The GSS primary market saw €11.7bn eq. printed across 19 transactions, with GSS transactions benefitting from scarcity value and receiving healthy average oversubscription (o/s) of 4.7x vs 2.9x for conventional. Covered bonds, which represented 60% of January GSS supply, saw the biggest differential at 4.8x oversubscription vs 2.2x for conventional.

Covered issuance remains at the top for GSS supply (11 transactions / €7.0bn) followed by eight transactions in senior format (€4.7bn). Most issuers chose green format (€10.7bn / 17 transactions) for labelled transactions, supplemented by two transactions (€1.0bn) in social format.

Conversations with investors indicate a sustained interest in social bonds. However, diversification remains challenging. Many ESG investors have suggested that they would like to see more social bond supply or thematic social issuance, but there are challenges in establishing diversified social bond funds, given the concentration of issuers (banks and SSAs). Amidst this environment, investors are taking different approaches to integrating social/sustainability factors into their investment process i.e., establishing social bond funds, investing in sustainability bonds, or factoring social considerations into their issuer-level assessment.

After >€90bn issued in 2023, GSS/S activity dropped by 24% year-on-year (YoY) in January. The drop was perceived to be, in part, due to transactions being accelerated to Q4 last year. Green issuance (c. €12bn) represents 88% of Green, Social and Sustainability / Sustainability-Linked (GSS/S) issuance in 2024 year-to-date (YTD); continuing its longstanding dominance and in line with the past few years (80% in 2023 and 85% for 2022). Social issuance is at 8% followed by Sustainability (4%). The Covered format (60%) dominated issuance in January, as issuers preferred to de-risk their funding, followed by Senior Preferred (26%) and Senior Non-Preferred (14%), with no issuance in capital format so far.

European Bank and Insurance GSS/S Supply 2023-2024 YTD

European Bank and Insurance GSS/S Issuance Breakdown 2019-2024 YTD

• EUR Senior: YTD GSS issuance is €7.4bn (-45% vs 2023 YTD), with total senior supply at €58.0bn (-11%); resulting in a significant decrease of GSS as a % of total issuance to 13% (2023 YTD: 21%).
• GBP Senior: YTD GSS issuance is nil, which is the same as 2023 YTD, with total senior supply at £3.1bn (-61%); resulting in GSS as a % total issuance of nil. 
• EUR Covered: YTD GSS issuance is €7.0bn (+54% vs 2023 YTD), with total covered supply at €43.0bn (+5%); resulting in a material increase in GSS as a % of total issuance to 16% (2023 YTD: 11%).
• GBP Covered: YTD issuance is nil, which is the same as 2023 YTD, with total covered supply at £2.5bn (-17%); resulting in GSS as a % of total issuance of nil.

Swedbank published its Climate Transition Plan, which provides insight into the work Swedbank has achieved and what it’s planning, to deliver its net-zero ambition and 2030 targets.

BMO has partnered with Canada Infrastructure Bank to launch a new programme which will help Canadian clients, that are commercial building owners, to get energy retrofit financing.

UniCredit announced its 2030 target for the steel sector, which aims to achieve a physical intensity of 1.11 tCO2/tSteel by 2030; corresponding to a 23% reduction from its 2022 baseline.

NatWest launched an energy help and support tool to help UK businesses reduce their energy usage and cut their carbon emissions. The tool will assist businesses to review their premises’ energy efficiency and access tailored recommendations.

HSBC published its Net Zero Transition Plan, which provides an overview of HSBC progress and its next steps to achieving its net-zero ambitions.

Barclays has announced that it’s establishing a new Energy Transition Group, that will look to provide strategic advice to clients around potential energy transition opportunities. The group will include expertise regarding the energy transition, including: hydrogen, energy transition finance, carbon capture, renewables, nature-based solutions, and renewable natural gas.

BlackRock has announced their acquisition of infrastructure investor Global Infrastructure Partners (GIP), a deal that brings over $100bn in assets to BlackRock from the independent infrastructure manager.

BNP Paribas AM released their new Global Sustainability Strategy, updating their approach to applying sustainability considerations within their investment process.

Fidelity International has announced four themes that underpin their thinking around system-level stewardship: nature loss, climate change, strong and effective governance, and social disparities.

The European Banking Authority has launched a public consultation on draft guidelines on ESG risks. These will set out requirements for institutions for the identification, measurement, management and monitoring of ESG risks.

The European Commission published a draft notice providing FAQs on the implementation of disclosures under Article 8 of the EU taxonomy regulation (green asset ratios and other key performance indicators (KPIs)) for financial institutions.

The UK Government will implement a Carbon Border Adjustment Mechanism (CBAM) by 2027, which will apply a new carbon import levy on high-carbon and hard-to-abate sectors including steel and aluminium, cement, and ceramics.

The European Banking Authority published recommendations to the European Commission on the definition and possible supporting tools for green loans and green mortgages, targeting retail borrowers and small / medium-sized enterprises.

Morningstar announced the launch of its Morningstar Transatlantic Sustainable Development Goals Select 40 Index. Constituents of the Index must pass stringent ESG screens and derive at least 25% of their revenue from one or more of the Sustainalytics Impact Themes.

ISS ESG launched its Biodiversity Impact Assessment Tool Portfolio Report. The tool will allow investors to compare their portfolio’s biodiversity impact against a benchmark, view the breakdown of impact per sector, country, and biodiversity drivers, and to examine the biodiversity impact attribution to sector allocation versus issuer selection.

S&P Global Sustainable1 launched a Sustainable Finance Disclosure Regulation (SFDR) Sustainable Investment Framework, a new dataset which will help align reporting with MiFID II and SFDR requirements. This will allow investors to analyse the sustainable profile of their investments by providing a detailed company-level assessment.

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, Vice President, Climate and ESG Capital Markets
• Pulkit Khurana, Associate, Climate and ESG Capital Markets
• Siobhan Wartnaby, Analyst, Climate and ESG Capital Markets

*For further analysis and information on the Primary Market, take a look at the full monthly newsletter on Market Insights. If you do not have access to Market Insights, please contact us here. Also, for any unfamiliar terms used within this article please refer to our insights glossary.

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

[2] Source: NatWest Markets Syndicate (05/02/24), includes Global Financial Institutions EUR & GBP Issuance.