The International Capital Market Association (ICMA) and the Luxembourg Stock Exchange (LuxSE) have announced the launch of ICMA’s new database dedicated to sustainable bond data, intended to provide deeper insight into the market.
- While the net zero and nature-positive transition is driving demand, green, social, sustainability and sustainability-linked (GSSS) issuance fell 15% in 2022.
- Green bonds outperformed social, sustainable and sustainability-linked bonds but all areas performed more strongly than the traditional debt markets.
- ICMA’s database is intended to facilitate access to reliable and meaningful sustainable bond issuer data and increase transparency around sustainable debt markets.
Sustainable bonds saw a slowdown in 2022. According to figures from Environmental Finance Data, GSSS bonds fell 15% to $899 billion in 2022 after the market grew to over a trillion in 2021.
This is in large part due to increased scrutiny of labelling around such bonds, especially in sectors that are neither green nor sustainable, or from an issuer whose credentials are somewhat suspect. The continuing demand for transition finance to implement strategies, alongside plans for decarbonisation and a net nature positive future, suggest that the market is still set for growth.
Growth is set to continue but taxonomy is a challenge
There is a huge degree of complexity in the GSSS market, both in terms of differences between the types of bonds on offer, as well as differences in frameworks in different jurisdictions. According to S&P Global, global green bond issuance is expected to rebound in 2023 amid supportive policies, a more certain interest rate environment and a catch-up of postponed issuances from 2022.
Over the next three years, research from PwC suggests that asset managers globally are expected to increase their ESG-related assets under management to $33.9 trillion by 2026, from $18.4 trillion in 2021.
The EU’s agreement on the European Green Bond Standard is expected to drive growth in the green bond market, where net proceeds must be aligned with the EU Taxonomy. Further green bond disclosure guidance and regulations are expected from more jurisdictions, including India, Bolivia, the EU and Latin America.
Yet one of the biggest challenges is ensuring that funds will be compliant under different jurisdictions. Analysis published by Clarity AI warned that of 18,000 investment funds across Europe, less than 4% would be compliant with different rules for ESG funds across key markets including the US and UK.
Patricia Pina, head of product research and innovation at Clarity AI, said: “When looking at funds with all three investment fund regimes – the US’, UK’s, and EU’s – we found that over 95% of funds with the word ‘sustainable’, or similar term, would require renaming or restructuring in order to be sold across all three markets. This is not only an added cost in terms of compliance, but also underscores how different actors – in this case regulators – are interpreting the meaning of core concepts like ESG and sustainability.”
Such challenges can make the sustainable bond finance market somewhat difficult to navigate. According to ICMA, the association provides the only global standard, one which is focused on the transaction itself.
Chief executive Bryan Pascoe said: “Through the principles, ICMA provides the global market standard for sustainable bond issuance. We are very pleased to have this partnership with LuxSE to provide a key reference to all stakeholders with a database of aligned sustainable bond issuers and associated analytics. The growth potential of the market is huge, and all practitioners need reliable and comprehensive data to effectively track evolving market activity and features.”
Addressing a growing market need
The availability of structured bond data is of considerable and growing importance for all participants in the global bond markets. ICMA’s new sustainable bond database details the evolution of GSSS bond issuance since 2019, with breakdowns per region, issuer sector, currency and time to maturity for each bond category, as well as an overview of the intended contribution of different categories of GSSS bonds to the United Nations Sustainable Development Goals, as reflected in the pre-issuance bond documentation.
By providing valuable market insights, the database is intended to assist market practitioners to strengthen their knowledge of the sustainable bond market, follow market developments, identify sustainable opportunities and incorporate ESG factors into their decisions.
Unlocking the value of sustainability data
ICMA’s database will facilitate access to reliable and meaningful sustainable bond issuer data and increase transparency around sustainable debt markets.
The data included in the database is provided by the LGX DataHub, LuxSE’s proprietary tool providing up to 150 structured and granular sustainability data points on more than 11,000 listed GSSS bonds. It will also provide information on 8,700 listed GSSS bonds, gathered from more than 2,100 issuers aligned with ICMA’s Green Bond Principles, established in 2014.
“As a pioneer in the field of sustainable finance and the world’s leading listing venue for sustainable securities, we are grateful for the opportunity to cooperate with ICMA to bring sustainable bond data to international capital markets. This new database will help address the critical need for market insights and play a significant role in advancing the sustainable finance agenda more broadly,” commented Julie Becker, chief executive of LuxSE.
ICMA has worked on advancing the sustainable finance agenda since the publication of the Green Bond Principles in 2014, the first of a series of internationally recognised guidelines for sustainable debt issuances that have become the global standard collectively referred to as the ‘Principles.