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The market for green, social and sustainability bonds has been growing rapidly over the past few years, reaching a total of $1.4 trillion in issuance, including $490 billion for 2020 alone. For the time being, the Gulf region accounts for only for a tiny part of it. However, this is about to change, in part thanks to the recent creation of a new financial instrument: The sustainability-linked bond.
Green, social and sustainability bonds are all use-of-proceeds financial instruments. While these bond formats provided investors with clarity and transparency in terms of what is being financed or refinanced with the proceeds raised from their issuance, some issuers perceive the use-of-proceeds structure as too restrictive and have stayed away from this market.
Some managers are optimistic about what this growth in green bond issuance could mean for them. Bertrand Rocher, portfolio manager and senior credit analyst at Mirova, is encouraged by the spread and depth of issuance he is seeing. The growth in the number of green bonds and the now vast variety of players issuing such instruments from North America, Europe and Asia can only be a positive for all fixed income portfolio managers and clients who want to participate in the necessary environmental transition, said Rocher.
Green bonds have been issued by entities ranging from car manufacturers and financial institutions to utility companies and sovereign states.
Securities finance: Securities lending industry defines its digital future
In a white paper 18 months ago, the International Securities Lending Association (Isla) and law firm Linklaters proposed that the securities lending market is at a crossroads. The market is becoming ever-more complex and regulation more onerous. Processes and systems that previously served the market relatively well are now becoming more cost and time-intensive.
The white paper – called ‘The Future of the Securities Lending Market: An Agenda for Change’ – predicted costs and risk will continue to increase, potentially to unsustainable levels. This means that standardising, automating and streamlining processes is more important than ever.
By Bill Thornhill
06 Apr 2021
The European Commission’s draft Taxonomy for Sustainable Activities will stymie green bond issuance as it’s based on an unfair system that excludes mortgages on many countries’ most energy efficient buildings.
Last November, the Commission said it would only consider mortgages with an Energy Performance Certificate rating of ‘A’ as being eligible for its Taxonomy.
This was met with howls of derision from the covered bond market, as it would have reduced the amount of energy efficient mortgage collateral that was compliant with the Taxonomy, severely hitting green senior unsecured, covered bonds and RMBS issuance. At the time market participants said it would kill the FIG green bond market.
By Bill Thornhill
06 Apr 2021
In its present form, the European Commission’s draft Taxonomy for Sustainable Activities practically excludes mortgages on the most energy efficient buildings in many countries and it is based on an unfair system which will stymie green bond issuance.
In November last year the EC said it would only consider mortgages with an Energy Performance Certificate rating of ‘A’ as eligible for its Taxonomy.
This decision met with a howl of derision from the covered bond market as it would have reduced the amount of energy-efficient mortgage collateral compliant with the Taxonomy, severely hitting green senior unsecured, covered bonds and RMBS issuance. At the time market participants said it would kill the FIG green bond market.