Primary Market Activity [1]

• Green, Social and Sustainability / Sustainability-linked (GSS/S) issuance slowed to a crawl in July, primarily due to heightened market volatility but compounded by the summer holidays setting in. There were just two issuances; a green covered bond from LBBW which saw significant oversubscription (4.6x) followed by Aareal Bank a day later with a green senior preferred which priced at ‘initial price talk’ (ms+300). This contrasts to a month earlier which saw 10 transactions with an aggregated volume of €4.9bn, albeit this in itself was materially lower in volume than the €8.2bn equivalent priced across 11 transactions in May. 
• Across June & July, all but one transaction was in green format (11 transactions/€6.0bn equivalent) with the remaining transaction – a €200m sub-benchmark from CREDEM – in social format. The recent relative frequency of green vs. social issuance is tilted even more strongly towards green vs 2022 YTD more broadly.
• A similar level of concentration exists with currency too; with all but one transaction denominated in EUR – and a $500m senior issuance from Bank of China (Frankfurt) bucking the trend. The last GBP issuance was a Social SNP (senior non-preferred notes) by Yorkshire Building Society in early April 
• The formats within the GSS/S primary market have been fairly diverse, with €4.1bn issued across senior (7 transactions), €1.5bn in covered bonds, and €1bn in capital – including a Green AT1 for de Volksbank; only the second GSS AT1 in Europe after BBVA in July 2020.

European Banks & Insurance GSS/S Issuance [2]

• FI GSS/S issuance in July materially decreased vs June (-45%). European Bank & Insurance Green issuance is flat vs 2021 YTD (+1%), but overall GSS/S issuance is down 15%
• Green continues to account for the majority of GSS FI issuance (c. €35bn) followed by Social (c. €4.9bn) and with minimal Sustainability issuance (€0.3bn)
• GSS/S issuance has been evenly split between Senior Non-Preferred (32%), Senior Preferred/Unsecured (32%) and Covered (31%), with capital issuance at 6%. Aggregate volume is at 52% of FY 2021’s total

Global EUR/GBP FIG GSS Issuance [3]

• EUR Senior: YTD GSS issuance of €23.3bn (-26% vs 2021 YTD), with total senior supply at €132.8bn (+3%), resulting in a decrease of GSS as a % of total issuance to 18% (2021 YTD: 24%)
• GBP Senior: YTD GSS issuance is £0.6bn (-69%), with total senior supply at £14.55n (-25%), resulting in a decrease of GSS as a % total issuance to 4% (2021 YTD: 9%)
• EUR Covered: YTD GSS issuance of €12.6bn (+36% vs 2021 YTD), with total covered supply at €129bn (+139%), resulting in a material decrease of GSS as a % of total issuance to 10% (2021 YTD: 17%)
• GBP Covered: YTD issuance is £0.5bn (nil for 2021 YTD), with total covered supply at £11.6bn (+74%), resulting in GSS as a % of total issuance at 4% (2021 YTD: nil)

FI / Banking Sector Developments

• NatWest announced the launch of its Carbon Planner, a free-to-use digital platform designed to help UK businesses manage their future fuel and operational costs and reduce their carbon footprint. It will allow customers to better understand the financial impact of reducing their carbon emissions – read more about the NatWest Carbon Planner
• BNP Paribas and EDF ENR partnered on the first renewable project bond as a digital asset. BNP structured, tokenised, and distributed the bond, with the proceeds going towards refinancing a solar energy project. The digital asset, issued on the public blockchain, represents the first renewable energy bond tokenisation on the project financing market – read more about the first renewable project bond
• BMO announced it has entered into a definitive agreement to acquire Radicle Group, a leader in sustainability advisory services and solutions, and technology-driven emissions measurement and management. Radicle has established a reputation as a leading developer of carbon offsets and for helping organisations measure and reduce emissions – read more BMO's acquisition of Radicle Group
• Fifth Third sets $100bn environmental and social finance target to be achieved by 2030. The new target is an expansion of the bank’s original $8bn sustainable finance goal, which was set in 2020 and was achieved nearly three years ahead of schedule – read more about Fifth Third's environmental and social finance target
• CaixaBank has created a new Climate Risk unit to foster its commitment to decarbonising its own activity and that of its customers through a sustainable business and management model that includes climate risk in its operations analysis – read more about CaixaBank's new Climate Risk unit
• UniCredit has signed a partnership with CVA for the supply of electricity produced from renewable sources. For the first time in Italy, a financial institution has committed to a corporate Power Purchase Agreement with a specialist green power producer. This partnership will result in the construction of three new solar plants in Piedmont, Lombardy and Sicily – read more about the partnership between UniCredit and CVA

Investor Developments

• NN Investment Partners announced the launch of the NN(L) Social Bond fund, which aims to achieve positive social impact alongside an attractive financial return. The fund primarily invests in high quality global social bonds and money market instruments (AAA to BBB-) denominated in Euro but can also include sustainability bonds that allocate at least half of the proceeds to social projects – read more about NN Investment Partners' NN(L) Social Bond fund
• BNP Paribas AM outlines its strategic ambitions for the next three years during which it aims to become the sustainable asset manager of reference in Europe. BNP will apply a science-led and transparent approach, continuing to expand their thematic fund range, including ESG ETFs – read more about BNP Paribas AM's strategic ambitions
• Blackstone have committed $400m to lead a strategic investment in Xpansiv, the market-infrastructure platform for global carbon and environmental commodities. Xpansiv connects buyers and sellers of environmental commodities and provides market data for voluntary carbon offsets, renewable energy credits, and low-carbon fuels, which supports companies with meeting their emission reduction targets – read more about Blackstone's investment in Xpansiv

Government & Regulatory Developments

• European Central Bank (ECB) detailed its plan to take into account climate-related financial risk on the Eurosystem’s balance sheet, and support the green transition of the EU economy. The ECB aims to gradually decarbonise its corporate bond holdings in line with the Paris Agreement goals – read more about the ECB's plans
  
• The European Parliament voted against an objection put forward earlier by two parliamentary committees to the Commission’s proposal to include nuclear and natural gas-related activities as sustainable investments in the EU Taxonomy via a complementary delegated act – read more about the European Parliament vote on sustainable investments
• EU Platform published recommendations on the compliance with the minimum social safeguards in the EU Taxonomy. Under the EU Taxonomy Regulation, an economic activity can be considered as environmentally sustainable only if it is carried out in compliance with so-called minimum social safeguards set-out in Article 18 of the Regulation – read more about the EU Platform recommendations
• ECB announced the results of its first bottom-up (based on real submissions from participating banks) climate stress test. The objective was to optimise banks’ and supervisors’ capacity to assess climate risk and enhance the available information on climate risk stress testing – read more about the ECB's climate stress test

ESG and Credit Rating Agencies Developments

• ISS ESG has released an Investor’s Guide to the Circular Economy. The report highlights analysis suggesting that the more circular a company is, by keeping resources at their highest value and reducing waste, the lower its risk of defaulting on debt, and the higher the risk-adjusted returns of its stock – read more about the ISS ESG's Investor's Guide
  
• Fitch announced the launch of its new, updated global diversity equity and inclusion strategy, which highlights five pillars to drive actionable goals. One of the goals included increasing the number of women globally and ethnic minority representation in the US and UK, across all levels – read more about Fitch's global diversity equity and inclusion strategy
• MSCI published a report highlighting sustainable bond volumes in Q2. The report noted that sustainable bond volumes are down less than the broader market and represented 15% of global total issuance in the second quarter, the highest quarterly share on record – read more about sustainable bond volumes in Q2 (PDF)
• Fitch have published a report providing insights from its inaugural ESG Ratings. The report emphasises that the Entity and Framework score gap means ‘brown’ companies can still meet green standards for bonds – read more about Fitch's inaugural ESG Ratings

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

Caroline Haas, Head of Climate and ESG Capital Markets

Doug Shuffman CFA, Vice President, Climate and ESG Capital Markets

Jake Hallam, Associate, Climate and ESG Capital Markets

Siobhan Wartnaby, Analyst, Climate and ESG Capital Markets

*For any unfamiliar terms used within this article please refer to our Insights glossary

Sources:

[1] Bloomberg, BondRadar (01/08/22)

[2] Dealogic (01/08/22)

[3] NatWest Markets Syndicate (01/08/2022)