Trends in the Green, Social and Sustainability Bond Market

Nicholas PfaffMD, ICMA

Head of Sustainable Finance

Zurich, January 2020

Sustainable Debt Issuance in 2019

Source: Bloomberg NEF

• Cumulative sustainable debt issuance exceeded USD 1trn benchmark in October 2019. Sustainability-linked loans volumes in 2018 and 2019 played key role in carrying the market over this threshold

• Sustainable debt issuance took 103 months to hit the cumulative number of USD 100bn for the first time in 2015 while that number is now reached every 3-5 months since 2018

• Sustainable Debt includes Green, Social and Sustainability Bonds, as well as Green Loans and Sustainability Linked Loans

Evolution of GSS Bonds Market (USDbn)

Source: ICMA analysis based on Environmental Finance database

35.54 44.1892.63

173.38 179.66

276.81

11.92 13.96

16.14

11.34 17.92

42.32

0

50

100

150

200

250

300

350

400

2014 2015 2016 2017 2018 2019

GSS Bond Issuance (2014-2019) in USDbn

Green Social Sustainability

GB Issuance by Sector and Region in 2019

48

.69

48

.49

11

4.4

7

38

.49

60

.35

61

.7771

.15

63

.76

85

.56

15

.03

7.0

5 16

.7

2 0 1 7 2 0 1 8 2 0 1 9

GB ISSUANCE PER SECTOR (USD BN)

Corporate FI SSA Munis

19.7925.8

56.11

68.28

120.84

37.64 42.77

50.03

67.69

48.1740.36

56.47

26.3120.97

31.46

0

20

40

60

80

100

120

140

2015 2016 2017 2018 2019

GB Issuance per region (USDbn)

Europe Asia US Others (including supras)

Source: ICMA analysis based on Environmental Finance database

Regional Analysis

• European issuance dominates with 77% year-over-year increase.

Sectoral Analysis

• Green bonds supply from corporates and SSAs remarkably grew year-over-year, i.e. by 136% and 34%, respectively.

Issuer GSS Bond TypeValue

(m) Currency CHF Value (m) EUR Value (m) Issuer type Settlement Date

Canton of Geneva Sust. Bond 200 CHF 200 186.95 Municipal 28/11/2019

Swiss Life GB 600 CHF 600 560.84 Corporate 06/12/2019

Zug Estates GB 100 CHF 100 93.47 Corporate 02/10/2019

Eurofima GB 500 EUR 535.61 500 SSA 10/10/2019

Etrion GB 16700 JPY 147.92 139.19 Corporate 02/07/2019

BKW Group GB 200 CHF 200 186.95 Corporate 29/07/2019

Zuercher Kantonalbank GB 200 CHF 200 186.95 Financial Institution 06/06/2019

Raiffeisen Schweiz Genossenschaft Sust. Bond 500 CHF 500 467.37 Financial Institution 07/05/2019

Barry Callebaut Sust. Bond 617 CHF, EUR 650.21 607.71 Corporate 13/02/2019

Canton of Basel Stadt GB 200.38 CHF 200.38 187.30 Municipal 22/02/2019

Eurofima GB 500 EUR 535.61 500 SSA 03/12/2018

Canton of Basel Stadt GB 0.23 CHF 0.23 0.21 Municipal 24/09/2018

Zuercher Kantonalbank GB 210 CHF 210 196.29 Financial Institution 08/05/2018

Canton of Geneva GB 620 CHF 620 579.53 Municipal 29/11/2017

Helvetia Environnement Groupe GB 75 CHF 75 70.10 Financial Institution 22/06/2017

Swiss GSS Market Issuers

Swiss GSS Market Issuance

Source: ICMA analysis based on Environmental Finance database

695 745

1983

3423

1350

1350

0

1000

2000

3000

4000

5000

6000

2017 2018 2019 Cumulative issuance by the end of2019 (CHF 4773m)

GSS Bond Issuance (in CHF m)

Green Bond Sustainability Bond

Swiss GSS Issuance Analysis

60%

10%

20%

10%

GB Indicative UoPs*

GreenBuildings

EnergyEfficiency

RenewableEnergy

CleanTransportation

*ICMA estimates based on GB frameworks

46%

27%

18%

9%

GSS ISSUER TYPES

Corporates(5)

FIs (3)

Municipals(2)

SSA (1)

64%

33%

3%

GSS ISSUANCE BY CURRENCY

CHF

EUR

JPY

Source: ICMA analysis based on Environmental Finance database

The common feature of GSS bonds is their voluntary alignment with four core components of the Green Bond Principles (GBP), Social Bond Principles (SBP) and Sustainability Bond Guidelines (SBG). These are:

1. Use of Proceeds

2. Process for Project Evaluation and Selection

3. Management of Proceeds

4. Reporting

+ External Review recommendations

GBP SBP SBG (“the Principles”)

Green, Social and Sustainability Bonds

Bond Type Use of Proceeds

Green Bond Projects with clear environmental benefits (e.g. renewable energy, energy efficiency, climate change adaptation)

Social Bond Projects that address social issues and/or seek to achieve positive social outcomes, especially for a target population (e.g. poor, vulnerable, unemployed, etc.)

Sustainability Bond Mix of green and social projects

Guidance Handbook

Interpretation of the Principles

in practical application

Up-to-date compendium

New Q&As on important

topics

Organised by themes

External Reviews

Second Party Opinion• Independence: should be

independent from adviser for Green Bond framework

• GBP alignment: normally part of assessment

• Can include: assessment of overall environmental sustainability approach and evaluation of projects’ environmental features

Verification

• Against designated criteria: checking business processes (e.g. UoP allocation) or environmental/social/sustainability criteria.

Certification

• Standard or label defines criteria e.g. Climate Bond Standard, or official standard

• Independent checks: Alignment with criteria normally tested by qualified, accredited third parties

GB Scoring/Rating

• “Evaluation or assessment”• Potential scope: environmental

performance data, process relative to GBP, another benchmark such as 2-degree scenario

• Distinct from credit ratings, which may nonetheless reflect material E&S risks

Green Project Mapping

Mapping Green Projects to the five environmentalobjectives (i.e. climate change mitigation, climatechange adaptation, natural resource conservation,biodiversity conservation, and pollution preventionand control) in the Principles

Providing a basis for comparison to other greentaxonomies and classification systems (China GreenBond Catalogue, CBI, MDB/IDFC - climate changemitigation).

Harmonized Framework for Impact Reporting

Brings together in one publication GBP SBPguidance on impact reporting

including a series of impact reporting frameworks foreligible green categories covering several sectors:

• Sustainable Water and Wastewater ManagementProjects (June 2017),

• Sustainable Waste Management and Resource-Efficiency Projects (February 2018),

• Clean Transportation Projects (June 2018), and

• Green Building Projects (February 2019).

The GBP SBP is a market initiative that brings together over 330 organisations, including as members issuers, investors, intermediairies that are direct market participants; and as observers wider stakeholders from the market, civil society and the official sector.

Under the Governance, it is the Executive Committee elected by members hat decides on updates of the GBP and the SBP. All members and observers provide input through annual consultations that are organized by the Secretariat.

GBP SBP Organisation

38%

30%

32%

Members (187)

Underwriters (71) Investors (57) Issuers (59)

9%

17%

8%

6%

22%

38%

Observers (149)

Financial Institutions (13)

Law/accounting firms (26)

Market infrastructure (12)

Public sector officials (9)

NGOs & others (33)

Service Providers/Ratingagencies (56)

GBP SBP Governance

GBP EXCOM

Steering Committee• Nordic Investment

Bank (Chair)• CA-CIB (Vice-Chair)• Zurich Insurance

(Vice-Chair)

GBP SBP Governance

Members Observers

Executive Committee

• 24 members elected by one-half each year for a 2 year mandate;

• Approves formal Principles communications;

• Votes on amendments to the Principles;

• Propose and validate issue-specific working groups.

Advisory Council

• 40 members appointed for a 1 year term based on voluntary applications;

• Complement and provide input to the Excom;

• Support and inform the GBP SBP market outreach;

• Advice through recommendations and feedback;

• Provide engagement between the Excom and all GBP SBP Member & Observer categories,

Working Groupselect

appoints

establishes

• Annual consultation• 3 conference calls per year• AGM

Voluntary participation

EU’s Sustainable Finance Action Plan

Source: EC

EU Timeline on Sustainable Finance

Paris Agreement

High-level Expert Group on Sustainable Finance (HLEG)

HLEG Interim report

One Planet Summit

HLEG Final report

Technical Expert Group (TEG) starts their work

July 2018

Legislative Proposals Delegated Acts

TEG reports

December 2015 July 2017

December 2017

January 2018

March 2018

Technical Expert Group (TEG) starts their work

July 2018

May 2018 2019 - 2022June 2019

December 2016

In 2019, TEG delivered 4

ground-breaking reports

Report on the EU Taxonomy

Report on the EU Green Bond Standard

Interim report on climate benchmarks and benchmarks’ ESG disclosures

In June, the Commission followed up on this report by publishing new guidelines

for companies on how to report climate-related information.

Report on climate-related disclosure

June

January

The Taxonomy Proposal

(a) Substantially contribute to at least one of the six environmental

objectives as defined in theproposed Regulation*

(b) Do no significant harm to anyof the other six environmental

objecties as defined in the proposedRegulation*

(c) Comply withminimumsafeguards

(d) Comply with quantitative or qualitative Technical Screening Criteria

*The six environmental objectives as defined in the proposed Regulation are: (1) climate change mitigation; (2) climate change adaptation; (3) sustainable use and protection of water and marine resources; (4) transition to a circular economy, waste prevention and recycling; (5) pollution prevention and control; (6) protection of healthy ecosystems.

What is the Taxonomy? A list of economic activities that are considered environmentally sustainable for investment purposes.

What is set out in theProposal?

The framework to develop the taxonomy. For an economic activity to be on the list, it has to comply with four conditions:

Source: European Commission: Proposal on the establishment of a framework to facilitate sustainable investment (2018).

Visualisation: how would the EU-GBS work?

ANNUAL ALLOCATION REPORTS

BEFORE OR AT ISSUANCE

PUBLICATION OFGREEN BOND FRAMEWORK

• Issuer’s Green Bond strategy and alignment with the

• Description of types of Green Projects to be financed

• Description of methodology and processes regarding allocation and impact reporting

•Use of proceeds specified in the legal documentation

• Confirmation of alignment with EU GBS

• Breakdown of allocated amounts per project or portfolio

• Geographical distribution of Projects

IMPACT REPORT

FINAL ALLOCATION REPORT

GRADUAL ALLOCATION…………………………..…FULL ALLOCATION

• Impact reporting at least once (at full allocation), or annually

EU TAXONOMY

…

ACCREDITATION OF EXTERNAL VERIFIERS

DOCUMENT VERIFIED BY ACCREDITED

EXTERNAL VERIFIERS

Political Agreement on the Taxonomy (December 2019)

Conditions

• Substantial contribution to env. objectives

• DNSH

• Technical screening criteria by TEG

• Minimum social standards and safeguards

Environmentally Sustainable Activities

• Recognition of transition and enabling activities

• TEG Report in June 2019: 67 activities across various sectors

• “Climate neutral energy”: No clear position on nuclear or gas

• Review clause

Application Scope

• Member States and the EU setting requirements on Environmentally Sustainable financial products or corporate bonds

• Disclaimer for Funds and Pension Products not pursuing sustainability

Implementation Timeline

• Delegated acts for climate change mitigation and adaption by 31.12.2020 and start applying from 31 December 2021.

• Others by 31.12.2021 and start applying as of 31.12.2022.

Disclosure Requirements for EU Corporates subject to the NFRD

Sustainability Outlook

Regulatory Mainstreaming

New Products

Market Integrity

Issuer Diversification

The GBP is now considering the implications and potential guidance for: • Transition Bonds• Sustainability/KPI linked

Bonds

Corporates are now increasingly engaged in the market alongside financial institutions and SSAs

• Implementation of EU Taxonomy

• EU disclosure requirements for both investors and issuers

Continued emphasis on demonstrating project impact and issuer transition strategy

ICMA & Sustainable Finance

Official Sector Dialogue

Participation in EU Technical Expert Group especially Green Bond Standard and Taxonomy

workstreams

Responses to Sustainability Consultations from regulators

Stakeholder status in Central Banks and Supervisors NGFS

Participation in France’s Green OAT Evaluation Council

Support for OSCG meetings of the GBP

Industry Initiatives for Sustainability

Dialogue with other major financial industry trade

associations via the GGFC and directly

Contribution to ISO workstreams on Green Bond

Standard and Taxonomy

Release of Green Loan Principles & Sustainability Linked Loan Principles with

LMA, APLMA and LSTA

ICMA Committees

GBP Executive

Committee supported

by ICMA

Sustainable Finance

Committee (across

ICMA constituencies)

Global Green Finance

Council - GGFC

(across the financial

industry)

THANK YOU