Sovereigns continue to drive growth in established GSS SSA space

In our monthly Sovereign, Supranationals and Agencies (SSA) sustainability newsletter we breakdown the trending ESG trades and themes, helping SSAs get ahead of the latest issues shaping the market.

19 Dec 2023 . 3 minutes

The market continues to steadily progress into 2024 with £8bn eq. printed (7 transactions) in green, social, sustainability / sustainability-linked (GSS/S) issuance from SSAs in November.

Primary Market Activity

The EU completed their last green syndication of 2024 – a tap of their outstanding February 2048 bond. Since the EU published the 30% green target of the Next Generation EU (NGEU) programme, the bonds have been in high demand; demonstrated by this transaction with c.24x oversubscription rate. IFC also came with their first benchmark social bond in USD this year. The transaction saw strong demand that enabled it to tighten 2bps from Initial Price Talks (IPT) to a final spread of Secured Overnight Financing Rate (SOFR) mid-swaps (MS)+33bps.

SSA GSS/S Issuance

GSS/S issuance decreased in November (-40% compared to 2022). Green GSS/S issuance (c. $179bn) represents 50% of GSS/S issuance in 2023 year-to-date (YTD) – with a slight lead relative to social and sustainable issuance (20% and 27% respectively). GSS/S issuance in the SSA space is led by Agencies/Local Authorities (42%) followed by Sovereigns (31%) and Supranationals (27%).

SSA GSS/S Supply 2022-2023 YTD

Source: Dealogic (01/12/23)

Global EUR/GBP/USD SSA GSS Issuance

Sovereign: YTD GSS issuance is $111bn, largely consisting of green bonds, with some non-green issuance e.g., Brazilian sustainable and Columbian social bonds.
Supranationals: YTD GSS issuance is $73bn, led by sustainable bonds (59%) followed by green (31%) with social issuance lagging (9%).
Agencies / Local Authorities: YTD GSS issuance is $150bn, led by green bonds (43%) followed by social (39%) with sustainable issuance lagging (18%).

SSA Sector Developments

Brazil successfully launched their first sustainable bond – a $2bn 8yr transaction. The bond priced at a spread of 181.9bps above the US Treasuries, the lowest for new Brazilian debt in nearly a decade.
The Government of Japan released their inaugural transition bond framework. In this announcement, they also shared their intention to issue a total of $113bn eq. through this product. The first transition bond is earmarked to be a 5/10yr bond.
The IFC launched a new collaboration with T.Rowe Price to develop a global blue bond strategy aimed at increasing access to finance for blue projects in emerging markets and develop associated market standards. This builds on the IFC’s Guidelines for Blue Finance.
The Arab Coordination Group announced ambitions to allocate up to $50bn to help build resilient infrastructure and inclusive societies in the African continent. This step-up came ahead of the COP28 summit in Dubai.

Investor Developments

CalPERS launched its new Sustainable Investments 2030 Strategy, aimed at accelerating its transition to a net-zero emissions portfolio, including a new pledge to invest $100bn in climate solutions by 2030.
LGIM announced the launch of the L&G Future World ESG Emerging Markets Government Bond Local Currency Index Fund, the first in a series of new funds aimed at sovereign ESG frameworks.
French Socially Responsible Investment (SRI) Label has been revised such that the label is more demanding and climate-oriented, including new rules that would effectively exclude most oil and gas companies from SRI-labelled funds.
Franklin Templeton launched three new active fixed income exchange traded funds (ETFs) with two of these funds classified as Article 9. These two funds have a corporate and sovereign focus respectively.

Government and Regulatory Developments

The State of California approved the Climate Corporate Data Accountability Act (SB 253) and Greenhouse Gasses: Climate-related Financial Risk (SB 261). These bills enforce a number of disclosures around sustainability for public and private companies within the State.
The UK announced plans to invest £960m into green industries aimed at accelerating manufacturing in key net-zero sectors.
The European Union announced the launch of its first pilot auction under the European Hydrogen Bank which aims to help develop the market for renewable hydrogen. Through this facility, producers of renewable hydrogen can bid for support in the form of a fixed premium per kilogram of hydrogen produced.
CDP announced intentions to align with the European Sustainability Reporting Standards (ESRS). In collaboration with the European Financial Reporting Advisory Group (EFRAG), they hope this change will aid the adoption of the ESRS.
The Global Reporting Initiative (GRI) announced plans to launch a new Sustainability Innovation Lab (SIL), with support from the International Financial Reporting Standards (IFRS). This initiative aims to help companies meet evolving sustainability disclosure requirements.

Find out more

If you would like to discuss any of the above further, please reach out to our authors:

Manmeet Baryah, Analyst, Climate and ESG Capital Market
Tonia Plakhotniuk, Vice President, Climate and ESG Capital Markets

For further analysis and information on the Secondary Market as well as detail of the latest SSA GSS/S private placements, 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.

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