Growth in sustainable finance
Most of the world’s major bank issuers have initiated labelled environmental, social and governance (ESG) funding. Green bonds are clearly the leading ESG asset class to date, but as well as growing green programmes some international banks are looking closely at knitting wider sustainability goals into their debt issuance.
HALES We have seen global support for ESG bonds continue to grow since TD issued its first green bond in 2014. Green bonds represent a small part of our overall wholesale funding but they an important part of the bank’s strategy and its commitment to the environment. It’s such a part of TD’s fabric – environmental causes have been part of the brand for a very long time.
After our first print, in Canadian dollars, we issued a US$1 billion green bond in 2017. This was one of the largest green bonds ever issued by a bank. We are continuing to monitor developments and opportunities in other currencies.
OUCHIYAMA Sumitomo- Mitsui Banking Group is one of the major players in the project-finance area and for this reason we see a strong inflow of renewable-energy assets each year. Green-bond issuance is always on our agenda and we would like to be a regular issuer of green bonds.
We certainly see more and more focus on the ESG product around the globe. However, we do not know the local and regional investor base because we have not issued an Australian green bond.
ZILELI During 2018, we have executed the majority of our ESG-themed issuance offshore, apart from the green tranche in our domestic residential mortgage-backed securities transaction. We issued a green bond in Europe and we incorporated a green tranche into a multitranche US dollar deal in June.
Our strategy for market selection in ESG format is to use this capacity to issue in markets not just where we see depth of demand but where we can help to develop the market.
For example, the European market is more developed than any other but our strategy leads us to allocate collateral to issuing green bonds in other markets, like the US. Our aim is to grow the global market and the only limiting factor is reference assets available.
GREEN When we established our “Helping Britain Prosper” ESG plan a few years ago we worked on the basis that we wanted a framework that would allow us to issue related product in any market. The reality, however, is that we have seen a higher frequency of trades in Europe.
From an investor diversification perspective, The European market is probably where we get the most bang for our buck given the concentration of socially responsible, ESG, and sustainable investors. But there’s nothing to stop us applying a sustainability framework in any market.
YEOH When we issued our first green bond, in 2017, we always wanted US dollars to match our balance-sheet demand. The European market is quite advanced for green demand, but the US dollar market is also very active in the space. European investors did participate in the transaction: there was a lot of demand from investors in the UK and some from Germany as well.
The European market is more developed than any other but our strategy leads us to allocate collateral to issuing green bonds in other markets. Like the US. Our aim is to grow the global market and the only limiting factor is reference assets available.
KANGANEWS Will green issuance continue to dominate over other kinds of ESG product?
GREEN We issued two ESG bonds that referenced the “Helping Britain Prosper” plan after we launched it. I think the social-impact side of sustainable finance is most relevant to banks generically and to Lloyds Bank in particular.
The focus on economic prosperity seems the most appropriate way for us to be thinking about potential future market access in ESG-themed product.
The framework we had was very much around supporting SMEs in economically disadvantaged parts of the UK. While there was an environmental element, it was really thinking about agriculture and environmental projects within the subset of social deprivation.
YEOH There is a good point here – that green issuance serves to draw attention to your efforts but you do not need a strong ESG issuance programme to be a strong ESG bank.
Even so, we will likely be in the market again in 2019 or 2020. We will go through a process at some stage where we ask investors whether they would like us to focus on the green agenda or to spread out and look at issuing other themed bonds.
ZILELI National Australia Bank will continue to issue green and social bonds, but globally we expect green bonds to exceed other types of ESG-themed issuance. From an investor’s perspective, there appears to be a preference for climate or green bonds.
The reason for this tends to be impact reporting. It is much easier and more standardised to report the impact of reducing carbon emissions than it is the impact of a social bond comprised of loans to healthcare and education, for example. This is not to say we would not issue another social bond. In fact, we have kept our green- and social-bond programmes separate, including having two distinct frameworks, to enable us to do just this.
GREEN I think that’s right. When we roadshowed our trade, investors were certainly slightly less familiar with the sustainable element.
HALES We have been focused on green bonds because the framework is well-established. However, we continue to monitor developments with regard to social and Sustainable Development Goals bonds.
