Matthew Toole analyzes the growth in the sustainable finance market during 2020 by looking at trends in social bonds and green bonds, sustainable lending, and equity capital markets.
- The third quarter of 2020 saw a record $155bn of sustainable finance raised. This increase has been fueled by COVID-19 and wider concerns about sustainability.
- An important element of the continued growth in sustainable finance is in social bonds. During the first nine months of 2020, they saw an eight-fold leap to $85bn.
- During the course of the year, amounts raised in green bonds and sustainability bond issuance have both grown strongly. These trends have offset the subdued trend in sustainable lending.
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The sustainable finance market has seen a rapid coming-of-age in the first nine months of 2020, partly in response to the COVID-19 pandemic as well as ongoing sustainability concerns.
Momentum has increased during the year, with the third quarter seeing a record $155bn raised. As a result, a record $357.5bn was raised by sustainable companies and in sustainable products globally to the end of September; a 96 percent increase on the same period in 2019.
Sustainable finance key performers
Key performers included an eight-fold increase in the issuance of social bonds, which raised $84.5bn in the period. This accounted for almost one-quarter of the sustainable finance market; up from just 6 percent last year.
Green bonds and sustainability bond issuance
Green bonds had begun the year slowly, with $60bn raised to March. By contrast, the third quarter saw a record $76.5bn raised from 170 issuances, driven by sovereigns, multi-laterals and banks in order to finance their fights against the economic impact of reactions to the pandemic.
In addition, sustainability bond issuance tripled its year-on-year total to the end of September, to raise $97bn, with twice as many issues as a year ago.
Issuance from agency and sovereign borrowers tripled during the year, to more than match corporate activity. Europe continues to dominate the sustainable finance market, with a 48 percent market share. The Americas has a 28 percent share and Asia-Pacific 18 percent.
HSBC took the top spot in sustainable bond underwriting, with a 6.3 percent share in what remains a relatively fragmented segment. The top ten underwriters still comprise less than half of the market.
By contrast, sustainable lending ends the third quarter flat on the previous year, at $114.5bn, and slowing.
During the third quarter, just $30bn was lent, more than one-fifth down on Q2. European borrowers constitute the lion’s share, with 60 percent of the market. Notable borrowers include Italian energy group Enel SpA, Danish shipping giant Moller-Maersk, and Volkswagen subsidiary Traton SE.
Sustainable companies partook in the resurgent equity capital markets during the summer, to raise $9.7bn to the end of September, a 38 percent increase year-on-year and an all-time record. The third quarter saw a three-fold increase on the previous quarter, to raise $5.6bn, an all-time quarterly record.
The Americas dominated sustainable equity finance, with a 77 percent market share, while Asia-Pacific and Europe took 12 percent and 11 percent respectively. Bank of America Securities, Morgan Stanley and JP Morgan each commanded more than a 15 percent share of sustainable equity offerings.
Meanwhile, M&A involving a sustainable company has seen $21.6bn of activity from 350 deals so far in 2020, a two-year high by value.
Chinese sustainable companies accounted for 17 percent of the market, and U.S. companies took 10 percent. Goldman Sachs topped the sustainable company M&A table, advising on eight deals worth $6.1bn.
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