Sustainable Finance Round Up: April 2023
Our Monthly Round Up Series delivers clients with digestible trends and take-aways on sustainable debt market movement.
Sustainable bond issuance totalled US$86bn in April, representing a 6% increase vs April 2022. As illustrated, green bond issuance continues to outpace 2022 volumes, while dominating market share relative to other ESG products this year. Notably, ESG ETFs recovered in April from the US$5bn in US ETF net outflows seen in Q1'23. US$6.5bn in outflows were attributed to specific fund reallocations made in March. Despite recent market volatility, rising interest rates, and the politicization of ESG in the US placing continued pressure on the sector, sustainable bond funds recorded net inflows for Q1'23 which continued through April.
ESG Remains Pertinent as Proxy Season Kicks Off
As the 2023 proxy season commences, environmental & social (E&S) proposals remain front and center after representing 58% of all shareholder proposals received by Russell 3000 companies in 2022. Investors in North America have filed 216 climate-related resolutions as of April 14, an uptick from this time last year according to non-profit Ceres. After a year of push and pull in the ESG space, investors remain keen to encourage climate proposals (23% of total proposals) while anti-ESG proposals (8% of total proposals) have increased as well.
- Climate Transition Plans in Focus: Following the wave of net-zero commitments in recent years, shareholder focus has turned to transparency of achieving those goals. Across all sectors, shareholders have filed 58 resolutions seeking climate transition plans, according to Ceres. Disclosure-based proposals have appeared more likely to get support this year: at three of the largest US banks, climate transition plans received an average 30% shareholder support versus proposals for time-bound fossil fuel phase-out policies which were met with less than 10%.
- Climate Commitments Put to the Test: As companies assess the viability of publicly stated 2030 ESG targets, proper governance will be essential as legal risks and liabilities become intertwined in this space.
- Institutional Investor Support Divided: Last year marked the first-time which E&S proposals saw a decline in average support and passage rates amidst a flood of shareholder proposals. This year, asset managers are under pressure to provide rationale when voting for or against E&S proposals.
- Source: Bloomberg; Corporate/Government bond new issuance volume (excluding loans) as of 4/30/2023.
- Source: Bloomberg; Corporate/Government new issuance volume across sustainable debt products (including loans) as of 4/30/2023 – note that sustainability-linked loan and green loan data is typically revised upwards with a 2 month lag.
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