Issuance of ESG bonds and loans in Europe almost doubled last year as more sovereign and supranational issuers entered the market and governments adopted sustainable finance programmes, the Association for Financial Markets in Europe (Afme) said.
Afme, a finance industry group which brings together global and European banks as well as other key capital market players, said it foresees further growth in ESG debt because of greater participation by the corporate sector and due to the potential of the ESG securitisation market.
Total issuance of ESG-labelled bonds, sustainable-linked bonds, transition bonds, green-linked loans and sustainable-linked loans reached 750 billion euro in Europe last year, compared to 396 billion euro in the previous year. That is an increase of 89 percent, said Afme Wednesday in its latest quarterly European ESG Finance report.
Luxembourg among top 5 in sustainable bonds
France, Germany and the Netherlands were the countries with the biggest amounts outstanding in European green bonds, more than 100 billion euro each. Luxembourg commanded the 11th position on this list, ranking between Denmark and Finland with nearly 20 billion euro in total green bonds issuance.
With nearly 3 billion euro issued in 2021, the Grand Duchy was among the top five issuers of sustainable bonds last year in Europe, according to Afme. Proceeds of these bonds are allocated to green and social projects.
ESG bond issuance represented 20 percent of total European bond issuance in 2021, compared to 9.3 percent a year earlier.
Growth pace for ESG funds slowed
ESG securitisation issuance reached a record 8 billion euro thanks to 12 deals, quadrupled the 2.1 billion that was raised in 2020.
In what could be seen as a sign the market is maturing, the growth pace for global ESG funds slowed down to annual growth of 12 percent last year, compared to growth rates of 28 percent and 21 percent in the two previous years. By the end of 2021 some 6.330 billion dollars were held in funds with an ESG mandate, compared to 5.630 billion dollars worth at the end of 2020.
ESG equity funds were still the biggest asset class in 2021, accounting for 50 percent of total ESG funds. Fixed income ESG funds represented 22 percent of the total.
‘Greenium’ stabilising
Spreads between corporate ESG bonds and their non-sustainable benchmarks have stabilised since April 2021, according to Afme. Between April last year and the first months of 2022, ESG bonds commanded premia of 1 to 2 base points, compared to premia of about 9 base points in April 2020.
This spread, known as the “greenium”, or the premium that issuers receive for issuing green bonds rather than conventional, non-green bonds, varies by issuer and by instrument. Afme said this suggests that, in addition to sustainability features, other technical factors such as liquidity may influence yield premia against conventional bonds.
European ESG Bond and Loan Issuance (annual variation in percentages)
