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Sustainability

Active end to turbulent H1 – Financial Institutions maintain sustainable finance momentum in June

Our specialists reflect on the increase in Financial Institution (FI) green, social, sustainability (GSS) primary market activity.

14 Jul 2023 . 5 mins

GSS issuance volume totalled €58bn equiv. in H1 2023 across 82 transactions, an increase of 35% vs H1 2022 (€43bn equiv. across 65 transactions). Issuance in H1 can be characterised by three distinct sections; a strong start (with January being the busiest month), followed by limited issuance over the next three months (Feb, Mar, Apr) as a result of the turbulence brought about by the SVB/CS banking crisis, along with persistently high inflation, before activity then resumed in an active May and June.

Green Senior remains the dominant format, with the vast majority issued in EUR. However, it’s worth noting that a number of issuers have chosen the GBP market for their GSS issuance to achieve their primary objective of currency diversification (amidst attractive levels) while tapping into “green liquidity” from EU domiciled GSS bond funds as well as growing interest from the UK investor base.

Primary Market Activity

The GSS primary market saw €11.5bn equiv. issued across 17 transactions - continuing the strong momentum from May - as issuers rushed to tap the market before the onset of summer holidays and the blackout period. Average oversubscription (o/s) of 2.2x for GSS transactions vs 2.5x for conventional deals.

All issuers opted for EUR currency (16 transactions; €10.2bn), except for Mizuho Financial Group, which tapped the Yankee market with its $1.4bn 6NC5 Green Holdco transaction. This breaks the steady run of GSS GBP supply of recent months, albeit remains materially up on the previous year.

Senior issuance dominated the supply with 13 transactions (€9.2bn equiv.) followed by four transactions in green covered format (€2.3bn equiv.). Green format (15 transactions) continues to be the label of choice for financial institutions, with just two in social format.

European Banks & Insurance GSS/S Issuance [1]

GSS/S activity slowed in June (vs May), with issuance of €10bn, but June still marked the third most active month of the year. H1 total volume is up 49% YoY, representing 71% of 2022 total volumes, driven by exceptionally strong volumes in January and May.

Green issuance (c. €47bn) represents 82% of GSS/S issuance in 2023 year-to-date (YTD) – continuing its longstanding dominance and in line with the past few years (c.75% for 2020 & 2021 and 85% for 2022). Social issuance accounts for 16% while Sustainability contribution is a negligible 2%.

Issuance has been dominated by Senior format, with Senior Preferred (37%) being almost equal in volume to Senior Non-Preferred (33%), followed by Covered (24%), along with a small portion of GSS capital issuance (5%).

European Bank and Insurance GSS/S Supply 2022-2023 YTD

Source: Dealogic (30/06/23)

European Bank and Insurance GSS/S Issuance Breakdown 2018-2023 YTD

Source: Dealogic (30/06/23)

Global EUR/GBP FIG GSS Issuance [2]

EUR Senior: YTD GSS issuance is €37.6bn (+58% vs 2022 YTD), with total senior supply at €179.0bn (+38%); resulting in an increase of GSS as % of total issuance to 21% (2022 YTD: 18%).
GBP Senior: YTD GSS issuance is £3.5bn (+536% vs 2022 YTD), with total senior supply at £22.6bn (+55%); resulting in an increase of GSS as a % of total issuance to 16% (2022 YTD: 4%).
EUR Covered: YTD GSS issuance is €14.2bn (+27% vs 2022 YTD), with total covered supply at €144.2bn (+17%); resulting in a small increase of GSS as a % of total issuance at 10% (2022 YTD: 9%).
GBP Covered: YTD issuance is nil (2022 YTD: £0.5bn), with total covered supply at £12.6bn (+25%), resulting in GSS as a % of total issuance of nil (2022 YTD: 5%).

Banking & Financial Institutions Sector Developments

NatWest and WWF have announced a new strategic partnership to support a sustainable transition for the UK food and agricultural sectors. The partnership will work to bring together players across the food and agriculture sectors in the UK to channel and scale private and public finance to support farmers to achieve climate and nature goals; including calling on government to reform agricultural payments.
AXA has published its targets to drive the decarbonisation of its Property & Casualty insurance portfolios and to develop its insurance activities dedicated to the transition.
Citi has announced the launch of its new sustainable time deposit solution in India, which is designed to assist institutional clients when investing excess cash while supporting their sustainability goals. The funds will be allocated by Citi to finance or refinance assets in a portfolio of eligible social finance projects.
MUFG Bank announced that is has signed an investment agreement with Imprint Nature-Based Opportunities and Manulife Forest Climate Fund, two global forest investment funds, to contribute to the creation and development of the carbon credit market.
RBC have launched their new Green Skills Scholarship through the RBC Foundation. The aim of this is to support adults interested in enhancing their skillset to take on opportunities in the growing green economy sector and help address pressing environmental challenges.

Investor Developments

BlackRock has launched the BlackRock Global Funds Brown to Green Materials Fund, which is aimed at targeting materials sector-related investment opportunities.
BNP Paribas is launching its BNP Paribas European Impact Bonds Fund 2, with three investors joining forces to create the fund: Banque des Territoires, the European Investment Fund and BNP Paribas Cardif. The target size of the fund is €70m and it will finance projects that have a positive impact on society or the environment, promoting innovation in public policy while generating savings in government budget.
BBVA announced that they have invested $20m in the Just Climate’s Climate Assets Fund I, with the objective to invest in the highest impact solutions that can radically reduce or remove emissions, while generating attractive risk-adjusted financial returns.

Government and Regulatory Developments

The International Sustainability Standards Board (ISSB) has officially launched their new global sustainability disclosure standards, which aim to improve trust and confidence in company disclosures about sustainability.
The European Commission has put forward a package of measures to build on and strengthen the foundations of the EU sustainable finance framework. The aim of the package is to ensure that the EU sustainable finance framework continues to support companies and the financial sector.
The FCA have published findings following a review of the Sustainability-linked loans (SLLs) market in a bid to gather intelligence and determine what measures might improve the market’s integrity.

ESG and Credit Rating Agencies Developments

Sustainalytics has announced enhancements to its physical climate risk metrics product, which includes two new reports offering deeper views into companies’ exposure, loss, and financial resiliency as it relates to physical climate risk.
ISS ESG has announced planned methodology enhancements to its E&S disclosure QualityScore solution for institutional investors. The enhancements will involve revising more than 150 factors underlying the scoring, retiring close to 50 factors, and more than 60 new factors will be added.
CDP and PCAF have co-authored a paper examining the importance of data quality as part of a wider initiative to align their data quality scores.

Find out more

As always, if you would like 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
Pulkit Khurana, 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.

Additional information

[1] Includes European Bank & Insurance GSS/S Issuance

[2] Source: NatWest Markets Syndicate (31/05/23), includes Global Financial Institutions EUR & GBP Issuance.

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