Conditions slow sustainable debt issuance in Q1

Global sustainable finance volumes remained resilient in the first quarter of calendar 2022 amid challenging broader market conditions, including investor caution due to rising interest rates and the crisis in Europe.

Activity across sustainable bonds and loans fell 17 per cent to $US348 billion, compared to $US421 billion in the corresponding quarter last year.

Notwithstanding the drop in total volume, first-quarter activity was the second highest on record, bringing total sustainable debt issuance to over $US4.5 trillion.

Bond transactions continue to dominate the sustainable finance market, accounting for 75 per cent of issuance in the first quarter. Of these, green bonds accounted for 38 per cent of volumes over the past four quarters.

Meanwhile, the sustainability-linked bond (SLB) market continued its run, adding further diversity of issuance when Chile became the first sovereign to issue in this format, with other sovereigns expected to follow suit.

The overall market is expected to increase in 2022 with Moody’s predicting sustainable bonds could make up 15 per cent of total bond issuance for the year globally, up from 11.3 per cent in 2021.

Sustainable growth

The Australian sustainable bond market continued its run from 2021, with just over $A7 billion issued in the quarter. This represents 35 per cent of the full year issuance in 2021 which was a record $A20.2 billion.

In loan markets, green or sustainability-linked loan formats continue to gain traction. Some 25.4 per cent of all syndicated loans in Europe are labelled green or sustainability-linked according to the Association for Financial Markets in Europe.

Notable transactions in Asia included Hong Kong based China Water Affairs’ $US200 million Green Bond to finance Sustainable Water and Wastewater Management and Renewable Energy Projects under the group’s Green Finance Framework. ANZ acted as joint associate sustainability structuring advisor, as well as joint lead manager and bookrunner.

In Australia, Endeavour Energy executed a landmark $A920 million syndicated SLL becoming the first known Australian electricity distribution network to tap Sustainability-Linked financing. Sustainability targets for the loan focused on four areas including greenhouse gas emissions reduction, landfill waste diversion, net habitat gain and mental health and wellbeing. ANZ was joint sustainability coordinator and mandated lead arranger.

Across the Tasman, retirement village operator Metlifecare executed the first sustainability-linked derivative (SLD) in New Zealand on the back of the SLL executed in the fourth quarter of 2021. ANZ acted as joint mandated lead arranger and bookrunner, and joint sustainability coordinator for the SLL.

Auckland Council has entered into what is believed to be the country’s first Sustainability-Linked lending for a local authority, converting an $NZ200 million facility into SLL format and accompanied by a $NZ120 million SLD.

The targets for both instruments included increasing the number of low emissions buses in Auckland Transport’s bus fleet, reducing the council’s greenhouse gas emissions, and supporting Māori and Pasifika-owned businesses and social enterprises in Auckland. ANZ acted as sole sustainability coordinator for both the Auckland Council SLL and SLD.