Greeniums Tighten For Corporate Green Instruments
AFME is pleased to circulate its European ESG Finance quarterly data report for the first quarter of 2021 (Q1 2021). The aim of this quarterly report is to provide detailed data and analysis on the rapidly growing Sustainable Finance market in Europe.
This Report contains up to date trends for the European Sustainable Finance market as at 31 March 2021 as well as a high-level regulatory and supervisory snapshot.
AFME has launched its Q1 2021 #ESG Finance quarterly data report containing up to date trends for the European #SustainableFinance market as at 31 March 2021 as well as a high-level regulatory and supervisory snapshot.
— AFME (@AFME_EU) May 10, 2021
- ESG bond and loan issuance continues to rapidly grow in Q1 2021. During Q1 2021, European ESG Bond and Loan issuance accumulated EUR 184.0 bn in proceeds, up 228% from EUR 56.1 bn in Q1 2020 and up 19.8% from EUR 153.6 bn in Q4 2020.
ESG bond issuance represented 17.2% of total European bond issuance during Q1 2021, up from 8.9% in 2020FY. 63.5% of ESG bonds were issued in the Sovereign, Supranational and Agency sector, 18% by Financial Institutions, 18% by non-financial corporates and 0.4% in ABS/RMBS.
The EU Commission (on behalf of the EU) has continued to lead the ESG market with EUR 36bn in social bonds issued during Q1 2021.
ESG securitisation issuance reached EUR 1.1bn in Q1 2021, surpassing the total amount issued during 2020FY (EUR 0.8bn).
- European carbon prices reach record high. The European Union Allowance (EuA) price per metric tonne stood at €42.4 in March 2021 a 150% increase from €16.8 in March 2020. Most recently, EU carbon prices temporarily surpassed €50 per metric tonne as of early May 2021.
There is significant dispersion in the price of pollution globally. The EU Emissions Trading System (ETS) had the highest allowance price globally, followed by the Switzerland ETS at €39.25, and the New Zealand ETS at €22.1 as of end Q1 2021. Contrastingly, the Regional Greenhouse Gas Initiative (USA) has an allowance price of only €7.0.
- Global ESG Funds continued to grow exponentially during Q1 2021. Funds with an ESG mandate (including Mutual Funds and ETFs) totalled $4.3tn as of Q1 2021, a $1.7tn increase from $2.6tn in Q1 2020.
ESG equity funds continue to be by far the largest fund asset class, over 3x larger than fixed income funds.
- Spreads of Green and ESG bonds against non-sustainable benchmarks (“Greenium”) have continued to tighten during 2021. ESG premia has tightened from 9bps in April 2020 to 1bp on average in April 2021. According to AFME estimates, green premia has significantly tightened for corporate green instruments closer to virtually zero bps in April 2021.
There are various factors that may explain the decline in ESG and green premia, including the substantial increase in supply of new ESG and green instruments.
The order book was the largest for a sovereign green transaction.
RBC Capital Markets paid more than $800,000 to resolve charges that it engaged in unfair dealing in munis.
Electronification of the municipal bond market also presents a large opportunity.
The success of Northbound trading showed electronic execution is way forward for the bond market.
Investors will be able to better assess the economic stability and creditworthiness of issuers.