ESG premium on corporate bonds of +5bps in Europe

Rick Steves

The top issuers of ESG bonds and loans in 2020 were France, Germany, and Luxembourg, compared to France, the UK, and Spain in 2019.

The Association for Financial Markets in Europe (AFME) has released its first European ESG Finance quarterly data report.

The document reveals the explosive scale of growth of the rapidly growing Sustainable Finance market in Europe:

• Substantial growth of 58.8% in European ESG bond and loan Issuance in 2020, from €245bn in 2019 to €389bn in 2020. Social bond activity rose significantly linked to Covid-related support. ESG Bond issuance was 8.3% of total European bond issuance in 2020, up from 5.0% in 2019.
• ESG bond spreads have performed well; green premium for corporate bonds (“greenium”) finalized 2020 at c5bps against non-green benchmarks.
• The top issuers of ESG bonds and loans were France, Germany, and Luxembourg (including issuance under the EC SURE social bond scheme), compared to France, the UK, and Spain in 2019.
• In 2020, the European Union Emissions Trading System (EU ETS) was the largest greenhouse gas emissions trading scheme globally, with 2249.1 Mt CO2-eq covered, with a value of USD 33.6 bn. The European Union Allowance (EuA) price per metric tonne has increased by 21.3% from €24.03 in December 2019 to €30.52 in December 2020.

The quarterly report covers the issuance of green, social and sustainable bonds and ESG and Green linked loans; green Securitisation issuance; outstanding amounts of ESG bonds; ESG fund management; ESG bond trading; carbon trading; and ESG valuation figures as well as a high-level regulatory and supervisory snapshot on the European Sustainable Finance market.

As the ESG market grows, so does the risk of corporate greenwashing. This has led the SEC to initiate a review process of its 2010 policy on ESG and the creation of a Climate and ESG Task Force with 22 members.

The task force will develop initiatives to identify ESG-related misconduct and use data analysis to mine and assess information across registrants, to identify potential violations.

The SEC has decided to create the task force amid the increasing investor focus and reliance on climate and ESG-related disclosure and investment.

The ESG task force will aim to identify any material gaps or misstatements in issuers’ disclosure of climate risks and analyze disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies. It will also pursue tips, referrals, and whistleblower complaints on ESG-related issues.

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