What’s Happening in Sustainable Finance: On the Horizon for 2023, Reporting on Financed Emissions for Sovereign Debt, and More

ESG in Conversation

Episode Summary Hosts

• Nicholas Gandolfo, Vice President, Corporate Solutions
• Sabrina Tang, Sales Associate, Corporate Solutions

In this episode, Nick and Sabrina reviewed what’s new in sustainable finance and shared some notable deals and transactions that have hit the market. They discussed the overall decline of global bond markets and expressed some optimism for the year to come, as sustainability is a central issue for investors, companies and governments and is still closely tied to capital markets. They also shared research on the carbon performance of food producers and a report on how to scale credible transition finance among countries in Southeast Asian.

Sustainable Market Hopes for 2023

If you’ve been following sustainable finance market activities, it’s no surprise that 2022 was not a great year overall. Markets were down in volume for the first time in 11 years. According to figures from Environmental Finance, total annual sustainable bond issuance fell 19%, from US$1.05 trillion in 2021 to US$845 billion in 2022. Social, sustainability and sustainability-linked bonds were hit hardest – down about 25% compared to 2021, while green bonds fared a bit better with a more modest 14% issuance decline.

Despite the lower issuance volumes, there is hope for a rebound in 2023 as overall markets stabilize and issuers seek financing. This year may see use of proceed instruments like green bonds continue to gain ground compared to performance based, sustainability-linked bonds. We may also see more transition deals, social and biodiversity focused activity, as well as more complicated transactions going to market. It’s still early days, so let’s see how things develop.

Updated Standard for Reporting Financed Emissions in Sovereign Debt

If you’re a bank trying to figure out how to report on your financed emissions, be sure to read through Partnership for Carbon Reporting Financials’ (PCAF) recently updated standard. Global GHG Accounting and Reporting Standard for Financed Emissions addresses demands from financial institutions and provides a methodology to help investors in sovereign debt account and report greenhouse gas emissions. The methodology on sovereign debt includes bonds and loans of all maturities, however, only debt issued by the central bank on behalf of the sovereign would be covered. The methodology also requires reporting of scope 1, scope 2 and scope 3 emissions and recommends getting the information from countries’ reported data via the United Nations Framework Convention on Climate Change.

Key Moments 0:01:16 Market overview 0:03:24 COP15 insights 0:04:22 Australia sustainable finance taxonomy 0:05:04 BNP Paribas social impact bond 0:05:16 TPI paper on food producers' carbon performance 0:06:53 Updated PCAF standard 0:07:31 Banks' transition planning under scrutiny from ECB 0:08:05 Activity in carbon markets 0:08:45 Austria launches green commercial paper program 0:09:14 CBI paper on transition finance in ASEAN 0:10:17 SLB and SLL overview 0:15:34 Audience questions 0:21:00 Green bonds overview 0:23:56 Green loans overview 0:25:06 Social bonds and loans overview 0:27:38 Labeled products, transition bonds and regulatory updates

Links to Select Resources

• Environmental Finance – Annual Sustainable Bond Issuance Falls for First Time Since 2011
• Bloomberg.com – Global Debt Market Lost at Least $75 Billion of Business in 2022
• Reuters – ESG Watch: Despite Setbacks, Green Finance Ends 2022 in Good Health
• Global Capital – High Hopes for Corporate Issuance in 2023
• Environmental Finance – COP15 Agreement 'Significant,' but Credit Impact Depends on Implementation
• Environmental Finance – Climate Change Litigation: 11 Key Cases for Insurers to Watch
• Australian Sustainable Finance Institute – Taxonomy Project
• Global Capital – Saving Biodiversity: The Next Mountain for Capital Markets
• Transition Pathways Initiative – TPI Carbon Performance Assessment of Food Producers: Discussion Paper
• Environmental Finance – PCAF Sovereign Debt Methodology Plugs Gap in Emissions Accounting, Says Allianz
• European Central Bank – Supervisory Priorities and Risk Assessment for 2023-2025
• Environmental Finance – Carbon Markets Can Help Provide Nature-based Solutions
• The Hindu Business Line – Sovereign Green Bonds Will Act as Benchmark for Private ESG-linked Debt: RBI’s Rao
• Global Capital – Austria to Launch Green Commercial Paper in 2023
• Climate Bonds Initiative – Scaling Credible Transition Finance – ASEAN Edition
• Sustainalytics SPOs:
  • UNIQA Green Bond Impact Report
  • Mosaic Solar Green Use of Proceeds Securitized Bond (2022-3)