Sustainability

Financial Institutions ESG Monthly – 11 March 2022

FI Green, Social and Sustainability (“GSS”) issuance was spread fairly evenly across the first three weeks of February. Thereafter, Russia’s invasion of Ukraine on the 24 Feb brought a sudden halt to further issuance activity.

Primary market activity

Every FI GSS transaction in February was in Green format (8 transactions), accounting for €6.8bn equiv. of issuance, whilst January saw a more diverse range of green, social and sustainability bonds (i.e. Social bonds from Citi, CaixaBank and YBS and a Sustainability bond from Islandsbanki).

€5.6bn was issued in EUR, which remains the dominant currency (6 of the 8 tranches), with the other two tranches in USD (€1.2bn equiv). The two Covered bonds which priced in February were both from Germany and led by NatWest, with the remaining transactions in SNP / HoldCo format from issuers across Japan, Germany, Belgium and the Nordics. The oversubscription average was 2.2x within a range of 1.7-2.7x.

As we move into March, activity in Europe has been extremely limited, however, there has been some FI GSS issuance from the APAC region in USD including a $500m 5Y Green bond from Sumitomo Trust Bank and a $400m 3Y Sustainability Bond from Bank of China (Sydney Branch). The European FI GSS market re-opened on 9 March with a €750m Green Covered Bond from Banco BPM (upsized from €500m) which was initially announced on 23 February.

ESG-related bond market overview

2022 year-to-date (YTD) statistics, in the EUR and GBP GSS market

Senior

  •  EUR GSS Senior supply: €10.0bn (-7% vs 2021 YTD )
  • Total EUR Senior supply: €47.0bn (-5% vs 2021 YTD)
  • GSS as % EUR Senior supply: 21% (2021 YTD: 22%)
  • GBP GSS Senior supply: Nil (-100% vs 2021 YTD )
  • Total GBP Senior supply: £4.3bn (-16% vs 2021 YTD)
  • GSS as % GBP Senior supply: 0% (2021 YTD: 16%)

Covered

  • EUR GSS Covered supply: €2.3bn (-25% vs 2021 YTD )
  • Total EUR Covered supply: €57.1bn (+194% vs 2021 YTD)
  • GSS as % EUR Covered supply: 4% (2021 YTD: 15%)
  • GBP GSS Covered supply: £0.5bn (n/a  vs 2021 YTD )
  • Total GBP Covered supply: £5.2bn (+420% vs 2021 YTD)
  • GSS as % GBP Covered supply: 10% (2021 YTD: 0%)

Analysis of label and format; global issuance

Green continues to account for the majority of GSS FI issuance (c. €18.7bn), followed by Social (c. €5.2bn) and Sustainable (€4.2bn). Whilst the vast majority of the GSS issuance has been in senior format (Senior Preferred (SP): 74%, Senior Non-Preferred (SNP): 16%), with Covered accounting for the majority of the remainder (8%).

Source: Dealogic (07/03/22), NatWest Syndicate (03/03/22)
Source: Dealogic (07/03/22), NatWest Syndicate (03/03/22)
FI and banking sector developments
  • Santander have acquired 80% of WayCarbon, a Brazilian based ESG Consultancy Firm that advises public and private organisations on their energy transition. The business provides three core services to help clients develop and implement strategies to increase their sustainability: ESG consultancy; management software to support the tracking and implementation of ESG strategies; and carbon credit trading. Read more.
  • BMO has announced a new $5 billion commitment to ‘support women business owners in Canada’, to mark International Women's Day 2022. Through the program, BMO will allocate $5bn in capital over five years to women entrepreneurs, building on the commitment of $2bn in 2014 and $3bn in 2018. Read more.
  • Deutsche Bank disclosed (for the first time) data on its financed greenhouse gas emissions. It’s Scope 1 and 2 financed emissions of the global corporate industry loan book were calculated at 30.8 million tonnes of CO2 equivalent per year (MtCO2e/y) as at year-end 2021. Additionally, Deutsch Bank re-affirmed its commitment to publishing 2050 net zero targets for key carbon intensive portfolios, together with intermediate targets for 2030, by the end of 2022. Read more.
  • HSBC set targets for two emissions-intensive sectors, following the launch of their thermal coal phase-out policy. For the Oil and Gas sector, it is targeting a reduction of 34% in absolute, on-balance sheet financed emissions by 2030. For the Power and Utilities sector, it is targeting a 75% reduction in its financed emissions intensity by 2030. This marks the first time HSBC is disclosing its financed emissions, fulfilling its Partnership for Carbon Accounting Financials requirements. Read More.
  • NatWest launched Green Loans and Green Asset Finance propositions for qualifying SMEs, with no arrangement fee, with the ambition to help them achieve their sustainability goals. These propositions aim to help qualifying SMEs finance the business assets to support their sustainability ambitions, such as solar panels, electric vehicles, or heat pumps on commercial buildings. Read more.
  • CaixaBank announced that in 2021 it granted a total €2.6 billion to the hotel sector to help overcome the impact of the pandemic. This is the highest amount of new financing that CaixaBank has granted to the sector in a single year. Read more.
  • Barclays has signed a 10-year power purchase agreement with BP, in support of the bank’s efforts to transition towards powering its UK operations from fully renewable sources, and to help finance the clean energy transition. The renewable projects will be chosen based on several socio-economic criteria, including support for local employment, and will result in an estimated 35,000 tCO2e/year of carbon savings for Barclays. Read more.
Investor developments
  • AllianzGI published its annual analysis of how it voted at annual general meetings around the globe. In addition, it made several amendments to its voting policy in 2022, including that it expects European large-caps to include ESG Key Performance Indicators (KPIs) in executive remuneration policies and will vote against pay policies in 2023 if this is not included. Read more.
  • Apollo launched a comprehensive sustainable investing platform focused on financing and investing in the energy transition and decarbonisation of industry. Across asset classes, Apollo targets deploying $50bn in clean energy and climate capital over the next five years and sees the opportunity to deploy more than $100bn by 2030. Read more.
  • BlackRock published its’ Engagement Priorities for 2022 where it highlighted climate and natural capital as a priority. Blackrock have developed Key Performance Indicators around encouraging companies to have business plans with targets to advance the transition to a low-carbon economy and managing natural capital dependencies and impacts through sustainable business practices. Read more.
  • Schroders announced the launch of the Schroder Sustainable Bond fund, designed to provide investors with long-term diversified returns through sustainable investment across the full spectrum of global fixed income markets. The fund will harness Schroders well-established top-down thematic fixed income investment process, to invest in both sovereign and corporate debt across developed and emerging markets. Read more.
Government and regulatory developments

The Bank of England (“BoE”) launched the second round of the Biennial Exploratory Scenario (“BES”) exercise on financial risks from climate change. The objective of the Climate BES is to explore the financial risks posed by climate change for the largest UK banks and insurers. This is in line with the plan for the Climate BES set out in June 2021. The BoE expects to publish results in May 2022. Read more.

European Banking Authority (EBA) published a report which analyses the recent developments and challenges of introducing sustainability into the EU securitisation market. The Report examines how sustainability could be introduced in the specific context of securitisation to foster transparency and credibility in the EU sustainable securitisation market. Read more

The European Commission is preparing a retail investment strategy, which aims to take a holistic view of investor’s protection rules. In the answers received to the 2021 public consultation on the Commission’s retail investment strategy for Europe, many stakeholders, called to simplify, improve, automate and standardise the way investors’ profiles are currently assessed. Read more.

European Commission: The platform on Sustainable Finance, has published a new report on the development of the social taxonomy which will be targeted at social investments. Read more

The European Securities and Markets Authority (ESMA) published its Sustainable Finance Roadmap 2022-2024. ESMA identifies three priorities for its sustainable finance work: Tackling greenwashing and promoting transparency; Building National Competent Authorities’ and ESMA’s capacities, in the sustainable finance field; and Monitoring, assessing and analysing ESG markets and risks. Read more.

ESG and credit rating agencies developments
  • Fitch published an ESG in credit report which provides insight on the credit relevance and materiality of sector-specific environmental, social and governance credit issues and offers guidance on investor approaches to evaluating ESG risk factors. Read More.
  • S&P collaborated with GTI and the National Energy Technology Laboratory to launch the Open Hydrogen Initiative, a new collaboration to further transparency into the environmental impact of hydrogen production and help unlock its full potential as an important driver of energy transitions. Read more.
  • Sustainalytics launched Engagement 360, which is an integrative stewardship solution that combines all of Sustainalytics’ engagement programs in one bundle. This service offers institutional investors a comprehensive approach to address systemic risks and underlying ESG issues in their portfolio. Read more.
  • MSCI announced that the MSCI Russia Indexes will be reclassified from Emerging Markets to Standalone Markets status due to the fact that Russian equity market is currently un-investable and that Russian securities should be removed from the MSCI Emerging Markets Indexes. Read more.
  • MSCI has announced two new partnerships with GeoQuant and Elevate to enhance the capability of MSCI’s ESG data ecosystem. This partnership further expands the robust capabilities of the MSCI data ecosystem, improving investors’ ability to address ESG needs. Read more.

For those looking to discuss any of the above further, please reach out to our authors:

This article has been prepared for information purposes only, does not constitute an analysis of all potentially material issues and is subject to change at any time without prior notice. NatWest Markets does not undertake to update you of such changes.  It is indicative only and is not binding. Other than as indicated, this article has been prepared on the basis of publicly available information believed to be reliable but no representation, warranty, undertaking or assurance of any kind, express or implied, is made as to the adequacy, accuracy, completeness or reasonableness of the information contained in this article, nor does NatWest Markets accept any obligation to any recipient to update or correct any information contained herein. Views expressed herein are not intended to be and should not be viewed as advice or as a personal recommendation. The views expressed herein may not be objective or independent of the interests of the authors or other NatWest Markets trading desks, who may be active participants in the markets, investments or strategies referred to in this article. NatWest Markets will not act and has not acted as your legal, tax, regulatory, accounting or investment adviser; nor does NatWest Markets owe any fiduciary duties to you in connection with this, and/or any related transaction and no reliance may be placed on NatWest Markets for investment advice or recommendations of any sort. You should make your own independent evaluation of the relevance and adequacy of the information contained in this article and any issues that are of concern to you.

This article does not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell any investment, nor does it constitute an offer to provide any products or services that are capable of acceptance to form a contract. NatWest Markets and each of its respective affiliates accepts no liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this material or reliance on the information contained herein. However this shall not restrict, exclude or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed.

NatWest Markets Plc. Incorporated and registered in Scotland No. 90312 with limited liability. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. NatWest Markets N.V. is incorporated with limited liability in the Netherlands, authorised and regulated by De Nederlandsche Bank and the Autoriteit Financiële Markten. It has its seat at Amsterdam, the Netherlands, and is registered in the Commercial Register under number 33002587. Registered Office: Claude Debussylaan 94, Amsterdam, the Netherlands. Branch Reg No. in England BR001029. NatWest Markets Plc is, in certain jurisdictions, an authorised agent of NatWest Markets N.V. and NatWest Markets N.V. is, in certain jurisdictions, an authorised agent of NatWest Markets Plc. NatWest Markets Securities Japan Limited [Kanto Financial Bureau (Kin-sho) No. 202] is authorised and regulated by the Japan Financial Services Agency. Securities business in the United States is conducted through NatWest Markets Securities Inc., a FINRA registered broker-dealer (http://www.finra.org), a SIPC member (www.sipc.org) and a wholly owned indirect subsidiary of NatWest Markets Plc.

Copyright 2022 © NatWest Markets Plc. All rights reserved.