ESG Finance Report Q1 2022 - European Sustainable Finance | AFME

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Data Research
ESG Finance Report Q1 2022 - European Sustainable Finance
10 May 2022
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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 first quarter of 2022. The aim of this 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 31 March 2022, as well as a high-level regulatory and supervisory snapshot.

Key highlights:

  • European ESG bond and loan issuance in Q1’22 (€136bn) declined 32.4% year-on-year (YoY) and 27.2% quarter-on-quarter (QoQ).

    ESG bonds and loans include ESG-labelled bonds (proceeds-based), sustainable-linked bonds, transition bonds, green-linked loans and sustainable-linked loans.
  • ESG bond issuance represented 14.1% of total European bond issuance during Q1’22, a lower proportion from 19.5% in 2021FY.
  • Market conditions have been unfavourable for primary issuance. The absence of large jumbo ESG deals from the EU Commission and other sovereigns also contributed to the YoY decline.
  • The sustainable-linked bond market was the exception in the annual ESG contraction, with a significant 4.4x YoY increase and +26.5% QoQ.
  • Carbon prices: European Union Allowance (EuA) price per metric tonne finalised Q1’22 at €78/Tn, around the same level observed at the end of 2021. This, however, masks the significant fluctuation observed during the quarter, as carbon have prices fluctuated from €97 in early February to €55 in mid-March.
  • During the first months of Q2’22, carbon prices have increased from its initial losses in the early days of the Russian invasion of Ukraine. A similar volatility was observed in the UK, NZ and China ETS.
  • EU and UK forward curves continue to anticipate long-term price increases.
  • Global ESG Funds totaled $7tn as of Q1’22, a $0.8tn decrease from $7.8tn in Q4’21.
  • All ESG Fund asset classes declined during the quarter, except for Commodity funds, which saw a 44% QoQ increase.
  • The quarterly decline was predominantly driven by valuation losses. Net outflows from ESG funds totalled $20bn in Q1’22, or about 2% of the QoQ absolute variation in Global ESG funds.
  • ESG price premia: spreads of corporate ESG bonds against non-sustainable benchmarks have marginally widened in 2022YtD.
  • ESG premia, however,  continues to fluctuate between 1 to 2 bps and has not reached the levels observed in 2020.
  • Regulatory update: We present a selective list of upcoming European initiatives for the year 2022.