European ESG Bond Issuance Declines05.12.2022
European ESG bond and loan issuance in Q1 2022 (€136bn) declined 32.4% year-on-year (YoY) and 27.2% quarter-on-quarter (QoQ)
Read AFME’s data report on the European sustainable finance market. Key findings show that ESG bond and loan issuance has declined by 32.4% YoY in the 1st quarter of '22 due to unfavourable market conditions. Compared to '21, total European ESG bond declined from 19.5% to 14.1% .
— AFME (@AFME_EU) May 10, 2022
ESG bonds and loans include ESG-labelled bonds (proceeds-based), sustainable-linked bonds, transition bonds, green-linked loans and sustainable-linked loans.
ESG bond issuance represented 14.1% of total European bond issuance during Q1’22, a lower proportion from 19.5% in 2021FY.
Market conditions have been unfavourable for primary issuance. The absence of large jumbo ESG deals from the EU Commission and other sovereigns also contributed to the YoY decline.
The sustainable-linked bond market was the exception in the annual ESG contraction, with a significant 4.4x YoY increase and +26.5% QoQ.
Carbon prices: European Union Allowance (EuA) price per metric tonne finalised Q1’22 at €78/Tn, around the same level observed at the end of 2021. This, however, masks the significant fluctuation observed during the quarter, as carbon have prices fluctuated from €97 in early February to €55 in mid-March.
During the first months of Q2’22, carbon prices have increased from its initial losses in the early days of the Russian invasion of Ukraine. A similar volatility was observed in the UK, NZ and China ETS.
EU and UK forward curves continue to anticipate long-term price increases.
Global ESG Funds totaled $7tn as of Q1’22, a $0.8tn decrease from $7.8tn in Q4’21.
o All ESG Fund asset classes declined during the quarter, except for Commodity funds, which saw a 44% QoQ increase.
o The quarterly decline was predominantly driven by valuation losses. Net outflows from ESG funds totalled $20bn in Q1’22, or about 2% of the QoQ absolute variation in Global ESG funds.
ESG price premia: spreads of corporate ESG bonds against non-sustainable benchmarks have marginally widened in 2022YtD.
ESG premia, however, continues to fluctuate between 1 to 2 bps and has not reached the levels observed in 2020.
Responsibility for initiating this process lies with the bond issuer.
ISDA survey shows variety of views on whether increased clearing would improve resilience and efficiency.
Signs of a revival emerged as green issuance picked up in the second quarter.
Average daily volume rose 20.4% to $1.2 trillion for the quarter.
Reductions in issuance costs could lead to an expansion of capital markets.