Sustainable Finance Round Up: May 2023
Our Monthly Round Up Series delivers clients with digestible trends and take-aways on sustainable debt market movement
Sustainable bond issuance totaled US$104bn in May, representing a 2% increase vs May 2022. Overall sustainable bond issuance continues to outpace 2022 volumes by 6% led primarily by green bonds. As illustrated above, social bond issuance saw a YoY uptick with US$19bn from 30 issuers. Corporates were particularly active in the USD market with US$5.7bn of ESG supply – marking May as the busiest month YTD for USD Corporate ESG-labeled issuance (+64% YoY).
Shake-up in Climate Alliance Sparks Uncertainty
May alone saw an exodus of 14 insurers from the Net Zero Insurance Alliance (NZIA) as overall membership has fallen from 30 to 14 since March 2023. The UN-convened alliance was established in 2021 to promote decarbonization within the insurance industry and grew to represent ~15% of global insurance premiums. As the NZIA is 1 of 7 sector-specific alliances part of the Glasgow Financial Alliance for Net Zero (GFANZ), the shake-up raises important questions for both the other alliances and signatory members alike.
- The Catalyst: In January 2023, the NZIA launched its inaugural net-zero target-setting protocol which calls for members to begin disclosing emissions in their underwriting portfolios (Scope 3) and set 2030 decarbonization targets by July 2023. While Scope 3 target setting is common practice in GFANZ coalitions, the 6mo target-setting timeframe for NZIA is more aggressive than its alliance peers which allow for 18mo within joining.
- ESG Politicization and Antitrust Concerns: Adding to the growing pressure facing the NZIA, 23 U.S state Attorney Generals undersigned a letter to Insurers to express concern that the alliance's climate agenda was raising costs for consumers and may be breaching state and federal antitrust laws. This continues a string of anti-ESG rhetoric and actions unfolding in the US.
- Reaffirming Net Zero Commitments: The majority of departing members have issued statements reaffirming their commitment to net zero and ESG objectives. All exited companies have maintained their membership in the GFANZ-affiliated NZAOA, which has less stringent requirements and has not faced similar anti-trust scrutiny.
Path Forward: While the future of the NZIA remains uncertain as members discuss a path forward, there have been calls from insurance leaders for less prescriptive requirements in alliances. The ongoing situation highlights the importance for companies to comprehensively evaluate the implications of joining such alliances and disclosing public ESG commitments.
- Source: Bloomberg; Corporate/Government bond new issuance volume (excluding loans) as of 5/31/2023.
- Source: Bloomberg; Corporate/Government new issuance volume across sustainable debt products (including loans) as of 5/31/2023 – note that sustainability-linked loan and green loan data is typically revised upwards with a 2 month lag.
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