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First industry roadmap helps embed sustainable finance into banks’ strategy and governance
10 Sep 2020
Banks need to embed sustainable governance principles across the whole organisation and adopt a consistent corporate strategy if they are to successfully transition to a sustainable finance model according to guidance issued today, 10th September, by the Association for Financial Markets in Europe (AFME) and global law firm Latham & Watkins. The industry roadmap “Transition to Sustainable Finance” looks at the challenges facing firms as they integrate ESG principles into their business models and addresses issues such as corporate purpose, board governance oversight, shareholder activism and greenwashing. The roadmap is the first to look at how firms are set to deliver on their sustainable finance targets and aims to provide boards and senior leadership with a go-to guide on issues to consider from a governance, compliance and legal perspective. The guidance comes as a new AFME survey highlights that sustainable finance is a priority board issue and banks have made considerable progress to adapt their business model to deliver on sustainable finance targets. Looking into how 13 of the biggest global banks are structured to adopt sustainable finance principles, the survey reveals: 85% of respondents incorporate sustainable finance into their overall business strategy 85% have set sustainability targets 77% have established Board level oversight on sustainable finance 63% have started integrating sustainable finance considerations across risk management and business development but more work lies ahead for other functions Richard Middleton, AFME’s Managing Director, Head of Policy Division, said: “Sustainable finance is a fast-moving area and the regulatory environment is evolving rapidly. As all areas of firms’ businesses are affected in the transition to sustainable finance, it is important that firms establish and develop their corporate strategy, governance, purpose and objectives. “Our White Paper is intended as a roadmap to help senior management and the board to embed sustainable finance in a holistic and systematic manner across the business.” Judson Berkey, Managing Director, Sustainability Strategy, UBS said: "The sustainability journey for a bank involves more than just creating new products. A transformation is needed to embed new thinking into all aspects of the firm including governance, risk management and compliance. This thought leadership paper highlights key considerations in that crucial effort." Nicola Higgs, partner at Latham & Watkins, added: “We are delighted to have worked with AFME and its members to create a practical framework for the financial services industry looking to navigate the transition to sustainable finance. Financial services firms are seen as key players in driving the sustainability agenda of global regulators, presenting both opportunities and risks for those firms. The Paper provides a framework to navigate those risks and remain competitive in an increasingly significant global market.” Note to editors: The roadmap “Transition to Sustainable Finance” sets out 15 key principles in the areas of governance, conduct and compliance that banks should consider, including: Objectives and governance: Ensuring that a central corporate purpose is set and that there is collective understanding, oversight and accountability in relation to sustainable finance-related risk amongst internal and external stakeholders. Risk management: Whether sustainable finance create new risks for an organisation, and if so, how to integrate them into current risk management. Compliance & Monitoring: How to measure, monitor and mitigate the key risks arising from the transition to sustainable finance, including the tools and metrics that may be necessary to achieve this. Impact measurement: How to assess the progress and effectiveness of existing strategies deployed against established sustainable finance goals and determining what adjustments, if any, are required and identifying opportunities for further development and innovation. – Ends – AFME Contacts Patricia Gondim Interim Head of Media Relations [email protected] +44 (0)20 3828 2747
Julio Suarez
Impact of COVID-19 on European Capital Markets: Market Update
14 Jul 2020
AFME has published a new research note on the“Impact of COVID-19 on European Capital Markets: Market Update”. The purpose of this report is to provide an update on how European capital markets have performed during the COVID-19 outbreak. This report follows a first publication launched in mid-April which assessed the initial impact of COVID-19 on Europe’s capital markets. Key findings: Issuance levels of investment grade (IG) bonds have reached record weekly, monthly and quarterly volumes. Q2 2020 saw the highest ever quarterly value of IG bond issuance for Non-financial corporates in Europe totalling EUR 225bn in proceeds. The increase has been largely driven by Central Bank support. An ESG recovery. European social, sustainable, and green bond issuance reached EUR 55.2bn in Q2 2020, the highest quarterly issuance volume to date. The increase was predominantly driven by social bond issuance which reached a record issued amount during the quarter of EUR19.1 bn. European market liquidity has deteriorated over the last few months. In most asset classes, bid ask spreads remain above pre-COVID levels with equity and corporate bond market bid-ask spreads respectively remaining elevated at about 30% and 40% higher than pre-crisis levels as of late June. Government bond bid-ask spreads also continue above pre-COVID levels, particularly for Italian and French sovereign bonds. Price volatility in equity and in fixed income markets also remain elevated and above pre-COVID levels. Follow on equity offerings have continued to support the recovery as companies seek to recapitalise and improve their balance sheet capacity. European secondary equity offerings totalled EUR 28bn in 2Q 2020, the largest quarterly volume since Q1 2017. After two months of a virtually inactive IPO market, the European primary equity market reopened in May with EUR 3.6bn in proceeds from 24 deals. Issuance volumes continue subdued compared to pre-COVID levels. European listed SMEs have also benefited from access to equity capital, predominantly from secondary offerings on Junior exchanges which totalled EUR 2.7bn between March and June of 2020. This amount, however, continues to represent a minor portion of total SME funding compared to bank lending. Record volumes of bank lending. Euro area statistics have shown a marked increase in corporate net lending and in gross lending to SMEs, as underpinned by EUR 2.6trn in state loan guarantees issued by European governments. Further increases in bank balance sheets are also to be expected as corporates continue to draw down on their existing borrowing facilities and banks channel government support programmes to clients. The report follows from AFME’s research on the initial impact of COVID-19 on Europe’s capital markets and summarises AFME’s approach to COVID-19 and the areas the association has been focusing on to ensure that markets remain well-functioning and liquid in light of the recent impact of the coronavirus. – Ends –