ESG Finance Q3 2021 - European Sustainable Finance | AFME

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Data Research
ESG Finance Q3 2021 - European Sustainable Finance
27 Nov 2021
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Author Julio Suarez Director
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AFME is pleased to circulate its European ESG Finance quarterly data report for the third quarter of 2021 (Q3 2021). The aim of this quarterly report is to provide detailed data and analysis on the rapidly growing Sustainable Finance market in Europe.

This Report contains up to date trends for the European Sustainable Finance market as at 30 September 2021, as well as a high-level regulatory and supervisory snapshot. 

Key highlights:

  • ESG bond and loan issuance decelerated in Q3 2021 compared to Q2 2021. The decline was driven by lower sustainable-linked and green-linked loan origination, seasonal factors, and the finalisation of the EU SURE scheme which in previous quarters significantly contributed to expand the social bond market. 
    • Notwithstanding the quarterly decline, year-to-date ESG bond and loan issuance volumes (€498.9bn) have already surpassed the 2020FY total (€388.7bn).
    • ESG bond issuance represented 18% of total European bond issuance in Q1 – Q3 2021. 
    • ESG securitisation issuance in the first three quarters of 2021 reached EUR 7.5bn from eight ESG deals covering a variety of asset classes (RMBS, consumer ABS, and on-balance sheet ABS). This represents a substantial increase from EUR 2.1 bn issued in 2020FY. 
    • In Q3 2021, the UK and Spain notably issued inaugural sovereign green bonds of £10bn and €5bn respectively. The inaugural UK green gilt was the largest green bond issued during Q3 2021.
  • Carbon prices: the European Union Allowance (EuA) price per metric tonne has continued to increase during the year, reaching €61/Tn at the end of September 2021 (and most recently €66/Tn in November 2021) from €32.8 in December 2020. 

    EU and UK forward curves continue to anticipate further carbon price increases.
  • Global ESG Funds slightly decreased during Q3 2021, however exhibiting annual and year-to-date increases.
    •  Funds with an ESG mandate (including Mutual Funds and ETFs) totalled $4.87tn as of Q3 2021, a $0.9bn decrease from $4.96tn in Q2 2021 and a $1.26tn increase from $3.7tn in Q3 2020. 
    • ESG equity funds continue to be by far the largest fund asset class with 52% of total ESG funds and over 2x larger than fixed income which represents 21%. 
  • ESG price premia: spreads of corporate ESG bonds against non-sustainable benchmarks have stabilized since April 2021. 
    • ESG corporate premia has tightened from 9bps in April 2020 to 1bp on average during the months of April – November 2021. 
    • Sovereign green premium has widened for benchmark liquid references. The average greenium for German bunds has widened from an average of 2bps in December 2020 to 5bps in November 2021.