Here are five of the most talked-about trends to keep an eye on in the Green, Social and Sustainability bond markets in 2020.
Of the trends in the sustainable debt markets, we have boiled them down to five of the most prominent ones to watch closely in 2020.
1. The Green Bond Principles vs. the EU Green Bond Standard
The EU Green Bond Standard will likely be launched this year, which will be an interesting development. Even though it will be voluntary, so have several other aspects of the Green Bond Market, which have since become market practice. Take the Second Party Opinion, for example. Voluntary in theory, but one has little hope of a successful launch nowadays without obtaining one.
2. Corporate supply
On the supply side, we hope and expect corporates to continue the strong trends shown in 2019, as supply more than doubled from 2018. Besides the obvious reason for increased supply, corporates also bring with them a more interesting and different set of assets that will help us advance the applicability of the Green bond market. Also, corporates have historically been the source of much of the innovation in the Green bond market, and we hope this will be further evident in 2020.
3. and 4. “Transition”, “target-linked” bonds and other labels
A wide range of different labels saw the light of day in 2019, including “Transition” and “SDG”. We expect this innovation trend to continue, and we therefore urge market participants to properly address governance. One such new label is the “target-linked” bond. Sharing many similarities with the sustainability-linked loan, the target-linked bond features an economic incentive for issuers to reach specific sustainability KPIs. Hence, they offer investors the opportunity to invest in “green change”. Similarly, issuers that will become more environmentally friendly but are not yet ready for the Green Bond Market can legitimately offer supply in the sustainable debt capital markets.
Reporting is one of the four cornerstones of the Green Bond Principles and has always been a core focus for the market. As the market has evolved, so has the capacity for more detailed and structured green bond impact reports. Supporting this development has been the Impact Reporting Working Group of the GBPs and SBPs, which last year put out an extensive handbook for a harmonized framework for impact reporting. Additionally, the Nordic Public Sector Issuers Position Paper on Green Bond Impact Reporting has provided detailed insights for the procedural aspects as well.
However, with all that said and done, impact reporting has still faced significant bottlenecks as the end result has essentially been manually updated pdf-files that investors pro-actively have had to download and convert into their own database. Until now. Last year we saw both Nasdaq and the Green Asset Wallet launch online platforms for impact reporting. Although it’s still in its infancy, we have high hopes for this development as it could significantly help reduce bottlenecks and implicit costs. Stay tuned on this.
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