Sustainable Debt Market
Summary H1 2021
September 2021

Key figures• Combined labelled issuance of Green, Socialand Sustainability (GSS), Sustainabilitylinked and Transition debt reached nearly halfa trillion (USD496.1bn) in first half of 2021,
peak in March 2021

• Transition finance is picking up;
Sustainability-linked bonds paving the way
Sustainable fixed income market• Cumulative total labelled issuance stoodat USD2.1tn at end H1 2021; cumulative green
at USD1.3tn• Green bonds to reach 2021 forecast USD450bn;
halfway at USD227.8bn at end of H1• Trillion in annual green bond issuance withinreach for 2023

Theme / label

FormatGreen

Use of proceeds

SocialUse of proceeds

Sustainability

Use of proceeds

Sustainability-linked

Entity KPI-linked

Transition

Use of proceeds

The first half at a glance
Labelled issuance highlights– a record-breaking period
throughout

H1 2021 labelled debt issuance reaches nearly half a trillion
500
400
300

USD Billions

Total volumes for the labelled sustainable debt
market – including labelled Green, Social andSustainability (GSS) bonds, Sustainability-linked
bonds (SLB) and Transition bonds – reachednearly half a trillion (USD496.1bn) in the firsthalf of 2021. This amount represents 59% yearon-year growth from the equivalent period in
2020. It also sets the market on track to reachrecord highs this year after a 2020 total of nearly
USD700bn.1

200
100
0
Green - aligned

March sees H1 2021 issuance peakSocialSustainability

SLB

Transition

Total

Labelled issuance: Five-year growth

Green-alligned

Green-excluded

SocialSustainability

SLB

Transition

700
600

Jan

500

Feb

400

Mar

Green-alligned

Sustainability

Green-excluded

SLB

SocialTransition

300

May
Jun
0
25
USD Billions

50

75

100

Sustainable Debt Market Summary H1 2021 Climate Bonds Initiative

125

USD Billions

Apr

200
100
0
2016

2017

2018

2019

2020

2021-H1
1

Positive signals on the roadto COP26
New product development in the sustainablefinance space is extensive, with Climate
Bonds Partners BlackRock and State Street
Global Advisors (SSGA) introducing new suites
in H1 2021. BlackRock’s EM focused active BGF
Emerging Markets Impact Bond Fund employs
norms-based screening, along with a proprietary
GSS taxonomy and ESG integration in issuer-level
analysis.2 SSGA’s new State Street Sustainable
Climate Bond Funds range uses Climate Bonds’
data as an input into the fund methodology toscale up green bonds, along with a proprietary
screening to help mitigate and adapt for climate
impact and exclude controversial issuers.3
Examples of other recent product additions
include green ETFs from Horizon ETF and L&G.4,5
The proliferation of these investment solutions isin keeping with an upward trend in sustainable
fund inflows, as noted by NASDAQ.6
Central bank action and taxonomies are
set to encourage more green investments.
Bangladesh’s Central Bank started off the yearwith legislation mandating the nation’s banks
and other financial institutions to devote a
minimum of 2% of their loans towards green
projects and 15% to a wider “sustainable”
definition.7 China followed suit, announcing

plans to incorporate climate change into its
monetary policy framework and to encourage
financial institutions to extend low-carbon credit
via preferential interest rates and special relending facilities.8
In the UK, the Bank of England announced achange to its mandate to include environmental
sustainability and net-zero transition. Its bondbuying program is set to include green bondsby the end of the year in line with the UK’s
environmental pledges.9 Its European counterpart
ECB recently concluded its strategy review andproposed significant changes to the way monetary
policy instruments are used to manage climate
risks.10 The ECB is also taking integration of climate
risk a step further by seeking to add a dedicatedclimate scientist to its team.11
The EU Taxonomy Delegated Act andupdated People’s Bank of China Green
Projects Catalogue were released on thesame day in April 2021, signalling increased
international coordination to address climatechange.12 In the US, the change in administration
has brought about increasingly positive signals
including via the Biden Summit that the
President hosted in April. The country has sincemade progress on a firmer climate target, andtowards integrating sustainability considerations
into its financial regulatory framework, including

through the SEC. We provided detailed analysisof recent developments in North America in ourlatest report.13
All eyes areon COP26.
Stakeholders
across sectors
and nations
are looking
toward the COP26 to be held in Glasgow thisNovember after being postponed from 2020 due
to COVID-19. This year’s COP will be particularly
influential as countries revise their Nationally
Determined Contributions (NDC) for the firsttime since the 2015 Paris COP21. Some positive
signals are already there, as for example theChinese government announced its target to
reduce energy consumption by 13.5% andcarbon emissions by 18% (both per unit GDP)by 2025 as part of its 14th Five Year Plan (FYP) –building on its prior announcement of aiming fornet neutrality by 2060. The USA also updated its
NDC, which now stipulates a halving of emissions
by 2030 as well as a target for a zero-carbon
electricity sector by 2035 and a net-zero economy
by 2050. The ongoing changes to international
policies and markets has piqued great interestin the sustainable finance space, not least due
to their potential to give rise to an exponential
increase in sovereign GSS bond issuances.

Green bond issuance highlights

Developed markets drive
growth led by the USA
Overall, DM countries contributed 76% of green
bond issuance in the first half, (+1% vs H1 2020). The
share of EM countries grew marginally from 18% to
19% between H1 2020 and H1 2021. SNAT issuancemade up 4% of the volumes (-3% from H1 2020).
Europe was the top issuing region overall,more than doubling (107% YoY volume

Annual trillion in green bonds within reach by 2023
1000
Green

800

Forecast

600

400

USD Billions

Issuance of green debt
instruments continued to
grow in the first half of 2021,
with volumes included in the
Climate Bonds’ Green Bond
Database14 in this period
more than doubling to USD227.8bn compared toH1 2020 – a record for any half-year period sincemarket inception in 2007. In the first half of thisyear, green issuance reached the equivalent of
more than three-quarters (76%) of full-year 2020
volume, and is past halfway of our 2021 year-end
baseline forecast of USD450bn. This growthrate brings cumulative green bond volume to
USD1.3tn. Our analysis suggests that even witha relatively modest growth rate, the annual
issuance volume of green bonds could cross USD
1 trillion in 2023.

200

0
2016

2017

2018

2019

growth) compared to the first half of 2020.
This translated to USD119.2bn of green debt
(52% of the total volume) from 352 issuers.
More than half of the European volume camefrom financial and non-financial corporates(30% and 22% respectively). The Asia-Pacificregion also showed impressive development,
growing by 161% year-on-year (USD51.9bn
versus USD19.9bn in H1 2020). As noted in our

Sustainable Debt Market Summary H1 2021 Climate Bonds Initiative

2020

2021

2022

2023

dedicated analysis from April, the outlook for
North American green bonds is bright and theH1 trend reaffirmed this with volumes up by
83% from USD23.1bn to USD42.1bn.15 Greenissuance from Latin America & the Caribbean
remained unchanged, amounting to USD4.5bn
and making up 2% of overall green debt in
the H1 2021. There was no new issuance fromAfrica in the first half of the year.

2

H1 2021 green debt issuance: top 15 countries
600

40

450

Non-financial corporates
generate over a quarter of
H1 2021 green debt
ABS 8%
Loan 3%
Local Government 2%

NonFinancial
Corporate
28%

Corporate issuers continue on agreen pathGreen debt issuance from non-financial corporates
was up 162% year-on-year to USD64.7bn (H1 2020:
USD24.7bn), with American energy company
NextEra Energy and digital infrastructurecompany Equinix issuing the largest individual
deals (USD1.5bn and USD1.3bn respectively).
The former funded renewable energy generation
and battery storage projects in a seven-year
green bond, while the allocation of proceeds for
Equinix’s green bond included certified green
buildings, renewable energy projects, water andwaste management, and clean transportation.
With its three deals combined (USD3.1bn),
Spanish CaixaBank was the largest financial
corporate issuer, contributing 6% of thesegment’s volume. Groupe BPCE (France) issued
the largest individual deal (USD1.8bn) from thisissuer segment, with proceeds solely dedicatedto financing green buildings.
Green issuance from government-backed entities
totalled USD35.1bn for the first half of 2021, up
31% from H1 2020, with the largest individual
deals issued by Société du Grand Paris whose
entire programme is Certified under the Climate
Bonds Standard, and Dutch TenneT Holdings(USD2.4bn and USD2.2bn respectively). US issuers
combined constituted 13% of the segment’s
volumes, closely followed by France with 12%.
The Republic of France was the top sovereignissuer, with three deals (one initial and two taps)
totalling USD12.9bn and making up over half ofthe segment’s issuance. Germany’s green Bund
issuance followed at USD7.3bn in H1 2021.

Financial
Corporate
22%

Government-Backed
Entity 15%
Sovereign 11%
Development Bank 10%

Ot
he
r

di
a

ad
a
Ca
n

In

UK

Ja
pa
n

So
ut
h

Sw
ed
Su
en
pr
an
at
io
na
l

Ne
th
er
la

Ch
in

In terms of countries, issuers from the USA took
the largest share of volume (17% or USD37.6bn)
and number of deals (495). Germany placed
second with USD28.5bn (13% of issuancevolume) and 102 deals. France and China took
the third and fourth spots, with similar volumes(USD22.8bn and USD22bn respectively, each
representing 10% of issuance) but a different
number of deals (20 and 92, respectively). Spainrounded out the top 5, with USD11.7bn (5%)
and 34 deals. In total, issuers from 47 countries(excluding SNAT) executed deals in H1 2021.

No
rw
ay
Si
ng
ap
or
e

0

Ko
re
a

0

Ita
ly

150

nd
s

10

a

300

Sp
ai
n

20

US
A
Ge
rm
an
y
Fr
an
ce

USD Billions

Deal count

Deal countAmount issued

30

Development banks’ green volume increased
almost threefold (USD22.2bn in H1 2021 versus
USD8.3bn in H1 2020), with almost a third ofthis coming from Germany’s KfW, while halfyear volumes of green instruments from local
governments were slightly scarcer (down 37%
from the first half of 2020).
The share of green ABS was 8% of the first halfyear and up by more than two-fold from H1 2020.
Prominent deals included a whopping USD2.8bn
green commercial buildings transaction fromSLG Office Trust 2021-OVA (issuing entity, USA),financing a LEED Gold & Platinum certified office
tower in New York City.
Certified Climate Bonds (CCBs) accounted for
8% of the half-year volumes (-21% year-on-year).
Certification was awarded to 33 issuers from 18
countries. The largest H1 certified deal camefrom China Development Bank in March,amounting to USD3.1bn (16% of CCBs) withproceeds split between low-carbon transport(rail), solar and wind power generation projects.
Another large CCB was the aforementioned
Société du Grand Paris USD2.4bn bond from
April (13% of CCBs). The third largest in thiscategory was the USD1.8bn covered bond from
DNB, issued in January.

Top 10 Green issuers in H1 2021
Name

Country

1. Republic of France

France12.9bn2. Fannie Mae

USA

8.6bn

3. Federal Republic of Germany

Germany

7.3bn

4. KfW

Germany

6.8bn

5. EIB

Supranational

6.1bn

6. CaixaBank SA

Spain

3.1bn

7. China Development Bank

China

3.1bn

8. Intesa Sanpaolo

Italy

3.1bn

9. SLG Office Trust 2021-OVA

USA

2.8bn

10. HKSAR

Hong Kong, China

2.5bn

Sustainable Debt Market Summary H1 2021 Climate Bonds Initiative

Amount issued H12021 (USD equivalent)3Social and sustainability
issuance highlights

Top 10 Social and Sustainability issuers in H1 2021

Whereas green bonds are classified in accordancewith the Climate Bonds Taxonomy, socialand sustainability (S&S) bonds raise funds for
projects with broader positive impacts across the
spectrum of the Sustainable Development Goals(SDGs) and beyond specifically climate-related
objectives. Their use of proceeds are classified inaccordance with the respective labels: variants ofthe sustainability label describe a combinationof green and social projects, activities, or
expenditures (e.g., sustainable; SDG; SRI; ESG,etc.), whereas social labels are exclusively related
to social outcomes (e.g., pandemic, housing,gender, women, health, education, etc.).

Label theme

Name

Country

1. Social

European Union

Supranational

56.1 Bn

2. Social

Caisse d’Amortissement
de la Dette Sociale

France36.8 Bn

3. Social

UNEDIC ASSEO

France9.7 Bn4. Sustainability

World Bank (IBRD)

Supranational

7.7 Bn5. Social andsustainability

Government of Chile

Chile

6. Sustainability

State of North RhineWestphalia Germany

Germany

4.3 BnIn future, Climate Bonds will seek to integrate acomprehensive social taxonomy – likely adaptedfrom work underway via the International
Platform for Sustainable Finance – to enable
more robust screening and assessment of socialand sustainability debt instruments.16

7. Sustainability

Toyota Motor Corp

Japan

4.0 Bn8. Sustainability

Asian Infrastructure
Investment Bank

Supranational

3.9 Bn9. Sustainability

BNG Bank

Netherlands

2.6bn

10. Sustainability

Islamic Development Bank

Supranational

2.5 BnSocial and sustainability
volume on the rise
S&S bonds comprised 47% of totalsustainable labelled debt issuance with
USD233.3bn issued in H1 2021, bringing total
S&S issuance since 2006 to USD867bn. The
market is growing swiftly: issuance was up 18%
year-on-year (H1 2020: USD197bn).
Bonds issued under the Social theme saw the
sharpest increase, as their volume quadrupledin H1 2020 versus H1 2020 from USD36.8bn to
USD146.6bn. Sustainability bond issuance also
recorded 20% of year-on-year growth. Social

bonds related specifically to funding COVID-19
mitigation and/or recovery were not issued in thefirst half of this year, while in the first half of 2020
they amounted to USD88bn.

Public sector issuers are active
in funding the SDGs
Government-backed entities were the mostcommon issuer type, constituting 56% of
S&S issuance in H1 2021. Financial and nonfinancial corporates represented 14% and 13%of the segment’s volume in this time period,

Amount issued H12021 (USD equivalent)

6.2bn (3.2bn social;
3.0bn sustainability)

respectively. Development banks followed
closely with 12% of issuance. The smallest
shares of S&S volume in the first half of this year
were reported by local governments (4%) andsovereigns (1%).
The European Union was the largest issuerof Social debt thanks to the continuation of its
SURE programme, with a total of USD56.1bn
representing just under one-quarter of total S&S
issuance. The top Sustainability issuer was theWorld Bank (IBRD), with USD7.7bn contributing
3% of S&S volumes.

Transition finance highlights
Though green andsustainable bond markets
continue apace, with issuers
increasingly engaging inraising funds for projects
that deliver environmental,
climate or social benefits, theexisting transition is not yet being undertaken at
sufficient scale insufficient to deliver on the goalsof the Paris Agreement.
Currently only a small number of economic
activities are low carbon (i.e. with very low,
zero, or net negative emissions)17. The majorityof organisations have not yet undertaken
the review and planning necessary to aligntheir activities with a net zero economy.
It is imperative that all do so now. In particular,
many high emitting sectors, that form the
majority of investment portfolios, will needaccess to substantial sums of finance to fundtheir transition.

Amongst investors, the mood is already shifting:
A recent planned won bond sale from South
Korea’s Samcheok Blue Power (which is building
a new coal-fired thermal power plant in the
country), received no orders.18
As investors seek to align their portfolios, investingin organisations that have a credible transition
plan is becoming more attractive. Clearly then it
is imperative for issuers and investors to be able
to access and allocate capital in a way that leaves
no sector behind, is relevant, and avoids thedownside risk of green- or “transition-washing”.

Defining transition
At the heart of this is the need to standardise thedefinitions and ambition level for transition. To build
credibility, attract investors and hence substantiallyexpand the sustainable finance market to fund thetransition of the highest emitters, ambitious androbust transition commitments and the ability todeliver on those commitments is important.

Sustainable Debt Market Summary H1 2021 Climate Bonds Initiative

Climate Bonds has guidelines on credible
transitions. A set of transition principles werefeatured in the 2020 discussion paper Financing
Credible Transitions, and a subsequent series of
blog posts.19,20 The overarching characteristics of acredible transition can be summarised as follows:

Three Common Features
for Transition
Ambitious – this means in line with 1.5 degree
warming limits as defined by the climate science,and delivering action, not just promises
Flexible – applicable to whole entities,
everything they do, and a range ofassociated financial products
Inclusive – allow all sectors and activities
to participate as long as they demonstratecompliance with the principles andframework outline

4

The focus and starting point of our framework
is on a ‘climate mitigation transition’, i.e. thetransition that entities, activities and assets
need to transform their current operations
to decarbonise in alignment with a net zeroeconomy by 2050. Our upcoming report on
credible transitions, due to be released in
September 2021, addresses transition financefor transforming companies, focussing on thehallmarks of a credible company-wide transition.
This lays the foundations for the assessment andcertification of instruments like SLBs with theirforward-looking, company-wide KPIs, and more
broadly for any assessment of the integrity of acompany transition.
Below we summarise current examples of thedifferent mechanisms that are already being
used in the sustainable fixed income markets fortransition at the entity-level (Sustainability-linked
bonds) and asset and activity-level (green andtransition bonds).

Sustainability-linked bonds
Sustainability-linked Bonds (SLB) are forwardlooking, performance-based debt
instruments21 issued with linkages
to specific Key Performance
Indicators (KPI) and Sustainability
Performance Targets (SPT) at theentity level. The idea is for issuers to tie theircost of capital, often with a possible coupon
step-up penalty mechanism, to these targets. If
the targets are met, the issuer is able to obtain
preferential pricing whilst demonstrating its
commitment to sustainability and – ideally –verifiably improving performance. SLBs can be auseful tool for issuers on a low-carbon transition
trajectory as they allow for exposure in this newmarket, building experience in an entity on target
setting. However, issuers should be mindfulof the pitfalls around setting credible targets:they should be ambitious and specific to eachindustry.

SLB highlights in H1 2021
The rapid uptake of this instrument type is
the result of a broadening range of entities(in particular corporates), seeking access tosustainable finance that is not immediately tied
to a specific pool of eligible projects. Indeed, thefirst half of 2021 saw the SLB market segment
exponentially soar: SLB issuance in H1 2021
amounted to USD32.9bn, representing 6% of
total labelled debt issuance of USD496.1bn. In
contrast, no SLB issuance was recorded in theequivalent period of H1 2020.

Top 5 Sustainabilty-linked issuers in H1 2021
Name

Country

Amount issued H12021 (USD equivalent)

1. Enel Finance International NV

Italy

3.9 Bn2. Enbridge Inc

Canada

1.5 Bn3. Fomento Economico Mexicano SAB de CV

Mexico1.5 Bn4. Eni SpA

Italy

1.2 Bn5. China Construction Bank Corporation

China

1.2 BnCementUltraTech Cement issued India’s first SLB
when it brought to market its USD400m dealin February 2021. The financing forms partof UltraTech’s multi-prong plan on climatechange mitigation, aiming to reduce the
Scope 1 emissions related to the productionof cementitious material which accounts foralmost 88% of the company’s current carbon
emissions across Scopes 1 – 3. The SPT linked
to this bond entails a 22.2% reduction in CO2
intensity (kg CO2e/ton produced) compared toa 2017 baseline by 31 March 2030. The coupon
will step up by 75bps if the company misses its
sustainability target.
UltraTech’s reduction target and time frame
yields a roughly 1.7% annual reduction
target, which is comfortably in line with the
IEA’s estimate of a Sustainable Development
Scenario (SDS) for global cement production(0.8% reduction annually to 2030).23 The deal
carries a SPO from ISS ESG.
In contrast, UltraTech’s Swiss peer Holcim
launched its SLB in late 2020, and though
the SPT in its framework – also reviewed by
ISS ESG – yields a lower per-annum Scope 1
emission reduction to the same time frame
vis-à-vis the pathway, its end kgCO2e-intensity
per tonne of cement produced (t.cem) is
lower than that of UltraTech (475kg vs 557kg).
Holcim also started off with significantly

better performance,
demonstrating a 2018baseline intensity of
576kgCO2e/t.cem,
versus UltraTech’s 2017baseline of 716 kg CO2/t.
cem. This disparity underscores the fact thatappearances can be deceiving when it comesto SLB targets and KPIs. There is a need to
examine the issuer’s historical performance
to understand how additional their efforts
are, and how much progress has alreadybeen made, both of which can be a sign ofinternal capacity to change and thus lower
risk to investors in the short-term. Ultimately
though, the key is that each issuer is aligningperformance with the appropriate andambitious pathway for its sector.
In the case of cement, it is worth noting that theIEA SDS would only yield a 24% GHG reduction
to 2050. It is thus likely that the scenario –and thus any SLB targets relying on it – willneed to be updated with a new pathway toreflect the requisite ambition to get to 50%
emission reduction by 2030 and net zeroby 2050. The recent launch of the Concrete
Action for Climate initiative (CAC), part of theMission Possible Partnership, will provide
a springboard for efforts to create a global
market for carbon-neutral concrete by 2050.24

The volume was contributed by a total 61 issuers,out of which 57 were corporates. The largest
with a triple-tranche USD3.9bn was this market
segment’s inaugural issuer Enel, whose SDG
General Corporate Purpose Bond from 2019 wehave featured in previous analysis.22 We highlightsome other recent case studies of debut SLB
issuers below.

Sustainable Debt Market Summary H1 2021 Climate Bonds Initiative

5

Oil and gas
Canadian multinational oil & gas pipeline
operator Enbridge’s issuance of a threetranche SLB totalling USD3.9bn in June 2021
demonstrates that this funding mechanism
is attractive across industries. Enbridge istargeting a 35% Scope 1 & 2 GHG emission
intensity reduction to 2030 versus a 2018baseline, which does not show sufficientambition to transform the company. The
issuer has already achieved nearly 70% of
the targeted GHG reduction goal, and mostimportantly, this target does not extend to
Scope 3 emissions. This enables Enbridge toincrease production volume in a sector thatneeds to quickly wind down to limit warming
to a maximum 1.5 degrees.25 The allocation to
R&D activities is welcome, but in the absenceof any strategy to phase out or retrofit its fossil
fuel pipelines – its main asset base – this SLB
seems to continue a trend seen for many years
from companies in the energy sector where
core business activities remain unchanged and
new innovations happen at the edges, mainly
to improve efficiency of existing operations.
Enbridge need to show real ambition toreshape its business model. The SPO for thisdeal was provided by ISS ESG.
Elsewhere, Italian oil and gas major Eni issued
a SLB reviewed by V.E (formerly Vigeo Eiris).
Of the four SPTs featured in the framework,
perhaps the most crucial is Eni’s commitment
to bring its lifecycle GHG emissions (Scopes

Transition bonds
1 – 3) to zero by 2050
from a 2018 baseline.
This clearly demonstrates
higher ambition than the
Enbridge framework, andis encouraging to see. Two
possible caveats stand out:

Transition bonds are designed to allow highemitters to fund their shift towards cleaner, moresustainable operations and strategies on the way
to net zero. When thoughtfully constructed, thesedebt instruments can be pivotal in supportinga global, economy-wide transition to the Paris
Agreement targets.

• Though the aim is to deliver deep reductions
to 2050, Eni is not targeting a halving of its
emissions by 2030: the absolute reduction
pathway corresponds to -25% by 2030 and-65% by 2050. The residual jump between
2040 and 2050 may need to rely on carbon
offsetting.

Transition issuance highlights
in H1 2021

• Eni notes that it expects the share ofnatural gas to increase to 90% of upstream
revenues by 2050 (from the current 50%
of production) to “support the energy
transition as a back‐up of intermittent
sources”. Depending on Eni’s overall
revenue mix in 2050, this may also meanthat offsets are required to reach the above
lifecycle net zero target in this time frame.
Additional detail on this is needed as Eni
implements its strategy.

The most prolific corporate issuer was the Italianenergy infrastructure company Snam, whose
dual-tranche bond issued for a total of EUR750m(USD909m). The proceeds of the deal will be
used to fund emission reductions, renewableenergy, energy efficiency, green construction
projects and the retrofit of gas transmission
network to make it ready for lower-emission
alternatives, including hydrogen. All of these
activities will contribute to the company’s 2040
carbon neutrality goal. The issuance follows
a similar approach to Snam’s UK counterpart
Cadent, which we have previously featured.
26
This framework is a great example of a mixof transition activities in a crucial sector, andwe welcome it as a valuable addition to thisemerging segment of the sustainable fixedincome market.

Overall the framework appears ambitious andinclusive – two of the three key features oftransition that we highlight in our framework
below. We will observe Eni’s post-issuancereporting to understand its progress andfuture direction in detail.

ApparelSwedish fashion retailer H&M issued a
EUR500m (USD606m) SLB in February,
the coupon rate of which is tied to theachievement of SPTs based on KPIs that apply
to the company’s entire business operations:to increase the share of recycled materials as
inputs to 30% by 2025; and to reduce Scope
1 and 2 emissions by 20% by 2025 and Scope
3 emissions by 10% by the same year from a2017 baseline. H&M’s framework was reviewed
by Sustainalytics.
H&M’s intent to reduce virgin material
inputs is commendable: this is an importantmechanism for reducing the currently
unsustainably high life-cycle impacts of its
products. However, it is worrying that thecompany has not attempted to identify anappropriate industry-wide trajectory forrecycled inputs despite pledging to become afully circular business by 2040.

H&M’s commitment
to reduce Scope 1&2
emissions by 20% 2025 isa good start, but it leaves amuch larger proportion of
reductions to be achievedin the five years after that if halving emissions
by 2030 is to be achieved in line with the Paris
Agreement. Part of the difficulty here may reston the lack of an apparel industry transition
pathway, but it would nonetheless be good tosee further detail on the company’s post-2025plans. This would allow linking them withthe corporate “climate positivity” by 2040
target and help shed light on how much rests
on carbon offsetting, which H&M feature aspart of their climate strategy. Climate Bonds
maintains that credible net zero transition
pathways should not rely on offsetting of any
kind, and that real reductions in emissions are
required and should be prioritised.

Sustainable Debt Market Summary H1 2021 Climate Bonds Initiative

The transition bond segment remains nascent:
we found that only five transition bonds(USD2.2bn) were issued in the first half of thisyear, and 18 altogether (USD6.4bn).

With the issuance of their first transition bondin January, the Bank of China (Hong Kong
Branch) demonstrated their commitment tomoving the transition agenda forward as thedefinition of credible transition continues to
evolve. Along with financing waste heat recovery
and power generation at cement plants, funding
to existing natural gas projects was included
as part of the offering. Climate Bonds does notconsider gas without carbon capture and storage(CCS) aligned with the 1.5°C Paris Agreement
trajectory. Previous green bonds issued by BoC
have targeted renewable energy, low-carbon
transportation, and green buildings, while
also being up to 4.5 times oversubscribed,
underscoring investor demand. We would
therefore encourage BoC to raise its level ofambition for any subsequent issuances carrying
the transition label and ensure focus is on eligible
projects, for example by funding low-carbon
alternatives to gas and/or CCS.
On the heels of Eni’s SLB, the launch of Repsol’stransition financing framework in June wasanother significant development in this space.27
The framework incorporated the company’s
roadmap to sustainability and its commitment
to net-zero by 2050 into its financing strategy.

6This framework is a good starting point:
the management can be seen taking direct
responsibility for its decarbonisation andsustainability targets through the meaningful
integration of climate metrics into executive
compensation. The inclusion of Scope 3 emissions
is another important element of the framework
and positions Repsol as a market leader. We hope
to see greater ambition in the next version of theframework, particularly a shift to aligning with
1.5°C (not just 2°C), as well as further detail on how
Repsol plans to shift their strategy from an existing
oil focus to being a diversified renewable energy
producer and provider. Further information on
their role in delivering CCS solutions to buildon the sector’s deep understanding of thesubsurface geology would also be welcomed.

a great way to finance the low-carbon transition.
Below are some examples of green labelledbonds financing transition activities to facilitate
corporate transformations.

For those activities that are needed beyond 2050
and either already at net zero or on a Parisaligned pathway to get there, green bonds can be

Recent examples of this include Finnish debut
issuer: oil company Neste, which completed its
benchmark-sized EUR500m (USD590m) green
debut in March 2021. The deal represented a
litmus test for investor demand with respect
to green bond offers from a fossil fuel businessin transition, with reportedly positive results
as the 7-year bond saw orders from some 120
investors. Neste first tapped into sustainablefinance with a EUR1.2bn ESG-linked revolving
credit facility in late 2019. The new green bondwas the first under the company’s Green Finance
Framework, which channels investment into
the development and expansion of renewable
and circular solutions. The proceeds from thefirst issuance will go to fund sustainable aviationfuel (SAF) and related R&D, which the company
is ramping up production for whilst phasingout its petrochemical production facilities.

Endnotes
1. Climate Bonds Initiative, 2021. Sustainable Debt: Global State of
the Market 2020.
2. Institutional Asset Manager, 2021. BlackRock expands flagship
Emerging Markets active fixed income range with new Impact Bond
Fund.
3. State Street, 2021. State Street Global Advisors Launches Climate
Bond Funds.
4. Legal & General, 2021. LGIM adds sustainable bond fund to new
fixed income ETF range
5. Investment Executive, 2021. Horizons ETFs launches global green
bond fund.
6. NASDAQ, 2021. Global ESG ETFs Attracted Record Inflows OverH1 2021.
7. Taiyang News, 2021. Central Bank Of Bangladesh Makes It
Mandatory For Banks & NBFC’s To Disburse 2% Of Sustainable
Financing To Green Financing.
8. Xinhua, 2021. China’s central bank mulls policy tools to support
carbon emission cuts.
9. Financial Times, 2021. Bank of England given new mandate to buy‘green’ bonds.
10. Climate Bonds Initiative, 2021. EU action sets new baseline: EC &ECB promise systemic change to Europe’s finance sector: Landmark
commitments on climate change and transition strategy.

11. ECB, 2021. Careers: Climate Scientist ESCB.
12. Climate Bonds Initiative, 2021. Big day! Brussels releases EU
Taxonomy as prelude to Biden Summit; China’s PBOC releases
updated equivalent on same day.
13. Climate Bonds Initiative, 2021. Sustainable Debt: North America
State of the Market 2021.
14. Only those bonds that meet the screening indicators in the
Climate Bonds Taxonomy, as well as other eligibility Criteria set out in
the Green Bond Database Methodology, are included in these figures.
Other labelled green bonds are excluded from the database andshown separately as “Green – excluded” in our analysis.
15. Climate Bonds Initiative, 2021. Sustainable Debt: North America
State of the Market 2021.
16. European Commission, n.d. Platform on Sustainable Finance.
17. OECD, 2020. The European Union sustainable finance taxonomy.
In: Developing Sustainable Finance Definitions and Taxonomies.
18. Bloomberg, 2021. Korea Coal-Fired Plant Operator’s Won Bond
Sale Gets No Orders.
19. Climate Bonds Initiative, 2020. Financing Credible Transitions
White Paper.
20. Climate Bonds Initiative, 2021. Financing Credible Transitions:
Flexibility: A core feature that will shape transition finance: Part 3 of 3.
21. ICMA, 2020. Sustainability-Linked Bond Principles.

Green bonds as a mechanism
for transition

This framework is a positive example of how afossil fuel company can leverage green bondsin transforming into a diversified producer ofrenewable solutions to multiple industries.
Neste’s green bond is included in the Climate
Bonds Green Bond Database.
German car manufacturer Daimler issued asecond green bond (EUR1bn/USD1.2bn) in
March 2021, continuing from a successful debutin September of the previous year.28 Its green
finance framework is heavily geared towards
electric vehicle development and production.
To complement these efforts, Daimler recently
announced its acquisition of an equity stakein green steel manufacturer H2 Green Steel(H2GS), providing an exemplar for what a whole
supply chain transition can look like.29 Daimler’s
approach also helps underscore the diversityof funding mechanisms and labels that areavailable for issuers embarking on credible
transition pathways.

22. Climate Bonds Initiative, 2021. Sustainable Debt: Global State of
the Market 2020.
23. IEA, 2020. Cement.
24. Edie, 2021. Cement industry plots path to net-zero through new
global platform.
25. IEA, 2021. Global Energy Review 2021.
26. Climate Bonds Initiative, 2020. Markets Monthly June 2020.
27. Repsol completed its inaugural SLB issuance against theframework at the end of July 2021. We will feature it in our data forQ3 2021.
28. Climate Bonds Initiative, 2020. Green Bond Pricing in the PrimaryMarket H2 2020.
29. Daimler, 2021. Mercedes-Benz takes equity stake in H2 Green Steel.

Climate Bonds Initiative © September 2021
www.climatebonds.net

Design: Godfrey Design

Disclaimer: The information contained in this communication does not constitute investment advice in any form and the Climate Bonds Initiative is not an investment adviser. Any reference to a financial organisation
or debt instrument or investment product is for information purposes only. Links to external websites are for information purposes only. The Climate Bonds Initiative accepts no responsibility for content on external
websites. The Climate Bonds Initiative is not endorsing, recommending or advising on the financial merits or otherwise of any debt instrument or investment product and no information within this document should
be taken as such, nor should any information in this communication be relied upon in making any investment decision. Certification under the Climate Bond Standard only reflects the climate attributes of the use ofproceeds of a designated debt instrument. It does not reflect the credit worthiness of the designated debt instrument, nor its compliance with national or international laws. A decision to invest in anything is solely yours.
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Sustainable Debt Market Summary H1 2021 Climate Bonds Initiative

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