2020 – A year of green milestones for the Sustainable Bond Market
2020 has been a memorable year for London Stock Exchange’s Sustainable Bond Market (SBM).
Already home to the first certified green bonds out of China, India, and the Middle East, and to the first sovereign green bonds from Asia Pacific and the Americas, SBM welcomed 39 bonds raising £13bn in 2020. London’s position as the go-to venue of choice for raising green bonds was further underscored by the Chancellor of the Exchequer’s announcement last November, stating that the UK Government will issue its first Sovereign green bond in 2021, followed by a series of further issuances to meet growing investor demand for sustainable finance instruments. These bonds will help finance projects that will tackle climate change, finance infrastructure investment and create green jobs.
The Chancellor also announced that the UK will become the first country in the world to make reporting aligned to the Task Force on Climate-related Financial Disclosures (TCFD) fully mandatory by 2025. It will also implement a green taxonomy which aims to improve the understanding of the impact a firm’s activities and investments can have on the environment, and to support the UK’s transition to a sustainable economy.
The Chancellor’s landmark announcement is one of many important market developments that took place in 2020. London Stock Exchange’s SBM is set to play a pivotal and increasingly important role in the global growth of green finance.
COVID-19 response bonds
The SBM has been a pillar of financial support through the COVID-19 pandemic, enabling issuers to raise £75bn through COVID-19 related response bonds on London Stock Exchange. These include £7bn of COVID-19 social bonds issued primarily through supranational institutions. Extended through to October 2020, London Stock Exchange was also the first stock exchange to waive admission fees for social and sustainability bonds with use of proceeds aligned towards mitigating the impact of COVID-19.
In June 2020, the SBM expanded its criteria to enable sustainability-linked bonds to be admitted on a new issuer-level classification segment, which allows investors to distinguish between use-of-proceeds bonds (with identified eligible projects) and general corporate purpose bonds by sustainable businesses.
Our fast reaction to the launch of ICMA’s Sustainability-Linked Bond Principles showed how the SBM can evolve rapidly to cater for the deepening market for sustainable investment.
New advisory group
In August 2020, the Sustainable Bond Market Advisory Group (“SBMAG”) was established, creating a forum for market participants to provide input on the SBM and act as a consultative body on future developments. The group provides broad representation of key market stakeholders such as industry bodies, external reviewers, law firms, underwriters, investors and bond issuers who have shown an active participation in sustainable finance.
In December 2020, London Stock Exchange participated in an industry working group on Climate Transition Finance, helping define the global transition finance handbook. This will enable an even broader array of innovative products to join our international markets.
Throughout 2020, milestone transactions from Asia Pacific, Middle East, China, India, Europe, Africa and the Americas have taken place on the SBM. There are now more than 240 active bonds from over 60 issuers admitted to the SBM.
Mexico utilised the International Securities Market to launch its sustainability bond, making it the first country in the Americas to issue a sustainability sovereign bond linked to the UN Sustainable Development Goals.
“This is a highly relevant operation for Mexico, not only because it helped us to raise the amount of resources that we required, but also because it is a proof that investors are no longer just looking for the appropriate risk and yield, but that they are also becoming more interested on the use of these proceeds,” said Arturo Herrera Gutierrez, Minister of Finance of Mexico.
Egypt became the first sovereign green bond issuer from the Middle East & Africa with its $750m 5-year green bond, attracting strong demand from global investors. It was also the largest green bond issuance from the Middle East region. “The sovereign green bond programme will help us raise capital from investors who care for both environmental and financial returns,” said Dr. Mohamed Maait, Minister of Finance of Egypt.
Corporate and FIG issuers
There has been equal pioneering activity among corporate issuers on the SBM. The global luxury fashion brand Burberry made its first entry onto the bond market with an inaugural £300m sustainability bond. With the proceeds going towards Burberry’s net zero commitments, sustainable cotton procurement practices and community projects. It also became the first luxury fashion company to issue a sustainability bond.
In the Middle East region, Qatar National Bank (QNB) became the first issuer from Qatar to raise a green bond. The $600m green bond was, according to Abdulla Mubarak Al-Khalifa, Group CEO of QNB, “testament of our sustainability strategy and allows us to access the global investor community that supports the transition towards a low-carbon economy.”
An award-winning stock exchange
The SBM forms a part of London Stock Exchange’s comprehensive sustainable finance and investment programme which focusses on driving best practice in disclosure, supporting new green-growth companies and funds, and enabling the transition to a sustainable, low carbon economy.
We were delighted, therefore, when London Stock Exchange was named Stock Exchange of the Year in the Environmental Finance Sustainable Investment Awards 2020.