Primary Market Activity

Once again the majority of transactions were in green format (19 transactions / €12.5bn equiv.) with the remaining two transactions in social format. The relative frequency of green vs. social issuance was in line with that seen in Q2 and throughout 2022 more broadly.

EUR remains the dominant currency (17 transactions) with the remaining three in USD for Mun Re, Bank of China and China Construction Bank. The last GBP issuance was a Social Senior Non-Preferred (SNP) by Yorkshire Building Society in early April.

13 of the transactions were in Senior format (€9.0bn equiv.) supplemented by a notable return to the GSS capital market (4 transactions; €2.2bn equiv) 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 [1]

FI GSS/S issuance in May was materially higher than a relatively subdued March and April but decreased again in June as market volatility picked up. European Bank & Insurance Green issuance is flat vs 2021 year-to-date (YTD) (-1%), but overall GSS/S issuance is down 14%.

Green continues to account for the majority of GSS FI issuance (c. €32bn) followed by Social (c. €5bn) 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 (30%), with capital issuance at 7%. 

Aggregate volume is at 49% of 2021’s total.

Global EUR/GBP FIG GSS Issuance [2]

• EUR Senior: YTD GSS issuance of €22.4bn (-22% vs 2021 YTD), with total senior supply at €129.4bn (+5%), resulting in a decrease of GSS as a % of total issuance to 17% (2021 YTD: 23%)
• GBP Senior: YTD GSS issuance is £0.6bn (-69%), with total senior supply at £14.5bn (-23%), resulting in a decrease of GSS as a % total issuance to 4% (2021 YTD: 10%)
• EUR Covered: YTD GSS issuance of €11.1bn (+35% vs 2021 YTD), with total covered supply at €122.8bn (+156%), resulting in a material decrease of GSS as a % of total issuance to 9% (2021 YTD: 17%)
• GBP Covered: YTD issuance is £0.5bn (nil for 2021 YTD), with total covered supply at £10.1bn (+100%), resulting in GSS as a % of total issuance at 5% (2021 YTD: nil)

FI & Banking Sector Developments

• NatWest won the award for “Most Impressive Investment Bank for Corporate Green and ESG-Linked Bonds”. The awards are based on voting from issuers, investors, banks and other market participants. Read more about the award won by NatWest
• HSBC has suspended its head of responsible investing pending an internal investigation after he said, ‘central bank policymakers and other global authorities are exaggerating the financial risks of climate change’. HSBC senior banker Stuart Kirk made the comments at a conference hosted by the FT, with the title of the presentation; “Why investors need not worry about climate risk”. Read more about the action taken by HSBC
• Deutsche Bank has made vendor sustainability ratings mandatory. Starting in July, every new or extended contract worth over €500,000 a year will require an external vendor sustainability rating from EcoVadis or another eligible rating agency. These include: MSCI ESG, Sustainalytics, ISS ESG, S&P Global and CDP. Read more about Deutsche Bank's decision to make vendor sustainability ratings mandatory
• Citi has announced the launch of two new deposits, Sustainable Time Deposit and Sustainable Minimum Maturity Time Deposits, this will enable clients to invest excess cash in alignment with their sustainability goals. Read more about the deposits launched by Citi
• Deutsche Bank is the first bank in Europe to convert an existing supply chain finance program for its client. Deutsche is linking the Henkel supply chain finance program to the ESG ratings of Henkel’s supplier, this allows Henkel to creates incentives for its suppliers to be more sustainable. Read more about Deutsche Bank's supply chain conversion
• Scotiabank has launched its Black-Led Business Financing Program. The program commits to providing $100 million in capital via term financing for both start-up and established Black-led businesses. Read more about Scotiabank's new financing program
• Danske Bank have signed up to Partnership for Biodiversity Accounting Financials. The partnership enables Deutsche Bank to measure its biodiversity impact of its loan and investment portfolio. Read more about what signing up to the partnership means for Danske Bank
• BMO and EDC have announced an agreement to bring sustainable finance solutions to medium and large-sized Canadian exporting businesses, to help them transition from carbon-intensive operations to those that can eliminate or significantly reduce emissions.  As part of the agreement, BMO is the first financial institution to offer EDC's new Sustainable Financing Guarantee a product available through EDC's Sustainable Financing Program. Read more about the BMO and EDC agreement 
• NatWest has launched 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. Read more about NatWest's Carbon planner
• ING, Societe Generale and Citi announced that they will partner with RMI’s Center for Climate-Aligned Finance to help decarbonize the aluminum sector by forming the Aluminum Climate-Aligned Finance Working Group. Read more about ING, Societe Generale and Citi’s partnership
• Wells Fargo has announced its interim targets for reducing greenhouse gas emissions attributable to its financing activities in the Oil & Gas and Power sectors. The 2030 reduction targets for these sectors, based on a 2019 baseline, are: (1) Oil & Gas sector: 26% reduction in absolute emissions (2) Power sector: 60% reduction in portfolio emissions intensity. Read more about Wells Fargo’s interim targets

Investor Developments

• DWS chief executive has resigned after the company’s offices in Frankfurt were raided and evidence was seized by police investigating claims of greenwashing. Read more about what this means for DWS
• Brookfield AM have raised $15bn at the final close for their Brookfield Global Transition Fund, making it the world’s largest private fund dedicated to facilitating the global transition to a net-zero carbon economy. The Fund invests in the transformation of carbon-intensive industries as well as the development and accessibility of clean energy. Read more about Brookfield AM’s fund
• PGIM has launched its ESG Short Duration Multi-Sector Bond Fund. The new fund seeks total return, investing across various fixed income securities and emphasizing issuers with stronger ESG characteristics and practices than traditional multi-sector portfolios. The Fund normally seeks to maintain an average portfolio duration of three years or less. Read more about PGIM's fund
• M&G launched a global investment grade sustainable credit fund to their product offering which aims to drive positive environmental and social outcomes through dedicated allocation to “ESG-themed bonds” including green, social, sustainable & sustainability-linked. Read more about M&G's fund

Government and Regulatory Developments

The Bank of England (BoE) has completed its first exploratory scenario exercise on climate risk, involving the largest UK banks and insurers. One key finding highlighted that climate risks could cause a persistent and material drag on profitability, equivalent to an annual drag on profits of around 10-15% on average. Read more about the BoE climate risk exercise

FCA published 13 key finding from its consultation paper CP21/18 on climate-related disclosure rules for listed issuers, the FCA included a discussion chapter on some ESG issues in capital markets. Read more about the FCA key findings

Department for Work and Pensions (DWP) announced that pensions schemes will have to measure and publish how their investments support the Paris Agreement climate goal. Read more about the DWP announcement

Glasgow Financial Alliance for Net Zero (GFANZ) published a series of publications on transition plans including proposed ‘Recommendations and Guidance on Financial Institution Net-zero Transition Plans’, which describes how financial institutions across the financial system can operationalize their net-zero commitments and support the real-economy transition. Read more about GFANZ publications

The Basel Committee on Banking Supervision (BCBS) published principles for the effective management and supervision of climate-related financial risks. The document forms part of the Committee's holistic approach to addressing climate-related financial risks to the global banking system. Read more about the principles published by BCBS

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

ESG and Credit Rating Agencies Developments

• The European Commission have launched a targeted consultation on the functioning of the ESG ratings market in the EU and on the consideration of ESG factors in credit ratings. Based on the results, the Commission may propose an initiative to foster the reliability, trust and comparability of ESG ratings by early 2023. Read more about the European Commission’s targeted consultation
• Moody’s proposes updates to its general principles for assessing ESG risks methodology. Read more about the update to Moody’s principles
• Sustainalytics acquires Aquantix, which develops and delivers property-level climate risk data services for the real estate and mortgage lending industries. Read more about Sustainalytics acquisition of Aquantix
• MSCI has agreed to a strategic partnership with Carbon Risk Real Estate Monitor (CRREM) that will enhance MSCI’s emission intensity data and decarbonization pathways analysis to enable real estate investors to better assess and manage transition risk. Read more about MSCI’s strategic partnership
• MSCI has launched its ‘Total Portfolio Footprinting; to help financial institutions measure carbon emissions across their lending and investment portfolios as part of the transition to a net-zero economy. Read more about the launch of MSCI’s Total Portfolio Footprinting

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.

Source

[1] Dealogic (01/07/2022)

[2] NatWest Markets Syndicate (29/06/2022)