. Due to the methodological difference is slightly lower than the total adding across transition labels, we excluded: between Green and other themes, it is themes, since some issuers have printed important to note that our analysis of • Several deals because we could not find deals that cover more than one theme. For other themes is merely an indicator of publicly available labels (this included example, the infographic shows 90 issuers in the financing aimed at each, based on the some by repeat issuers, most of which the Sustainability theme, 106 in Social, and deal’s label. had issued clearly labelled deals – where 447 in Pandemic; adding these gives a total possible, we suggest improving the For instance, some deals labelled as of 643, but it is actually 627. availability and clarity of information ‘SDG’, and therefore included under the 3. Our Green Bond Database includes many related to each deal, including labels) Sustainability theme, may only actually loans and ABS (securitised) deals. We have finance social projects. Importantly, there • Nine Chinese deals due to lack of historically treated these as issuer types, and will also, for example, be various deals information about key details, such as date the same applies to this report. However, under the Social and Sustainability themes and amount issued under our new methodology, these are that finance, in whole or in part, pandemic- considered different instrument – not issuer Climate Bonds Database related investments. We are working on the – types. Within the SSP themes, it is not yet updates more granular UoP analysis for other themes common to see loans or ABS deals with a and will share the results in due course. Climate Bonds has been expanding data sustainability, social, or pandemic label (a coverage to other labelled debt instruments 2. Some of the analysis is shown in terms of reminder that performance-linked loans are – particularly sustainability and social bonds ‘number of issuers’ rather ‘amount issued’ not included). – and a separate database covering these will be launched shortly. The extended database will complement other enhancements to our Understanding green bonds data, such as the collection of more granular information on the use of proceeds and Green bonds Inclusion in our Green Bond Database impacts of green bonds, more robust and Green bonds are issued to raise Only labelled bonds with all net proceeds detailed analysis of climate-aligned issuers, finance for climate change solutions - dedicated to green assets and projects and a more detailed assessment of SDG the key is for the proceeds to go to aligned with the Climate Bonds Taxonomy, alignment. green assets. They can be printed are included in our Green Bond Database and by various issuer types, such as figures. If there is insufficient information on governments and government-backed the use of proceeds, a bond may be excluded. entities, financial institutions, and non- The full new version of the Climate Bonds financial corporates. Green Bond Database Methodology is available on the CBI website.203 The green label can be applied to any debt format, including private Green definitions placements, securitisations, covered The Climate Bonds Initiative Green Bond bonds, and sukuk, as well as green loans Database and market analysis is based on which comply with the Green Bond the Climate Bonds Taxonomy categories: Principles (GBP) and/or the Green Loan Energy, Buildings, Transport, Water, Principles (GLP).201,202 Waste, Land use, Industry, and ICT.204 It is important to keep in mind that CBI also develops Sector Criteria with the label itself does not need to be expert input from the international science ‘green’ for the deal to be considered a community and industry professionals.205 green bond (although most green bonds Issuers can certify their green debt instruments actually do carry a ‘green’ label). Myriad under the Climate Bonds Standard and these labels are applied in practice, such as Sector Criteria.206 Independent Approved ‘Sustainability’, ‘SDG’, ‘Climate’ or more Verifiers provide a third-party assessment specific ones like ‘Renewable Energy’, that the use of proceeds complies with the ‘Solar’, or ‘Blue’ (see Appendix A). objective of capping global warming at 2°C.
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 33 Endnotes
1. Climate Bonds Initiative, Financing Credible Transitions, 2020. 76. Environmental Finance, Bond round-up: IBRD, Manila Water, Eurofima, 138. S&P Global MI, Major ESG investment funds outperforming S&P 500 during 2. Climate Bonds Initiative, Green Bonds Global State of the Market 2019. 2019 Thailand, 29 July 2020 COVID-19, 2020. 3. Social figures thus exclude deals with a pandemic-related label. 77. Government.no, Economic measures in Norway in response to Covid-19, 139. Banque de France, Open Letter on climate-related financial risks, 2019. 4. This may be adjusted as we improve our data tracking and collection 2020. 140. FC4S, Implications of the Covid-19 Pandemic for Global Sustainable Finance, processes, especially for the sustainability, social and pandemic themes. 78. Policy Exchange, Driving Down Emissions: How to clean up road transport?, 2020. 5. Climate Bonds Initiative, Green Bond Database Methodology, 2020. 2017. 141. Climate Action, ECB developing an appetite for green bonds, 2020. 6. Climate Bonds Initiative, Climate Bonds Taxonomy, 2020. 79. EC, A hydrogen strategy for a climate-neutral Europe, 2020. 142. Environmental Finance, ECB gives green light to sustainability-linked 7. Climate Bonds Initiative, Green Bond Pricing in Primary Market: H1 (Q1-Q2) 80. Nigeria State House, What You Need to Know About the Nigeria Economic bonds, 2020. 2020, 2020. Sustainability Plan, 2020. 143. ECB Blog, Our response to the coronavirus emergency, 2020. 8. Climate Bonds Initiative, Green bonds market summary - H1 2020, 2020. 81. Bloomberg, Oil Crash Spurs Nigeria to End Fuel Subsidies, 2020. 144. FT, Lagarde puts green policy top of agenda in ECB bond buying, 2020. 9. MSCI, Market Classification, 2020. 82. Hindustan Times, Petrol, diesel prices revised further, 2020. 145. Insurance Journal, Pandemic Shows Why Climate Change Is Major 10. Although there has been issuance from Asian – including Chinese – 83. FT, Coronavirus will hasten ‘peak oil’ by three years, 2020. Economic Risk, 2020. national development banks for other debt themes 84. FT, Why we may have already seen the peak in oil demand, 2020. 146. NGFS, Membership, 2020. 11. ICMA, Sustainability Bond Guidelines, 2018. 85. Reuters, EU eyes sustainable fuel quotas to tackle aviation emissions, 2020. 147. NGFS, NGFS climate scenarios for central banks and supervisors, 2020. 12. WHO, Climate change and human health, 2020. 86. Transport & Environment, Bailout tracker. 148. NGFS, Guide to climate scenario analysis for central banks and supervisors, 13. TSKB, TSKB issues the first ever green bond out of Turkey, 2016. 87. Global Citizen, Global Citizen Mobilized Over $1.5B in Cash Grants, 2020. 2020. 14. Development Bank of Japan, Sustainability Bond Framework, 2015. 88. EBRD, EBRD’s coronavirus Solidarity Package. 149. NGFS, Guide for Supervisors: Integrating climate-related and environmental 15. Luxembourg Green Exchange 89. https://www.icmagroup.org/assets/documents/Regulatory/Green- risks into prudential supervision, 2020. 16. NRW, Inaugural Sustainability Bond, 2015 Bonds/LMASustainabilityLinkedLoanPrinciples-270919.pdf 150. NGFS, A status report on financial institutions’ experiences from working 17. Ahold Delhaize, Sustainability Bond Framework, 2019 90. ICMA, LMA Sustainability Linked Loan Principles, 2019. with green, non green and brown financial assets and a potential risk differential, 18. Pfizer, Sustainability Bond Framework, 2020 91. IFR, ICMA drives ESG bond issuance with new principles, 2020 2020. 19. EIB, Sustainability Awareness Bonds, 2019 92. ICMA, Mapping to the SDGs 151. BIS, BIS launches green bond fund for central banks, 2019. 20. For more details, see CBI Programmatic Certification. 2020 93. Cairn, Comparison of the EU vs. Chinese Emissions Trading Systems. 152. BIS, The Green Swan, 2020. 21. Climate Bonds Initiative, Certified Bonds 94. EC, Taxonomy: Final report of the TEG on Sustainable Finance, 2020. 153. Climate Bonds Initiative, Green swan, Black swan: No matter as long as it 22. Luxembourg Government, Successful issuance of the first sovereign 95. Climate Bonds Initiative, Green Bond Endorsed Projects Catalogue (2020 reduces stranded spending, 2020. sustainability bond in Europe, 2020 Edition).2020. 154. https://www.bis.org/publ/othp31.pdf 23. As noted by ICMA in Impact Invest Lab: Social Bonds 2018, the IFC bonds 96. World Bank, How to Develop a National Green Taxonomy for Emerging 155. Climate Bonds Initiative, Greening the Financial System, 2019. originally carried other labels and were only merged into IFC’s Social Bond Markets, 2020. 156. Bank of England, Bank of England consults on its proposals for stress testing, Programme in 2017. 97. Environmental Finance, $5trn of investors set ‘unprecedented’ 1.5°C 2019. 24. Natixis, Natixis sole structurer for Unédic’s record inaugural social bond, emissions target, 2020. 157. ACPR, L’ACPR publie les hypothèses provisoires de son exercice pilote, 2020. 2020. 98. Environmental Finance, It’s time for ESSG, 2020. 158. BoE, The BoE’s climate-related financial disclosure 2020, 2020. 25. ISDB, Sustainable Finance Framework, 2019 99. Environmental Finance, EU taxonomy has lessons for impact investing, 2020. 159. ADGM, Abu Dhabi Sustainable Finance Guiding Principles. 26. The aim was to capture the top eight currencies by volume, yet some 100. Environmental Finance, Big data ‘can help assess country ESG risk’, 2020. 160. DNB, Indebted to nature: Exploring biodiversity risks for the Dutch financial currencies had issuance pre-2014 but none or little between 2014-20. Thus, 101. FTSE Russell, Sizing the green economy: Green Revenues and the EU sector, 2020. the top eight between 2014-20 were selected, resulting in the inclusion of taxonomy, 2020. 161. DNB, Value at Risk?, 2019. CAD and exclusion of ZAR 102. EC, EU Green Bond Standard 162. Despite the semi-mandatory reporting requirement, the nature of real 27. World Bank, World Bank Launches First-Ever Pandemic Bonds, 2017 103. Climate Bonds Initiative, Green Bond Endorsed Projects Catalogue (2020 incentives – e.g. in terms of lower borrowing cost, differentiated deposit 28. World Bank, Fact Sheet: Pandemic Emergency Financing Facility, 2020. Edition). 2020. reserve ratio, or other risk compensation mechanisms – that the central bank 29. ICMA, Q&A for Social Bonds related to Covid-19, 2020. 104. Climate Bonds Initiative, PBoC Takes Post COP21 Step on Green Bonds, would provide to the on-lending banks is not exactly clear. The comparability 30. BBVA, BBVA places €1bn in the first issue of a social bond COVID-19, 2020 2015. of the self-reported green credit data from the banks is also often called 31. IFR, Kookmin Bank prints Korea’s first Covid-19 bond, 2020. 105. Climate Bonds Initiative, Roadmap for China: Green Bond Guidelines for the into question. 32. Getinge, Getinge issues SEK1bn COVID-19 commercial paper, 2020. Next Stage of Market Growth, 2016. 163. CBI, How the Hungarian Central Bank could help solve the energy efficiency 33. AfDB, AfDB launches record $3bn ‘Fight COVID-19’ Social Bond, 2020. 106. Climate Bonds Initiative, China issues special green bonds guidelines for puzzle, 2020. 34. NIB, NIB Response Bond Framework, 2020. listed companies, 2017. 164. MAS, US$2bn Investments Programme to Support Growth of Green Finance, 35. COE, CEB issues social inclusion bond, 2020. 107. Climate Bonds Initiative, Financing Credible Transitions, 2020 2019. 36. IEA, The impact of the Covid-19 crisis on clean energy progress, 2020. 108. EC, The European Green Deal Investment Plan and Just Transition 165. Riksbank, Riksbank selling bonds for climate reasons, 2019. 37. FC4S, Implications of the Covid-19 Pandemic for Global Sustainable Finance, Mechanism, 2020. 166. IPE, Scope of Norway’s SWF oil divestment shrinks further, 2019. 2020. 109. EC, Sustainable Finance 167. FC4S, What we do. 38. UNFCCC, Medical Professionals Want Green Recovery from COVID-19, 2020. 110. EC, Communication from the Commission: The European Green Deal, 2019. 168. FC4S, Members. 39. Energy Transitions Commission, COVID Recovery Letter, 2020. 111. EC, Proposal for framework for achieving climate neutrality and amending 169. IOSCO, Sustainable Finance and the Role of Securities Regulators and 40. S&P Global Market Intelligence, Stepping Up to a Sustainable Future Post Regulation (EU) 2018/1999, 2020. IOSCO, 2020. COVID-19, 2020 112. EC, The Just Transition Mechanism. 170. The Pensions Regulator, Climate change joint statement., 41. Environmental Finance, Develop principles to govern digital finance and 113. EIB, EU Bank launches ambitious new climate strategy and Energy Lending 171. IFC, Sustainable Banking Network SDGs, 2020 Policy, 2019. 172. AMF, Mandate of the new Climate and Sustainable Finance Commission, 42. UNSDG, People’s Money: Harnessing Digitalization to Finance a Sustainable 114. EIB, EU Bank launches ambitious new climate strategy and Energy 2019. Future, 2020. Lending Policy, 2019. 173. CFTC, Release Number 8079-19, 2019 43. UNEP, COVID-19: Four Sustainable Development Goals that help future-proof 115. CGTN, China calls for global green revolution in the post-COVID era, 2020. 174. BaFin, Sustainability risks: BaFin publishes Guidance Notice, 2020. global recovery, 2020. 116. China Banking Regulatory Commission. Guiding Opinions on the Credit 175. Environmental Finance, Mark Carney launches climate disclosure initiative 44. EU TEG, 5 high-level principles for Recovery & Resilience, 2020. Work for Energy Conservation and Emission Reduction. 2007. with LSE, 2020. 45. Financial Post, Using the Tools of Climate Investing to Battle Injustice, 117. China Banking Regulatory Commission. Notice of the China Banking 176. Nasdaq, Nasdaq Sustainable Bond Network. 2020. Regulatory Commission on Submission of Green Credit Statistics Form. 2014. 177. Moody’s Analytics, HKMA Forms Green and Sustainable Finance CASG, 46 HSBC, 7 Priorities to Help the Global Economy Recover, 2020 118. People’s Bank of China, Ministry of Finance, Development and Reform 2020. 47. Moody’s, Coronavirus raises advanced economies’ debt burdens, 2020 Commission, Ministry of Environmental Protection, China Banking Regulatory 178. HKEX 48. FT, UK public debt exceeds 100% of GDP for first time since 1963, 2020. Commission, China Securities Regulatory Commission, and China Insurance 179. SSE Initiative, Korea Exchange launches a sustainability bond segment, 49. Moody’s, Coronavirus raises advanced economies’ debt burdens, 2020. Regulatory Commission. Guidelines for Establishing the Green Financial 2020. 50. Energy Transitions Commission, COVID Recovery Letter, 2020. System. 2016 180. LGX Brochure, 2020. 51. UNCTAD, World Investment Report 2020, 2020 119. UN PAGE, The People’s Bank of China Issued the ‘Guidelines for Establishing 181. LGX Brochure, Listing green bonds on LuxSE, 2020. 52. EBRD, EBRD’s coronavirus Solidarity Package. 2020. the Green Financial System’, 2016. 182. LuxSE Guide to ESG Reporting. 53. Environmental Finance, Impact rescue facility, 2020. 120 State Council, Integrated Reform Plan for Promoting Ecological Progress, 183. LSEG, LSE Launches Green Economy Mark and SBN, 2019 54. OECD, Building Back Better: A Sustainable, Resilient Recovery after COVID-19, 2015. 184. LSEG, Sustainable Bond Market. 2020 121. National People’s Congress, Outline of the 13th Five-Year Plan for the 185. LSEG, LSE Launches Green Economy Mark and SBN, 2019. 55. Eco-Business, Duterte’s Covid-19 recovery plan criticised, 2020 National Economic and Social Development of the People’s Republic of China, 186. LSE, Sustainable Finance News September 2020. 2020 56. OECD, Building Back Better: A Sustainable, Resilient Recovery after COVID-19, 2016. 187. JSE, JSE Announces New Sustainability Segment, 2020. 2020 122. China Securities Regulatory Commission. Code of Corporate Governance 188. Bahrain Bourse, ESG Reporting Guide, 2020. 57. Climate Bonds Initiative, Green Bond Treasurer Survey 2020, 2020. for Listed Companies in China. 2018. 189. Bahrain eGovernment, Bahrain Economic Vision 2030. 58. EC, Europe’s moment: Repair and prepare for the next generation, 2020 123. China Securities Investment Fund Industry Association. Green Investment 190. Zawya, Abu Dhabi’s green bond accelerator initiative, 2020. 59. EC, The pillars of Next Generation EU, 2020. Guidelines (Trial). 2018. 191. Trade Arabia, Abu Dhabi DoE launches green bond initiative, 2020. 60. EC, The pillars of Next Generation EU, 2020. 124. National Development and Reform Commission. Green Industry Guidance 192. S&P DJI, S&P/BMV Total Mexico ESG Index. 61. S&P Global Ratings, The EU Recovery Plan Could Create Its Own Green Safe Catalog (2019 Edition). 2019. 193. Sustainable Stock Exchange Initiative, BMV Launches a New ESG Index, Asset, 2020. 125. Memorandum of Cooperation on Initiating Members of the Green Bond 2020. 62. Bond Vigilantes, Will the EU Recovery Fund kickstart the green bond market?, Alliance 194. Bolsa Nacional de Valores, Guía para la Definición y Gestión de Proyectos 2020. 126. Implementation Measures for Establishing the Green Financial System Verdes. 63. Environmental Finance, ECB asset purchases could encourage more green 127. Z-Park, Notice on the issuance of the ‘Zhongguancun National Independent 195 Bolsa Nacional de Valores, Estandar para la Emisión de Bonos Verdes. bonds, 2020 Innovation Demonstration Zone’, 2019. 196. Bolsa Nacional de Valores, Estandar para la Emisión de Bonos Sociales. 64. FT, The EU pandemic fund will transform the investment landscape, 2020. 128. Implementation Rules for Jiangsu Green Bond Discount Policy (Trial) 197 Bolsa Nacional de Valores, Estandar para la Emisión de Bonos Sostenibles. 65. FT, The EU pandemic fund will transform the investment landscape, 2020 129. Implementation Rules for Jiangsu Green Bond Discount Policy (Trial) 198. Rumbo Economico, BNV premió empresas, 2019 66. EC, 2021-2027 long-term EU budget & Next Generation EU, 2020 130. “Integrated Plan of the Yangtze River Delta Ecological and Green 199. Green Bond Transparency Platform. 67. Reuters, EU makes world’s biggest ‘green recovery’ pledge, 2020. Integrated Development Demonstration Zone” 200. Insurance Journal, Pandemic Shows Why Climate Change Is Major 68. GOV.UK, £1.3bn investment to deliver homes, infrastructure and jobs, 2020. 131. CFTC, Release Number 7963-19, 2019. Economic Risk, 2020. 69. CGTN, UK unveils economic recovery plan, 2020 132. S&P Global MI, CFTC outlines 35-member composition of climate change 201. ICMA Group, Green Bond Principles, 2018. 70. GOV.UK, Guidance: Getting Building Fund, 2020 risk panel, 2019. 202. Loan Market Association, Green Loan Principles, 2018. 71. CDEV CEEFC, Large Employer Emergency Financing Facility Factsheet. 133. SEC, Statement on Proposed Amendments to Modernize and Enhance 203. Climate Bonds Initiative, Green Bond Database Methodology, 2020. 72. Environmental Finance, Canadian firms must file TCFD reports to get Financial Disclosures, 2020. 204. Climate Bonds Initiative, Climate Bonds Taxonomy, 2020. Covid-19 bailout, 2020. 134. FT, SEC chair warns of risks tied to ESG ratings, 2020. 205. Climate Bonds Initiative, Sector Criteria, 2020. 73. Korea Times, Korea to focus on digital, green initiatives, 2020. 135. Responsible Investor, SEC committee pushes for ESG disclosure rules, 2020. 206. Climate Bonds Initiative, Sector Criteria Available for Certification, 2020. 74. Climate Home News, South Korea to implement Green New Deal, 2020. 136. Bloomberg, Trump Administration Targets ESG Funds With 401(k) Rule, 75. This deal is currently pending inclusion in our Green Bond Database as we 2020. obtain more information on its UoP. 137. U.S. DOL, Employee Retirement Income Security Act (ERISA).
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 34 Climate Bonds Initiative Green Bond Database screening process
Debt Climate Certified debt instruments that are Aligned Green Bond List labelled by Bonds publicly available the issuer† Certification*
Non-debt instrument Non-debt instrument list**
Confidential deals Confidential deals list***
Green label Debt meets CBI Green Bond Database requirements
Debt does not meet Green Bond Non-aligned Green Bond List Database requirements
Other labels All proceeds are for green purposes Climate Bonds Initiative Social and meet CBI Green Bond Database and Sustainability Bond Database requirements Note: these bonds will be included in both green bond and social & sustainability bond databases
Proceeds are partly or solely for social purposes
† All labels are used primarily to identify bonds for screening. * Certified Climate Bond/Loan is fully alignment with the Green Bond Principles/Green Loan Principles. It can be considered as a subset of the green bond/loan market. However, Climate Bonds Certification In the Green Bond Database, the assessment of the green can be applied widely, including, but not limited to, non-debt instruments, directly to assets or projects credentials is based on the assets, projects or activities financed. (with no debt wrapper), and private/confidential deals. In the Social and Substitutability Bond Database, the proceeds ** Certified non-debt instruments can be found on CBI website. allocations are recorded rather than assessed. *** Confidential deals can be found on CBI website but certain information might not be available to the public.
Authors: Miguel Almeida, Lionel Mok, Krista Tukiainen Suggested citation: Almeida, M., Mok, L., Tukiainen, K., Sustainable Debt Global State of the Market H1 2020, Climate Bonds Initiative, October 2020.
Design: Godfrey Design Prepared by Climate Bonds Initiative. © Published by Climate Bonds Initiative, October 2020 www.climatebonds.net
Disclaimer: The information contained in this communication does not constitute investment advice in any form and the Climate Bonds Initiative is not an investment adviser. Any reference to a financial organisation or debt instrument or investment product is for information purposes only. Links to external websites are for information purposes only. The Climate Bonds Initiative accepts no responsibility for content on external websites. The Climate Bonds Initiative is not endorsing, recommending or advising on the financial merits or otherwise of any debt instrument or investment product and no information within this communication should be taken as such, nor should any information in this communication be relied upon in making any investment decision. Certification under the Climate Bond Standard only reflects the climate attributes of the use of proceeds of a designated debt instrument. It does not reflect the credit worthiness of the designated debt instrument, nor its compliance with national or international laws. A decision to invest in anything is solely yours. The Climate Bonds Initiative accepts no liability of any kind, for any investment an individual or organisation makes, nor for any investment made by third parties on behalf of an individual or organisation, based in whole or in part on any information contained within this, or any other Climate Bonds Initiative public communication.
Sustainable Debt Global State of the Market H1 2020 Climate Bonds Initiative 35