A sustainable comeback

September hasn’t yet come to an end, but it is by far a record month when it comes to sustainable bond issuance.

September hasn’t yet come to an end, but it is by far a record month when it comes to sustainable bond issuance with EUR 52 billion issued globally. This takes the total volume for 2020 so far to EUR 231 billion, very close to the all-time high of EUR 243 billion in 2019. And 2019 was viewed as an exceptional year seeing a 66% growth in volume compared to 2018.

In September alone, 3% of global bond issuance had a sustainable label. That may not sound as very much, but the number usually hovers just below 1%. In the Nordic region, that figure for September is a staggering 20%.

ESG is more than E
The above data refers to bonds where proceeds are earmarked for investments with a positive environmental or social impact. This market has so far been predominantly green, but during 2020 the share of social bonds have increased dramatically.

This is a direct effect of the pandemic, where we now see large development and supranational banks such as the EIB, NIB and the African Development Bank just to name a few, are issuing large volumes to support companies who have found themselves in economic hardship as a result of the crisis, as well as to finance investments in covid-19 related healthcare and vaccine development.

Product innovation
In addition, we are seeing a new product in the market – namely sustainability-linked bonds. So far, there is only a handful of examples, but from various sectors.

In contrast to green and social bonds, where proceeds are earmarked for specific purposes, sustainability-linked bonds are for general corporate purposes but where the coupon can instead increase if the company fails to deliver on a predefined sustainability performance target, such as reduction of CO2 emissions.

Irrespective of where you are on the green scale, as long as you have a clear strategy of transitioning from browner to greener – sustainability-linked bonds can be a relevant product to explore.

Regulations on the horizon
We are also entering a more regulated space, with new disclosure requirements for both investors and corporations as well as stricter definitions of “green” on the horizon.

The EU is in the front seat when it comes to setting ambitious targets at the moment. In 2050, the union aims to be climate neutral – this will require large investments in a greener direction.

Written By Nina Ahlstrand, DNB Markets

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Disclaimer
This material is Marketing Material and has been prepared by a member of DNB Markets IBD Team. Although the information set out in this marketing communication is obtained from sources believed to be reliable, DNB Markets does not guarantee its accuracy or completeness. This material is not an offer to buy or sell any security or other financial instrument or to participate in any investment strategy. In no event shall DNB be liable to any party for any direct or indirect damages, costs, expenses or losses in connection with any use of the information. Information about DNB Markets can be found at www.dnb.no/markets.