ESG Briefing, February 17th: Bonds & Loans

The latest ESG developments for fixed-income

ESG is increasingly integrated into the pricing of corporate bonds, according to new research from Amundi. In a report titled ESG Investing in Corporate Bonds: Mind the Gap, the investment giant claims that ESG has had a more positive impact on Euro-denominated, investment grade bonds than it has on US equivalents or on high-yield notes.

S&P is the latest organisation to put out its predictions for the sustainability bonds market this year. It forecasts sustainable debt issuance of $400bn for the calendar year, with $300bn of that coming from green bonds – up from $238bn last year. Corporate issuance saw the highest leap in 2019, almost doubling. S&P anticipate most of 2020’s issuance will be allocated to energy transition. Earlier this month, Moody’s said it expected green, social and sustainability bond issuance to hit $400bn in 2020, and SEB said it forecasts $375bn in green bonds alone.

The City of Munich became the first European city to issue a social bond, raising €120m of 12-year notes to support social projects in the city. According to reports,  demand exceeded €450m within two hours, and the order book closed at more than €600m. Domestic investors were allocated almost all (94%) of the notes, and Italian investors took the rest. Much of the deal was offered to retail investors and retail-based banks to encourage engagement from local residents.

Investitionsbank des Landes Brandenburg, the German investment bank owned by NRW Bank to support the state of Brandesburg and related public bodies to raise and manage money, also debuted on the social bond market. It issued a €100m, five-year deal to refinance loans associated with social housing and education.

The first sustainability bond to come out of Brazil has been issued by Faro Energy to fund solar projects and social impact efforts. The deal was verified by Bureau Veritas and the renewables pillar was assessed against the Climate Bonds Initiative standard. The social component will be used to finance an education programme at a school in Brazil, which will teach “mindfulness, emotional intelligence and non-violent communication [to] students and teachers”.

Ontario, the Canadian province, has issued C$500m of seven-year green debt – achieving better pricing better than it gets on its ‘plain vanilla’ bonds, it claims. The notes secured a coupon of 1.85%. Proceeds will be used for public transport and flood protection.

MuniFin has published what it claims is the first social bond framework in Finland, with plans to issue its debut deal later this year. The public financing institution was crowned by the first credit body in Findland to issue green bonds in 2016. Its social transactions will finance social housing, welfare and education projects with a particular emphasis on supporting the most vulnerable parts of the population.