In less than 20 years, green, social, sustainable and sustainability-linked bonds have grown to become a significant part of the overall fixed income market, effectively channelling investment into projects with clear environmental and social benefits.
Clarity is essential if the market is to continue in its role as the conduit for the private sector to successfully direct its resources towards the overall goal of a carbon-free and equitable world. Investors need to know where and how their money is being spent and have the ability to gauge its impact to ensure funding flows towards meaningful objectives. This requires transparency, data and standards – and increasingly so – as countries strive to reach net-zero obligations and as the world moves from funding renewable energy projects to address some of the darker recesses of the fossil fuel economy.
In the hands of the public sector – the main issuers of bonds linked to environmental and social objectives – they have become an important policy instrument.
The market for green, social and sustainable bonds has developed quickly since the EIB issued its first climate awareness bond in 2007. The direction of travel has been established but there is still work to be done and more questions to be resolved before the market can realise its full potential.
In June, IFR brought together three of the world’s leading green bond issuers, one of Europe’s most interesting public sector credits, and a top-tier arranger and underwriter of ESG bonds and loans to provide insight into how the investor base has adapted over time, the integrity of the market, the challenges faced by the introduction of the EU Green Bond Standard, and the importance of its impact and its measurement.
The panel comprised representatives from SFIL, the French local government and export financing agency, the European Commission, KfW, EIB and Credit Agricole CIB.
SFIL is a regular issuer of green bonds to finance investments by local authorities in France. This year, some 25% of its issuance will be in green and social format. Next year, the target is 33%.
The European Commission, a relatively new player in the “large and frequent borrowers” space, finances some of the EU’s flagship policy programmes. Since establishing a green bond programme and framework in 2021, it has issued around €60bn in debt. It will issue a lot more in the future and become one of the largest green bond issuers in the world.
KfW is well known in the green bond market. It is not only an issuer but an investor in green bonds and is aiming to reach a labelled bond holding of about 10%.
Since its first issue in 2007, the EIB has since sold around €95bn-equivalent in 23 currencies from its two franchises: climate awareness bonds and and sustainability awareness bonds. Roughly €81bn remains outstanding. It is the largest issuer of use-of-proceeds bonds in the multilateral development bank community.
Credit Agricole CIB advises on all ESG-related topics. It is not only an adviser but also an underwriter, investor and issuer of several billion euros of green and social bonds each year across markets around the world.
The discussion began by looking at what investors value in the panel’s ESG issuance, and how that has changed over time.
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