Sustainable Finance Round Up: June 2023
Our Monthly Round Up Series delivers clients with digestible trends and take-aways on sustainable debt market movement.
Sustainable bond issuance totalled U$87B in June, representing a +6% increase vs June 2022. For the first half of 2023, sustainable bond issuance totalled U$607B, outpacing H1 2022 by +12%.
H1 2023 Sustainable Finance Highlights
Sustainable Bond Issuance Remains Resilient:
- Green bonds have remained dominant in 2023 YTD, setting a record H1 issuance of U$381B, which accounted for 63% of total sustainable bond issuance – market share of ESG-labelled bonds relative to the global bond market also moved higher to 14.8% up from 13.8% in H1 2022.
- While "greeniums" have been challenged, primarily in the USD market, attractive execution dynamics remained intact driven by robust investor appetite for the ESG label – oversubscription for USD Corporate ESG deals averaged 4.9x in H1 2023 compared to 3.7x for non-ESG.
- Market innovation continued to progress highlighted by Bell Canada successfully executing its inaugural Sustainability-Linked Derivative, the first from a Canadian telco.
- Two sectors notably stepped into the spotlight in H1 2023:
- Food & Beverage: Debut offerings from Bacardi, issuing their inaugural Green Bond, and Mars issuing their inaugural Sustainability Bond.
- Chemicals: A key sector in the low-carbon transition was similarly active in H1 2023 with LyondellBasell, Eastman Chemical, and Air Products debuting in the green bond market.
Key Regulatory & Standards Update:
- ISSB launched its inaugural sustainability disclosure standards IFRS S1 and IFRS S2, which are expected to form the global baseline for sustainability-related financial reporting requirements (see attached for TD ESG in Action).
- The 2023 ICMA Annual General Meeting brought evolution not revolution to sustainable bond market standards with updates to transition instruments and SLBs and clarification on emerging products such as sustainable commercial paper (see attached for TD ESG in Action).
- The LSTA added to its Sustainable Lending Library with draft guidance for sustainability-linked loans in an effort to reinforce best practices and support harmonization.
Looking Ahead to H2 2023:
- Despite overall issuance levels tracking -6% below 2021's record supply, we expect unique structures and market innovation to continue.
- Biodiversity is still on the agenda with TNFD expected to launch their comprehensive framework for assessing and disclosing nature-related risks and opportunities on September 18th.
- Expect ESG headlines to pick up around NY Climate Week in September followed by COP28 in December.
- Barring any additional delays, the final U.S. SEC climate disclosure ruling is slated for October
Sources: TD Securities, Bloomberg.
- Source: Bloomberg; Corporate/Government bond new issuance volume (excluding loans) as of 6/30/2023.
- Source: Bloomberg; Corporate/Government new issuance volume across sustainable debt products (including loans) as of 6/30/2023 – note that sustainability-linked loan and green loan data is typically revised upwards with a 2 month lag.
TD Securities' ESG Solutions
TD Securities' ESG Solutions team is the centralized ESG expert resource, delivering financing advisory services, thematic and investor insights, and carbon markets solutions to help our clients reach their goals.