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What is driving sustainable finance towards a record 2021?

Matthew Toole
Matthew Toole
Director, Deals Intelligence

Levels of sustainable finance have smashed records across products and asset classes in the first nine months of 2021. And although the market has cooled somewhat in Q3 with slowing sovereign-issuance, there are signs of corporates filling the gap. Meanwhile, grass-roots interest in sustainable companies is driving a continued M&A surge in both number and value of deals.

  1. Sustainable finance bonds broke records during the first nine months of 2021. In total, $778bn has been raise to end of the third quarter. This is an increase of 57 percent on 2020.
  2. So far in 2021, green bonds have doubled performance levels from a year ago. Sustainability and social bonds have fallen in Q3, but have both still set year-to-date records.
  3. Sustainable M&A keeps growing, and has reached $136bn of deals, which is three times the level of 2020.

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Sustainable finance bonds have enjoyed a record first nine months to 2021, raising $777.6bn, an increase of 57 percent on the same period last year, which was itself a record year.

Some heat appears to be dissipating from the market. Agency and sovereign borrowers are slowing their activity, although this is being somewhat offset by increased corporate activity.

The third quarter saw a 12 percent decline – following frenetic levels of activity during spring – to raise $230bn. Even so, Q3 remains the third highest total for sustainable finance proceeds ever.

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Green bonds

Within the sustainable finance categories, green bonds have more than doubled their 2020 performance so far this year, raising $365bn, with a modest 4 percent dip going into Q3. The green bond market has raised more than $100bn every quarter so far.

Sustainability and social bonds both saw double-digit falls in Q3, and yet still managed to set all-time records, year-to-date Sustainability bonds are up 54 percent to reach $144.5bn, and social bonds up 96 percent on the year to raise $171.1bn.

The market for sustainable loans has seen a sharper peak-to-trough than most.

Sustainable lending reaching $448bn in the first nine months of the year, more than tripling the previous record – only to fall 52 percent going into Q3. The second quarter of 2021 therefore sets the all-time high-water mark for sustainable lending.

Europe leads sustainable finance, with a twist…

Europe continues to lead the sustainable finance market, with Continental issuers taking a 56 percent market share so far in 2021, and borrowers taking 43 percent of the loan market, led by Italy’s Enel SpA and Belgium’s Interbrew-Simba.

But there is a twist: borrowers in the Americas also took 43 percent of the market, to seal their largest slice of the market since records began. Asia-Pacific borrowers currently account for one-tenth of the sustainable lending market.

Equity capital markets have also recently come off from their astonishing mid-year highs, falling 60 percent in the third quarter, to levels last seen in Q2 2020. Even so, such was the peak that the year-to-date total is an all-time record, almost 50 percent higher than the same period last year.

Asia-Pacific led the market, taking a 40 percent share, followed closely by the Americas at 37 percent.

M&A keeps growing

If sustainable finance is cooling, nobody has told the M&A market, which raised $136bn in the first nine months of the year, three times 2020 levels.

The market continued to bounce towards historic highs in the third quarter, driven by a persistent increase in the number of deals.

The largest M&A transaction so far this year was Gores Guggenheim acquisition of Sweden’s Polestar Performance for $19.7bn. However, Chinese companies attracted by far the most interest. The Chinese market has taken more than twice the next largest – the U.S. – at 27 percent of M&A. Sustainable SPAC acquisitions accounted for an astonishing 46 percent of the market.

For the first nine months, Citi led the M&A advisory market globally working on 22 deals with an aggregate value of $55.2bn, while Goldman Sachs and Guggenheim Securities rounded out the top three financial advisors.

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