What’s Happening in Sustainable Finance: Blue Bonds Make Waves, ‘Sleeping’ Sustainability-Linked Loans Raise Eyebrows, and More
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Episode Summary Hosts

• Nicholas Gandolfo, Director, Corporate Solutions

• Sabrina Tang, Sales Associate, Sustainable Finance Solutions

In this episode, Nick and Sabrina examine some of the interesting transactions and developments in the global sustainable finance market. Despite a general slowdown in the volume of issuances, there are still innovative transaction structures being proposed and sustainability-linked instruments (i.e., bonds and loans) continue to perform well. Green bonds continue to anchor the sustainable debt market, with several notable transactions in the blue bond space. Finally, audience questions are addressed, regarding clarity on whether sustainability-linked instruments can be structured in a program and the difference between social bonds and social impact bonds.

Blue Bonds Making Waves in Sustainable Finance

More corporate and sovereign issuers are exploring blue bonds to help finance their environmental conservation efforts. A blue bond is a debt instrument similar to a green bond, but with a focus on marine and ocean-based projects. In their market overview, Nick and Sabrina highlight blue bond proposals from the Securities and Exchange Board of India, the issuance of the first blue bond in Japan, and blue bond-related activities in Indonesia. The protection and conservation of oceans, waterways, and the life within them is essential for both business and society.

“Sleeping” Sustainability-Linked Loans: A Concern for the Sustainable Finance Market?

Nick notes the emergence of “sleeping” sustainability-linked loans, in which companies seek to build into their conventional loan documentation the ability to convert to an SLL at a later date. The key performance indicators (KPIs) and sustainability performance targets (SPTs) are also set at a later date. These types of loans are raising concerns among market participants around transparency, as its important to make sure that SLLs are not labelled as such until they have KPI and SPTs in place. The credibility of sustainability-linked instruments and sustainability washing is an area of evolving interest and scrutiny in the market.

As defined by the Sustainability-Linked Loan Principles), SLLs “incentivize the borrower’s achievement of ambitious, predetermined sustainability performance objectives.” Sustainability performance is measured using predefined sustainability performance targets (SPTs), as measured by predefined key performance indicators (KPIs). It is also recommended) that borrowers and lenders have the appropriateness of the SPTs, and the methodology applied to assess them, reviewed by an external party as a condition preceding the loan.

Details of U.S. Inflation Reduction Act Show Promise for Renewables 

The recently passed Inflation Reduction Act in the United States aims to control inflation by reducing the deficit, lowering prescription drug prices and investing in domestic energy. A key component of this last goal is the promotion of clean energy. This legislation will result in the biggest infrastructure spend on renewables in recent history, hopefully setting the tone for the future. Government stimulus like this could be significant in paving the way for more rapid acceleration towards net zero.

Key Moments

0:01:29

Market overview

0:01:29

CBI half-year market review

0:02:44

Major issuance locations - China, Germany, Netherlands, U.S., France

0:03:58

U.S. Infrastructure Reduction Act good sign for renewables

0:04:58

Nuclear popping up

0:05:10

ESG increasingly being linked to remuneration

0:05:32

More green taxonomies being developed

0:05:56

Sustainability being integrated into leveraged loan market

0:06:19

China Green Bond Standard

0:06:36

Diversifying nature of sustainable bonds across Asia

0:06:55

"Sleeping” sustainability-linked loans on the market

0:07:58

SLB overview

0:11:28

SLL overview

0:15:52

Audience questions

0:22:03

Green bonds overview

0:28:20

Green loans overview

0:29:25

Social bonds and loans overview

0:31:17

Labeled products overview

0:33:27

Transition bonds overview

0:33:36

Regulatory and country updates

 

List of Select Resources

• Climate Bonds Initiative: Sustainable Debt Market Summary H1 2022)

• Environmental Finance: Rise of SLBs Helps Labelled Debt Retain 19% Share of European Market)

• Bloomberg: Green Bond Sales Drop to 19-Month Low on Tight Issuance Windows)

• The Edge Singapore: Economic Uncertainties a Boost for SGD Bonds)

• The Telegraph: Fund Nuclear Power With Green Bonds, Treasury Told)

• NT News: ESG Looms as Potential Remuneration Hurdle, UBS Says)

• Environmental Finance: Half of European ESG Leveraged Loans Have 'Weak' Target Promises)

• Caixin Global: China’s New Green Bond Standards Aim to Curb ‘Greenwashing’)

• China Dialogue: China’s New Green Finance Guidelines Have a Deforestation Blind Spot)

• Environmental Finance: Comment: Sustainability-Linked Finance - Failure Must Be an Option)

• Bloomberg: 'Sleeping' ESG Loans Are a Worrying Trend, BNP Says)

• IntraFish Finance: Maruha Nichiro to Issue Japan's First Blue Bond as it Reports 25% Earnings Hike)

• Responsible Investor: Indian Blue Bond Mining Provision Draw Market Scepticism)

• Sustainalytics SPOs:

• Berlin Hyp Sustainability-Linked Bond Framework Second-Party Opinion)

• Wells Fargo Sustainability Bond Framework Second-Party Opinion)

• Lenovo Group Limited Green Finance Framework)

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