As the transition to net zero accelerates globally, the sustainable bond market is expected to return to growth in 2023.
In the recent feature by Environmental Finance for the Sustainable Bonds Insight 2023 report, BNP Paribas experts discussed key levers and challenges that are critical to the market’s development.
They also share insights on how policymakers, issuers, banks and investors are transforming the ESG bond market, from product structuring to data disclosure.
Policy push factors
In the past year, growing urgency to scale up clean energy has resulted in tectonic shifts in national policy and regulation. Despite differences in approaches worldwide, especially between the US and Europe, policies are driving the issuance of sustainable bonds on a global scale, spurring capital spend allocation towards net zero trajectories.
Green bonds are one of the key instruments to support the transitions of corporates, governments and investors. The market is gaining momentum, and is expected to reach circa US$600 billion in 2023, according to analysis from BNP Paribas Markets 360.
Green bond issuance is about the capex needed for the low-carbon transition and understanding countries’ policies to generate clean energy. [Governmental subsidy programmes] are going to continue to push the green transition, and we are going to see substantial green issuance in response.Trevor Allen, Head of Sustainability Research at Markets 360, Global Markets BNP Paribas
When selecting a sustainable bond type and structure, a pragmatic approach by issuers and banks is critical. It should include bespoke analysis of the sector and issuer company ESG progress.
What we always tell issuers who are looking at ESG bonds is that there are different types of approaches, and the question to ask is, which one suits your company, and where are you in your evolution?Agnes Gourc, Head of Sustainable Capital Markets, BNP Paribas
Building market credibility
Greenwashing concerns are becoming more prevalent across the market.
There is enormous work underway to address this challenge – and, as a bank, we are closely involved in the development of regulations and standards.Frederic Zorzi, Global Head of Primary Markets, BNP Paribas
To ensure materiality and mitigate greenwashing risks, there is a strong need for collaboration across all market participants. Comprehensive standards and agreed alignment to the best industry guiding principles will help to improve the market’s integrity.
We pushed hard for standardisation of KPIs, both at ICMA [International Capital Market Association] with sustainability-linked bonds as well as through the LMA [Loan Market Association] for KPIs on the loan side. The ICMA KPI registry is a great resource. Having standard KPIs both helps ensure materiality and allows investors to compare companies in terms of their ambitions.Constance Chalchat, Head of CIB Company Engagement and Global Markets Chief Sustainability Officer, BNP Paribas
Material disclosure supports credibility and issuance
Investor requirements and multiple disclosure standards in the market sometimes put the burden of ESG data disclosure on issuers. Therefore, experts predict that disclosure factors and impact measurement will get more attention in the upcoming year.
We think that greater disclosure will help support the credibility of the market. Well-structured sustainability-linked bonds, with ambitious targets and robust reporting, will provide measurable impact that investors can point to.Franck Rizzoli, Head of ESG Financing Advisory, BNP Paribas
The regulatory landscape is changing around the world. Investor access to more transparent and standardised data may ultimately accelerate market growth.
Regarding the EU Taxonomy, we are also looking forward to the definition by the EU of other sustainable activities, covering the circular economy, pollution, water and biodiversity. The more activities that are defined, the better for the development of the green bond market.Jeanne Aing, Head of CIB Regulatory Anticipation, BNP Paribas
BNP Paribas’ green bond market expertise
BNP Paribas has been recognised as an industry leader in green bonds. According to Bloomberg data, the bank has placed #1 in the FY2022 Global Green Bond manager league table for Corporates & Government. This continued in 2023, with BNP Paribas ranking #1 in the Bloomberg January Global Green Bond manager league table for Corporates & Government.
BNP Paribas’ ESG expertise and performance in 2022 were noted by IFR (International Finance Review) and resulted in the top IFR Bank of the Year award, Bank for Sustainability award, alongside several other accolades in IFR’s 2022 awards.