Green, social and sustainable bond and loan market outlook

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Green, social and sustainable bond and loan market outlook

The green, social and sustainability (GSS) bond and loan markets have grown exponentially over the past four years, with the GSS bond market alone increasing by 80% in 2021 (vs 2020) and issuance exceeding USD 1 trillion. Yet as geopolitical crises such as the war in Ukraine and the worsening energy crisis force the industry to reassess current priorities, the regulatory landscape continues to evolve. As part of this, the EU is considering a wider range of taxonomies – including a social taxonomy – to better regulate and improve disclosure practices among market participants.

The potential impact from changes to environmental, social and governance (ESG) regulation was at the heart of discussions at Natixis Corporate & Investment Banking’s third FIG Sustainable Virtual Conference, which brought together experts from across the sector on April 5th and 6th, 2022. The two-day event – which featured speakers from banks, investors, regulators, and credit ratings agencies – was attended by over 270 participants and provided an in-depth look at this rapidly-evolving topic.

Transitioning risk

The event’s opening panel, “ESG Regulation: transitioning the focus to risks”, examined how ESG and climate-related disclosure requirements could affect banks moving forward. Nicolas Charnay, Credit Analyst at S&P Global Ratings, highlighted that the financial risks stemming from climate change are particularly hard to assess, given the complexity of the climate change process itself, impacting many parts of our economies and societies, and its non-linear nature over a long period of time, with potential tipping points and/or sudden changes in climate-related policies.

Indeed, navigating a future that incorporates both environmental and wider ESG factors will present a challenge – and this is currently still a work in progress. As Dorota Siwek, Head of ESG Risks at the European Banking Authority (EBA), explained, new frameworks such as Pillar 3 – which aims to improve climate risk disclosure among banks – are important first steps, however, “ further developments should be expected in the future. Bodo Winkler, Head of Funding and Investor relations at Berlin Hyp reflected on the positive aspects, highlighting the way they have catalysed investment in taxonomy-aligned buildings.

That said, Jérôme Legras, Head of Research at Axiom Alternative Investments, highlighted that social and governance issues are not new issues for banks, who have had to contend with stringent regulation in this space since the financial crisis. As such,investors should be careful not to conflate these with climate-related disclosure requirements, which are relatively new to the sector.

Opportunities of the transition

Following the panel discussion, Orith Azoulay, Head of Natixis CIB’s Green and Sustainable Hub, picked up the topic in a fireside chat, providing insights into the steps that Natixis CIB is taking to understand the ESG profile of its business, and how this knowledge enables the bank to seize opportunities in the ESG space.  

Disclosure in practice

On day two, the focus shifted to market practices within the GSS bond markets. While, in recent years, this market has gone from strength to strength, participants are grappling with the implications of new regulation within the sustainable investment market and meeting the labelling requirements of the EU taxonomy.

For issuers, ensuring their financing frameworks meet the requirements of the taxonomy has been an important focus – and enables them to meet the growing demand for an increasing range of GSS instruments. Petra Mellor, Head of Bank Debt at Nordea, explained that Nordea is working on a new ESG framework that will enable it to issue an additional type of sustainable bond later this year. Meanwhile, Miguel Garcia de Eulate, Head of Treasury and Capital Markets at Caja Rural de Navarra, highlighted that this was also an area of focus for Caja Rural. And while compliance with the taxonomy is now an expectation among issuers, he stressed that acceptance among the investor base was key to keeping the bank’s sustainability framework solidly in place. Romain Miginiac, Portfolio manager at Atlanticomnium, is keen to see more subordinated GSS bonds “if you like an issuer from a sustainability perspective, if you think the green bond framework a strong enough governance and offers the transparency, whether the bond you buy offers a high or low yield for a particular level of risk this should be a portfolio management decision”.

Of course, for investors, instruments’ alignment with the EU taxonomy is becoming relevant to their investment decisions. Building on this, standards such as the European Green Bond Standard (EUGBS) could provide further benchmarks that would better guide investment decisions.

Dany Da Fonesca, Credit Portfolio Manager at Amundi, welcomes the new standard, but expressed concerns over its Eurocentricity. “We understand that there are discussions around how it will be linked to the EU taxonomy or eventually other taxonomies... It would be a shame that they might be excluded in other areas they may be more impactful because the thresholds are European focused.”
For Isobel Edwards, Green Bond Analyst at NN Investment Partners, the focus is already moving forwards “Deforestation exposure is one that we are going to be giving more prominence to especially since the deforestation renewed commitment at the COP26”.


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