In a series of deep dives, BNP Paribas' sustainable finance experts are putting the spotlight on some of the latest developments in sustainable finance today.
Hear about the latest innovations shaping the sustainable finance market, from the rise of sustainability linked loans to investor and issuer perspectives on sustainability and social bond issuance.
With a pressing need to apply innovative thinking to address key environmental and social challenges, and with the corporate and investor communities increasingly looking at the UN SDGs and how profit can be married with purpose, finance is undergoing a quiet revolution.
Here, we take a look at latest developments in three key areas: sustainable capital markets, the social bonds market, and a primer on the ever expanding sustainability-linked loan market.
Agnès Gourc, Head of Sustainable Capital Markets at BNP Paribas CIB, spoke to Environmental Finance Magazine about the rise of sustainability bonds, where the use of proceeds are assigned to sustainable outcomes that achieve both environmental and social objectives. Corporate green bond issuance has also seen major growth over the last year, with most corporates addressing categories included in the Green Bond Principles, a widely accepted international market standard for Green Bonds. Total cumulative issuance of Green/Social/Sustainable Bonds has now reached approximately $631 billion. Agnès also expects further product evolution over the coming year, notably the possibility that transition bonds – where proceeds finance transition technologies such as less carbon-intensive alternatives – could become a game-changer in the shift to a 2°C low-carbon scenario.
A second development bolstering the sustainable finance toolkit for corporates has been the sustainability linked loan (SLL). SLLs reward companies that achieve their sustainability targets (such as CO2 footprint or social employment targets) by offering favourable interest rates, aligning their financing and sustainability objectives. The SLL market has also seen significant growth since 2017, growing from $5bn in 2017 to over $40bn in 2018 according to Environmental Finance.
Finally, institutional investors are now turning their attention to social bonds as a way of integrating social impact into their portfolios, as pressure to deliver returns remains, and many are now turning their attention to another growth area in the sustainable capital markets. Unlike green bonds, whose proceeds are earmarked for environmental-related projects, social bonds are channelled to social areas such as education, healthcare, housing and employment. This market is also gaining momentum, as social bonds accounted for 6.5% of all sustainable bond issuance between 2016 and the first half of 2019. This supports the findings of a recent BNP Paribas Survey of over 300 asset managers and owners, which revealed that more than six in 10 respondents align their investments with the UN SDGs.