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ESG covered bonds heading for a new record year

Karsten Rühlmann

Karsten Rühlmann

Landesbank Baden-Württemberg

The issuance of sustainable bonds is steadily gaining importance in the covered bond market.

Accordingly, the EUR covered bond benchmark segment significantly exceeded 2020 volumes (EUR 7.75 billion) after only nine months with a new issue volume of EUR 12.45 billion. Measured against the total 2021YTD EUR benchmark issuance, the ESG share is thus a high 17 % (2020: 8 %). In total, the outstanding volume currently amounts to EUR 35.8 billion. With EUR 10.5 bn, French banks have the highest ESG EUR benchmark volume on the market, followed by German Pfandbrief banks (EUR 8.75 bn) and Norwegian institutions (EUR 7.0 bn). The upswing in the ESG covered bond market this year was accompanied by numerous debuts. Investors can now choose from 27 benchmark issuers from eight jurisdictions. The greatest diversity is to be found in Germany (7 issuers), ahead of Norway (6 issuers) and France (4 issuers). With a share of EUR 23.25 bn or 65 %, green projects in particular are refinanced through the issuance of green covered bonds. Social covered bonds account for EUR 10.25 billion or 29 %. Sustainability covered bonds account for EUR 2.3 bn or 6 %.

Progressive regulation – e.g. in the form of the EU taxonomy as well as the EU Green Bond Standard – and national initiatives such as the vdp Minimum Standards for Green or Social Pfandbriefe should, in our opinion, ensure uniform rules as well as more transparency and thus continue to drive the ESG Covered Bond market forward in the years to come.