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Sustainable finance continues surge in Q1

Matthew Toole
Matthew Toole
Director, Deals Intelligence

The opening quarter of 2021 saw sustainable finance continue its upward trajectory across all product categories, with sustainable and green bonds leading the charge, sustainable lending recovering strongly from a depressed 2020, equity markets hitting new highs, and M&A buoyant – driven by China and SPAC acquisitions.

  1. Over Q1 2021, sustainable finance bonds hit $287bn, which was double the issuance levels of Q1 2020.
  2. During the same period, green bonds quadrupled to record $131bn – an all-time high – as climate climbs the investor agenda.
  3. Meanwhile, equity issuance doubled to record $11.2bn, while sustainable M&A surged by more than 400 percent.

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The first quarter of 2021 saw record breaking levels of sustainable deal-making across equity and debt capital markets, and record levels of M&A involving sustainable companies.

Sustainable finance bonds double

An all-time quarterly record of $286.5bn in sustainable finance bonds was raised in the first three months of the year, more than twice the issuance levels seen a year before.

The total was nearly 50 percent up on the previous three-month period, and just the second quarterly period in which the market for sustainable bonds has broken past $200bn, since records began in 2015.

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Sustainable finance now accounts for 11.5 percent of debt capital market activity, up from 9.5 percent in the fourth quarter of 2020.

Green bonds quadruple

In addition, green bonds – instruments specifically raised for climate and environmental-related projects – rose by more than 400 percent year-on-year, to reach an all-time quarterly record of $131.3bn.

Green bonds sailed passed the $100bn landmark, while also setting an all-time record for the number of issues.

The market for social bonds continued to build on its impressive 2020 performance, with a new all-time record $91.8bn in the quarter – nearly ten times the total of a year earlier – to account for almost one-third of the sustainable finance bond market. The total was significantly bolstered by the largest ever social bond issuance by the European Union.

Meanwhile, sustainability bonds reached $42.2bn, more than double the first quarter of 2020 and the largest amount since records began. The number of issuance also increased, by 144 percent year-on-year.

Corporate issuers grow in sustainable finance market

Corporate issuers increased their share of issuance by 146 percent, to account for almost half the sustainable finance market, while agency and sovereigns made up the other balance, yielding market share from a high of 64 percent at the end of 2020.

European issuers continue to dominate sustainable finance, taking 62 percent market-share in the first quarter, with the Americas and Asia taking 18 percent and 15 percent respectively.

The underwriting market for sustainable finance remains relatively fragmented, with BNP Paribas topping the leaderboard with a 6.7 percent market share, while the ten busiest banks consolidated their aggregate share of the market from 38 percent a year ago to just over half the market today.

In contrast to the bond market, sustainable loans fell out of favour during the first nine months of 2020. However, an end-of-year rally has continued into the first quarter of 2021, surpassing $100bn for the first time ever, with European issuers accounting for more than half the market, led by issuance from Italy’s Enel SpA and Belgium’s Interbrew-Simba.

Americas drive equity issues to new highs

The opening quarter of 2021 also set a record for equity issuance by sustainable companies, which totalled $11.2bn, double the first three months of 2020.

Even though the number of offerings tailed off from a busy end to 2020, the value of proceeds jumped by 62 percent on the previous quarter.

The Americas accounted for three-quarters of the sustainable equity markets, with Europe taking around a quarter share.

The advisory market for sustainable offerings is highly concentrated, with Morgan Stanley, Barclays and Goldman Sachs dividing up half the global market between them.

Meanwhile first quarter M&A involving sustainable companies quadrupled year-on-year, to $58.6bn, to reach an all-time high, with Chinese companies accounting for more than one-fifth of the market and the U.S. at 13 percent.

The acquisition of sustainable companies by special purpose acquisition companies reached $41.5bn, representing 71 percent of total M&A activity in the period.

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