The majority of issuances in April were in green format (4 transactions / €2.5 equiv.), with the remaining (2 transactions) being in social format. The relative frequency of green vs. social was in line with what was seen in March and with issuance throughout 2022 more broadly. Notably, there has not been any Sustainability issuance since a sub-benchmark Senior Preferred from Islandsbanki in mid-January. The average size of GSS transactions remained small, with just one issuer raising >€500m (MünchenerHyp) – this reflects the composition of issuers (primarily regional banks) and the scarcity of GSS assets. All but one transaction was priced in EUR (€3.0bn issued) – Yorkshire Building Society (YBS) printed the only non-EUR GSS transaction, a highly successful £300m Social Senior Non-Preferred.

Four of the six transactions completed in April were in senior format (€1.8bn equiv.), while two were in covered format (€1.5bn equiv.). Following the issuance of two additional GSS covered bonds in early May (LBP Home Loan and Berlin Hyp), GSS Covered issuance is now +37% YoY, a notable change vs. last month’s newsletter when year-to-date (YTD) supply in this asset class was down 9% YoY. This reflects issuers’ focus on covered bond issuance in the currently volatile markets and the benefits of a GSS label in terms of helping to de-risk transaction execution.

NatWest led Deutsche Kreditbank’s (Moody’s: Aaa) inaugural €500m 10Y “Berlin Social Housing” Mortgage Covered Bond, which priced at M/S+3 (1.651% Yld). The issuer opted for a “WNG” strategy and benefited from healthy demand (4.7x oversubscribed).

NatWest also led YBS (Baa2 / - / A-) £300m 8.5NC7.5 Social Senior Non-Preferred. The transaction saw very strong investor interest (7.8x oversubscribed), with proceeds being used to increase access to financial services to underserved borrowers in the UK.

Although FI GSS issuance in April was lower than in March, it was materially up YoY (44%), in contrast with March (-30%). After an average February and a bumper January, YTD volumes are now +10% vs. 2021.

Green continues to account for the majority of GSS FI issuance (c. €33.3bn), followed by Social (c. €8.2bn) and Sustainable (€6.8bn).

The vast majority of GSS issuance has been in senior format (Senior Preferred (SP): 71%, Senior Non-Preferred (SNP): 13%), with Covered accounting for the remainder (14%). There have been no GSS capital issuances from financial institutions since Dec-21.

2022 YTD stats in the EUR and GBP GSS Market

• EUR Senior: YTD GSS issuance of €13.8bn (-8% vs 2021 YTD), with total senior supply at €89.6bn (+8%), resulting in a slight decrease of GSS as a % of total issuance to 15% (2021 YTD: 17%).
• GBP Senior: YTD GSS issuance is £0.6bn (-42%), with total senior supply at £10.6n (-7%), resulting in a decrease of GSS as a % total issuance to 5% (2021 YTD: 8%).
• EUR Covered: YTD GSS issuance of €6.9bn (+37% vs 2021 YTD), with total covered supply at €94.9bn (+195%), resulting in a material decrease of GSS as a % of total issuance to 7% (2021 YTD: 16%).
• GBP Covered: YTD issuance is £0.5bn (nil for 2021 YTD), with total covered supply at £9.0bn (+348%), resulting in GSS as a % of total issuance at 6% (2021 YTD: nil).

Global FI GSS Supply 2021-2022 YTD

• Standard Chartered, BNP Paribas, Citi, Crédit Agricole CIB, Societe Generale and Bank of America are founding members of a new global Aviation Climate Aligned Finance Working Group facilitated by the RMI’s Centre for Climate-Aligned Finance. This industry-first taskforce will come together to create an agreement before the end of 2022 that defines common standards of action for aviation sector decarbonisation.
• Nomura announced their cooperation in the issuance of a publicly-offered wholesale "Digitally Tracked Green Bond". This will be the first in Japan, using a corporate bond-type security tokens scheme that utilises a blockchain provided by BOOSTRY. 
• Goldman Sachs Asset Management completed the acquisition of NN Investment Partners for €1.7 billion. The acquisition will add new capabilities and accelerate growth in products such as European equity and investment grade credit, sustainable and impact equity, and green bonds. NN Investment Partners has integrated ESG criteria into approximately 90% of assets under supervision.
• BNP Paribas has unveiled its first ‘Climate Analytics and Alignment Report’ which includes a series of financed carbon emission intensity reduction targets for power generations, upstream oil and gas and refining, and automotive.
• Bank of America has announced its 2030 targets for reducing emissions as part of its Net Zero Commitment:

o Auto manufacturing: Reduce intensity 44% gCO2e/km (Scope 1, Scope 2 and end use Scope 3 carbon emissions)

o Energy: Reduce intensity 42% gCO2e/MJ (Scope 1 and Scope 2 emissions) and reduce intensity 29% gCO2/MJ (end use Scope 3 carbon emissions)

o Power generation: Reduce intensity 70% kgCO2/MWh (Scope 1 carbon emissions)

• MUFG has decided to revise its Environmental and Social Policy Framework to include stricter polices for sectors negatively impacting climate change which include Oil and Gas (shale oil and gas, pipeline), Mining (Coal) and Palm Oil.
• NatWest has announced a 3-year partnership with The University of Edinburgh Centre for Business, Climate Change and Sustainability. The £1.5m partnership will facilitate the delivery of a climate education programme to more than 16,000 people across the NatWest Group by the end of 2024.
• Bank of America will transition all plastic credit and debit card products to be made from at least 80% recycled plastic starting in 2023. This will make Bank of America the first US-based bank to make this commitment across its entire debit and credit card portfolio.
• Lloyds has appointed Dr Rebecca Heaton as Director of Environmental Sustainability to oversee the group plan to achieve net zero.

Robeco surveyed 300 institutional and wholesale investors globally

Key findings:

• 27% made public commitment to net zero by 2050 which rises to 40% for European investors and 43% for insurance companies
• 51% feel that climate change is a significant factor in their investment policy and 24% say it is at the centre 
• 53% anticipate natural capital (e.g. biodiversity) to be relevant in the next 2 years with 24% already considering it relevant today; still a lack of awareness on the financial implications of biodiversity loss
• Primary strategies currently are ESG integration, active ownership and thematic investing – with negative screening declining and impact investing gaining focus
• Carbon credits will have a role to play in reducing emissions – 63% driver of change, 60% tool to manage risk-adjusted returns and 58% new asset class; however, still concerns on greenwashing and illiquidity

HM Treasury formally launched a new UK Transition Plan Taskforce, to develop the gold standard for UK firms’ climate transition plans. This will require UK financial institutions and listed companies to develop and publish rigorous and robust transition plans that detail how they will adapt and decarbonise as the UK moves towards becoming a net-zero economy by 2050.

The European Banking Authority has published a discussion paper on the role of environmental risks in the prudential framework for credit institutions and investment firms. The paper explores whether and how environmental risks are to be incorporated into the Pillar 1 prudential framework. The consultation runs until 2 August 2022.

The Bank of England has announced that the Climate Biennial Exploratory Scenario (CBES) results will be published on 24 May 2022. The objective of the CBES is to explore the financial risks posed by climate change for the largest UK banks and insurers.

The European Supervisory Authorities have published a consultation paper seeking input on draft Regulatory Technical Standards on the content, methodologies and presentation of information in respect of the sustainability indicators for simple, transparent and standardised securitisations. The closing date for responses to the consultation is 2 July 2022.

FCA has finalised rules requiring listed companies to report information and disclose against targets on the representation of women and ethnic minorities on their boards and executive management, making it easier for investors to see the diversity of senior leadership teams.

For more information on ESG government and regulatory developments check-out our ESG Policy and Regulation Round up: April 2022

• Moody’s announced that it pledges to cut Scope 1, 2 and 3 Emissions by 90% by 2040. Moody’s has already exceeded its near-term greenhouse gas reduction targets with a 92% reduction in absolute Scope 1 and 2 GHG emissions and a 95% reduction in Scope 3 from a 2019 base year. 
• MSCI launched its Thematic Exposure Standard which enables investors to systematically evaluate the exposure of 40,000 companies to structural trends. This will allow investors to better understand their portfolio’s economic linkage to long-term structural trends. 
• Moody’s has launched a new platform, ESG360, which aims to deliver comprehensive and actionable ESG data and insights. 
• MSCI and MarketAxess announced Strategic collaboration on Liquid Fixed Income Indexes, Portfolio Construction Solutions, and ESG Data. MarketAxess plans to leverage MSCI’s ESG ratings to identify and create more liquid and sustainable fixed income portfolios for its global institutional clients. 
• Moody’s has expanded its ESG Issuer profile scores and credit impact scores to cover additional entities, including financial institutions, large US counties, European public sector housing, and companies in a wide range of sectors globally. 
• ISS ESG released its annual outlook report on top governance and stewardship issues in 2022. The report provides insights into key areas, including climate change, human capital management, diversity and inclusion, executive compensation board accountability, special purpose acquisition companies (SPACs) and shareholder activism.

• Caroline Haas, Head of Climate and ESG Capital Markets
• Doug Shuffman, 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