SUSTAINABLE DEBTGLOBAL STATE
OF THE MARKET
2020
GREEN

SOCIALSUSTAINABILITY

Prepared by Climate Bonds Initiative.
Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative

Sponsored by DekaBank and State Street Global Advisors.

1About this report

Contents

This is the 10th iteration of Climate Bonds’ global State of the Market
Report. Historically, the report has described the shape and size of thegreen bond market, but in October 2020, we published the inaugural
Sustainable Debt Global State of the Market H1 2020 with an extended
remit to include social and sustainability themed debt as well as the
traditional green bond universe. This report describes the shape andsize of the green, social and sustainability (GSS) themed debt market up
to the end of 2020.

Introduction 2

Cumulative size: Green, Sustainability, Social bonds December 2020

Methodology 3
Report highlights 4
Green 6
Sustainability 11
Social 14
Spotlight: The developmentof transition instruments 17
Spotlight: Pandemic
recovery spending 19
Spotlight: EU GSS market leadership 21
Outlook 28
Appendices 29

GreenSustainability*

Social*Endnotes 30

Total size of market

USD1.1tn

USD316.8bn

USD315.6bn

Number of issuers

1428

178

601

Number of instruments

7716

885

1230

Number of countries

71

30

36

Number of currencies

42

33

25

*The Social and Sustainability bond database is being finalised and deal-level data may be subject to changes. Further, the Social andSustainability Bond Database follows a different (less stringent) methodology than the Green Bond Database The aim of this paper is to provide
an indication of the shape and size of the market, and the data profile should be regarded as provisional.

About the Climate Bonds Initiative
The Climate Bonds Initiative (Climate Bonds)
is an international investor-focused not-forprofit organisation working to mobilise the
USD100tn bond market for climate changesolutions. It promotes investment in projects
and assets needed for a rapid transition
to a low carbon, climate resilient, and faireconomy. The mission focus is to help drive
down the cost of capital for large-scale
climate and infrastructure projects and tosupport governments seeking increased
capital markets investment to meet climate
and greenhouse gas (GHG) emission
reduction goals.

Climate Bonds conducts market analysis, policy
research, and market development; advises
governments and regulators; and administers
a global green bond standard and certification
scheme. Climate Bonds screens green financeinstruments against its Climate Bonds Taxonomy
to determine alignment and uses sector
specific criteria for certification. Climate Bonds
Certification is a labelling scheme. Rigorous
scientific criteria ensure that it is consistent
with the 2˚C global warming limit of the Paris
Agreement. Certification requires initial andongoing third-party verification to ensure theassets meet the metrics of Sector Criteria.

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative2

Methodology
Scope of analysis

Social and sustainability

We cover three sustainable debt themes basedon the projects, activities, and expenditures
financed: green, social, and sustainability.
Pandemic bonds are included as a sub-set of thesocial theme.

Market participants have not yet developed a“social taxonomy” or equivalent classificationand screening system, though work on this isongoing in the EU and elsewhere.3 Climate Bonds
does not screen social and sustainability bonds’
use of proceeds against performance thresholds.
The use of proceeds are, however, classified
in accordance with the respective labels andcategorised as follows:

The themes can be described as follows:

Green: dedicated environmental benefits(captured since 2012)

Social: dedicated social benefits(captured since 2020)

Sustainability: green and social benefits
are combined into one instrument(captured since 2020).
This paper only analyses labelled debt. Our
upcoming Climate-Aligned Bonds and Issuers
report will explore the scope of unlabelled debt
to finance climate aligned activities.

Methodology overview

Sustainability: label describes a combinationof green and social projects, activities, or
expenditures e.g., sustainable; SDG; SRI; ESG, etc.
Social: label is exclusively related to social
projects e.g., pandemic, COVID-19, housing,gender, women, health, education, etc.
Thus, any instrument financing only green
projects is included in the green theme
irrespective of its label. On the other hand, asustainability-labelled bond that only finances
social projects, as well as one that finances a
combination of green and social, is considered
to fall under the sustainability theme. Becauseof this, our analysis of other themes provides aninitial indication of capital market funding aimed
at each theme based on the deal label (seeAppendix B).
NB: Throughout this report ‘Pandemic’ refers
to deals with a COVID-related label such as
pandemic response, COVID-19 etc.

This report is based on the Climate Bonds
Green Bond Database, as well as the Social andSustainability Bond Database. To qualify forinclusion, debt instruments must a) have a label
and b) finance sustainable projects, activities, or
expenditures.
Debt labels describe the types of projects,
activities, or expenditures financed, and/or theirbenefits. ‘Green’, ‘Social’, and ‘Sustainability’labels are the most common in each theme, but
a broad range of labels is used (see Appendix A).

Not included in this report
Transition labels
Transition finance describes instruments
financing activities that are not low- or zeroemission (i.e., not green), but have a shortor long-term role to play in decarbonisingan activity or supporting an issuer in its
transition to Paris Agreement alignment.
The transition label enables inclusion of amore diverse set of sectors and activities.
At present, transition bonds predominantly
originate from highly polluting, and hardto-abate industries. They do not fall into theexisting definitions of green but are a criticalcomponent of a transition to net zero.
Example sectors include extractives such as
mining; materials such as steel and cement;
and industrials including aviation. Workaround building standards for transition
activities is underway; we cover this in moredetail in the dedicated segment on page 17.
Performance-linked instruments
Performance or KPI-linked debt instruments
are excluded from this analysis. These
instruments raise general purpose financeand involve penalties (e.g., coupon stepups) linked to not meeting pre-defined,
time-bound sustainability performance
improvements. The two main types of
instrument are commonly referred to as
Sustainability-Linked Bonds (SLBs) andSustainability-Linked Loans (SLLs).
Climate Bonds does not presently examine
or track data on SLBs or SLLs, preventing
inclusion of these categories of debt
in this analysis. However, coverage ofperformance-linked instruments is currently
in development and the theme is discussed
on page 17.

GreenAll deals in the green theme have been screened
to verify their integrity. Screening is based on aset of process rules stipulated in Climate Bonds
Green Bond Database Methodology, including
the following two overarching criteria:1
1. Deals must carry a variant of the green label
2. All net proceeds must verifiably (basedon public disclosure) meet Climate Bonds’
green definitions based on the Climate Bonds
Taxonomy2
We review all green debt instruments to ensure
their green credentials.

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative3

Report highlights

USD700bn worth of GSS instruments was issued
in 2020, almost double the prior year which stoodat USD358bn. While green remains the dominanttheme, and was the largest source of outrightcapital, the social and sustainability themes grew
dramatically and achieved higher volumes than
all previous years combined. As a result, in 2020
total issuance was more evenly spread across thethemes compared to prior periods.

Green, social, and sustainability bond issuance doubled in 2020
800
Green

600

0
2015

• The first pandemic bond of 2020 was issued on
5 February, a RMB1bn (USD143m) deal from
Zuhai Huafa Group from China. Pandemicthemed issuance peaked in February andcontinued to decline for the rest of the year,
especially in China.
• There were large drops from all issuer types
in March as COVID-19 took hold, but central
banks were quick to react, and the market hadstabilised by April.
• Sovereign issuers have the ultimate power toextend the breadth and depth of the GSS bondmarkets due to their scale and influence. Tensovereign issuers entered the GSS bond market
in 2020, bringing the total number to 22. This
influenced the shape and size of GSS bondmarkets. A list of sovereign GSS bond issuers is
on page 15.

2016

2017

2018

2019

2020

Source: Climate Bonds Initiative, 2021

Social bonds increased sharply in response to COVID-19
2000
Green

Number of GSS securities

1600

SocialSustainability

1200
800
400
0
2015

2016

2017

2018

2019

2020

Source: Climate Bonds Initiative, 2021

Green bonds had a strong finish
60
Amount issued USD Billions• The COVID-19 pandemic caught many off
guard and impacted the issuance of all typesof bonds towards the end of the first quarter.
However, the bond market proved to be aflexible source of finance to help with boththe immediate impacts as well as longer-term
recovery plans. This led to the rapid growth of
the sustainable and social debt markets andthe massive increase in instruments being
issued with a pandemic Use of Proceeds (UoP),
which contributed to a ten-fold increase in thesocial volume compared to 2019.

Sustainability

200

Market Analysis
The sustainable debt market in 2020

Social400
USD Billions

At the end of 2020, the sustainable debt market
had reached USD1.7tn, and almost 10,000
instruments had been issued under GSS labels
since 2006.

Green

50

SocialSustainability

40
30
20
10
0
JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

Source: Climate Bonds Initiative, 2021

Social bonds dominated the earlier months of 2020
400
Green

SocialSustainability

Number of securities

300

200

100

0
JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

Source: Climate Bonds Initiative, 2021

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative4

Green bond market
score card 2020
2020

Sustainability bond market
score card 2020

Percent change
from prior year

2020

Size of market
USD290bn

9%Size of market
USD160 bn

Number of issuers
634

14%

Number of issuers
83

Number of
instruments: 1696

-9%

Average size of
instrument
USD171m

Percent change
from prior year

2020

Percent change
from prior year

Size of market
USD249bn

1017%

5%

Number of issuers
543

1107%

Number of
instruments: 253-26%

Number of
instruments: 911

488%

19%

Average size of
instrument
USD630m

214%

Average size of
instrument
USD273m

90%

Number ofcountries 55

6%Number ofcountries 23

0%

Number ofcountries 29

89%

Number ofcurrencies 34

0%

Number ofcurrencies 25-14%

Number ofcurrencies 18

64%

The green debt market recorded a slight increase
compared to 2019, thanks to a strong third
quarter. While the number of issuers increased, thenumber of instruments declined. The average sizeof the individual instruments issued under green is
the smallest of the three themes, suggesting thatthe green debt market has broad appeal among a
range of issuer types. Multiple small instruments
issued by US Munis and Fannie Mae under thegreen theme is a key contributor to this.

Spotlight sections
This paper includes forward looking spotlightanalyses of the following three themes which willcontinue to influence the development of the
GSS debt market in 2021 and beyond:

The development of transition
instruments
No industry or entity can be left behind in
the transition to a net-zero carbon economy
and a more resilient and equal society. The
development of instruments to accommodate abroader range of issuers and activities is essential
in extending the thematic bond market and canhelp investors to build diversified portfolios. We
explore the development of transition labels on
page 17.

131%

Social bond market
score card 2020

The amount of debt issued under thesustainability theme multiplied by 2.3 times
compared to 2019. More issuers entered themarket, and the size of the individual instruments
was, on average, three times larger than the prioryear. Individual instruments increased in size andwere larger (on average) than those issued under
the green or social labels.

The social bond market exploded in 2020,
recording a more than 10-fold increase (1017%)
year-on-year, the sharpest annual growth inany theme since the inception of the GSS debt
market. The number of issuers using social labels
grew by a similarly astonishing number andencompassed a broader range of countries andcurrencies than ever before.

Pandemic recovery spending

GSS bonds, having entered the thematic bondmarket in 2020. The presence of such a largescale issuer of high credit quality is contributing
to the creation of a transparent, liquid funding
source for any entity wishing to support theirsustainability goals through the debt markets(page 21).

Post-pandemic recovery spending linked to
GSS expenditures encourages crowding in ofsuch investment by introducing more projects
into the real economy. We examine how four
governments have implemented measures toensure a sustainable recovery on page 19.

EU GSS market leadership
Europe is home to the world’s largest GSS bondmarket, which has developed with the strong
leadership of the European Union (EU). The EU
has stated its ambition to be the first climate
neutral bloc by 2050, and this objective is being
pursued by connecting policy and budget,
regulation, and the support of institutions
including the ECB. The EU is the largest issuer of

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative

5

Green• In early December,the Climate Bonds
Green Bond Databasereached the USD1tn
milestone. While otherdata sources had
already called this benchmark, the Climate
Bonds Database only includes bonds with
100% of net proceeds dedicated to green
assets, projects, and/or expenditures alignedwith the Climate Bonds Taxonomy.
• In a year characterised by uncertainty, green
issuance rebounded in the second half of 2020
to reach a record-breaking USD290.1bn by theend of December, compared to the prior recordof USD266.8bn set in 2019.
• 2020 started strong, but the COVID-19 pandemic
quickly impacted issuance of all types of bonds
in March. Government support packages tookeffect in Q2 and issuers cautiously returned to themarket. Many public sector issuers turned theirattention to social- and/or sustainability-themedbonds to contribute to the immediate relief ofthe economic shock driven by the pandemic andits ramifications. By September, confidence had
returned and entities that had postponed green
bonds earlier in the year were prepared, resulting
in the most prolific third quarter recorded
for green issuance. October and November
remained active prior to the US election, andthen issuance tailed off into year end.
• Egypt, Germany, Hungary, and Sweden issued
debut sovereign green bonds, bringing thetotal number of such issuers to 16.
• An increase in the number of external reviews
highlights how much emphasis investors are
putting on the integrity of the green label.
Most of the increase occurred in the Second
Party Opinion (SPO) category. The number ofCertified Climate Bonds (CCB) also increased
and reached a cumulative total of USD150bn –or 15% of the market – in October 2020.

backed entities and non-financial corporates, eachcontributing 25%. Government and policy support
is creating more opportunities for private sector
investment in Europe and a more diverse range ofissuers are coming to the market beyond utilities,
real estate companies, and banks. For example,
in the woefully undersupplied automotive sector,
Daimler AG (EUR1bn/USD1.1bn), Volvo (EUR500m/
USD588m), and Volkswagen (EUR2bn/USD2.3bn)
all issued debut green bonds in 2020.
North America remained broadly static on
the prior year with USD61.5bn of green bonds
compared to USD60bn in 2019. Considering that2020 was a record year for total (i.e., including
vanilla) USD-denominated bond issuance – mostof which originates from US issuers – this is
surprising, but the focus was on securing flexible
funds, and refinancing at prevailing lower rates.
We expect the change in administration to resultin a sharper increase in green debt originatingfrom the US as President Biden has alreadyindicated strong support for sustainable finance.

50

The drop in green bonds from Asia-Pacific (APAC)
and SNAT issuers can largely be explained by
COVID-19 and the subsequent increase in socialand sustainability bond volume. Such bonds
were issued to support healthcare, medical
supplies and other immediate needs arising fromthe pandemic (see page 14).

Loan

Financial Corporate

SovereignABS

Government-Backed Entity
Local Government

40

Development Bank
30

Non-Financial Corporate

20
10
0
JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

Source: Climate Bonds Initiative, 2021

Europe was the dominant region for green debt in 2020
300
250

Supranational

Asia-PacificNorth America

AfricaLatin America
200

Europe150
100
USD Billions

Europe was the largest source of green debt
in 2020, responsible for USD156bn or 48% of thetotal. European issuance was led by government-

Africa had its strongest year yet, with USD1.2bn
in green debt originating from: two South
African non-financial corporates (a loan fromFirstRand Bank (USD225m), and a USD200m
10-year bond from Standard Bank of South
Africa); a bilateral loan from Ghana worth
USD41m (EUR35m); and Egypt’s USD750m
debut sovereign green bond in September.

60

Regions
Four-fifths of the overall green volume originatedfrom developed markets (DM) in 2020, compared
to 73% in 2019.4 Emerging markets (EM) accounted
for 16% versus 22% the prior year, while thecontribution of supranational entities (SNAT)
was 4% against 5% in 2019. Chinese issuers
shifted their focus to social bond issuance, hence
impacting the overall EM number. Volumes in four
regions, notably Europe, increased in 2020, while
declining in the remaining two.

The Latin America & Caribbean (LAC) region exhibitedclose to 65% growth compared to the prior year,
reaching USD7.9bn in 2020. More than half of thetotal originated from Chile, including four sovereign
bonds worth a total of USD3.8bn (of which USD2.2bn
were issued in EUR and the residual in USD).

Green bond issuance rebounded in the second half of 2020

USD Billions

Introduction

50
0
2014

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative

2015

2016

2017

2018

2019

2020

Source: Climate Bonds Initiative, 2021

6• The US market had the largest numberof individual issuers with 144, but its
private sector green bond market is still
underdeveloped and continues to lacklarge, benchmark-sized green bonds withadequate transparency. The market isdominated by Municipal issuers classified as
local governments, or government-backed
entities. The mean size of the 747 green bonds
originating from the US was just USD70m.
• Two government bonds propelled Germany
into second place. The inaugural 10-year
green Bund was priced in September, followed
by a 5-year Bobl in early November with a
combined size of EUR11.5bn (USD13.8bn).6
Development Bank KfW sold 14 green bonds
in 2020, with a total face value of USD9.6bn(issued in multiple currencies). Overall, theamount of green bonds originating from
Germany more than doubled from USD18.7bn
in 2019, to USD41.8bn in 2020.
• France landed in third place with a totalof USD37bn. The green government bond
(GrOAT) was tapped three times for a totalof USD7.4bn in 2020. The GrOAT is the single
largest green bond in the market, with a
total amount outstanding of EUR27.4bn(USD31.1bn).7 More pertinently, Société duGrand Paris (SGP) priced seven bonds worth
EUR11bn (USD12.5bn) in 2020. SGP was set up
in 2010 by the French Government to constructand deliver the ‘Grand Paris Express’ transport
network – an expansion of the existing metroand commuter rail network in Île-de-France –and is funding the project entirely through thegreen bond market. By the end of 2020, theentity had 13 green bonds outstanding.
• The green bond market in China clearly
suffered from the ramifications of the
COVID-19 pandemic, with many issuers

150
Issuer count

120
90

20

60

10

30

0

0

preferring to issue under social labels –especially those pertaining to the pandemic
response – instead. Overall, bonds from
Chinese entities reached just USD22.4bn, or
70% of the prior year total of USD31.4bn.
• The comparison between the amount issued
and issuer count indicates that many markets
are still largely domestic in nature. The USA,
Sweden, China, and Japan, Norway, and the
UK have a high number of issuers comparedto the total amount of green bonds issued.
France, Germany, the Netherlands, and Chile
exhibit the opposite, indicating a smaller
number of larger issuers. This format is more
likely to attract the interest of the international
investment community.

Issuer types
Broadly speaking, 2020 was characterised by
growth in public sector issuer types while private
sector volumes either remained static or shrunk.
As noted in our H1 2020 paper, public sector
issuers are typically less vulnerable to market

Ita
ly
Ch
Si
ng ile
ap
or
e
Ot
he
r

30

Number of issuers

Amount issued

40

UK• Half of the USA’s green volume, and morethan 70% of its green bonds, were issued
between August and November. Although
the Biden administration is expected torebalance US policy priorities in favour ofthe climate agenda, a policy-led expansion
could push up long-term rates in the US.
Post-election, issuance (both vanilla andgreen) slowed into year-end.

50

U
Ge SA
rm
an
y
Fr
an
ce
Ne Ch
th ina
er
la
n
Sw ds
ed
en
Su
Ja
pr
an pan
at
io
na
l
Sp
ai
Ca n
na
d
No a
rw
ay

• The USA remained the largest source ofgreen debt with a total of USD52.1bn (18%)
almost matching the 2019 figure of USD52.9bn.
This is surprising given that total bond issuanceoriginating from the USA increased from
USD6.3tn in 2019 to USD12.3tn in 2020 but
under the circumstances, the priority seems tohave been to secure financing at prevailing low
rates while maintaining flexibility with the useof proceeds rather than issuing labelled debt,
perhaps for the first time.5

USA, Germany and France lead 2020 green bond issuance

USD Billions

Countries

Source: Climate Bonds Initiative, 2021

dynamics because they tend to have long-term
investment plans in place. Development banks
were the exception to this rule, as many turned
their attention to issuing bonds under the social
label to address the impacts of COVID-19. Average
individual deal sizes contracted from USD344m
in 2019 to USD277m in 2020, hence, total volume
from this issuer category decreased marginallyfrom USD58.7bn to USD55.7bn.
Government-backed entities experienced
the most aggressive growth (78%) in 2020. The
number of individual bonds more than doubled
from 125 to 267. USD17bn of the total amountoriginated from France, split between 14
bonds from 21 issuers. Société du Grand Paris,
referenced above, was responsible for 70% of
the volume, with seven bonds worth EUR11bn(USD12.5bn). EDF, also French, was the second
largest issuer with a single convertible bondto finance renewable energy worth EUR2.4bn(USD2.8bn). China was the second largest source,with 17 bonds worth USD7.7bn, and the USA
took the third spot with 49 Muni bonds worth
USD5.5bn.

Sovereigns and public sector entities lead growth in 2020
100%

75%

50%

25%

0%
2014

2015

2016

2017

2018

2019

2020

Sovereign

Loan

Development Bank

Non-Financial Corporate

Government-Backed Entity

ABS

Local Government

Financial Corporate

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative

Source: Climate Bonds Initiative, 2021

7

The local government issuer type grew by 50%
in 2020, from USD11.8bn to USD18.5bn. Morethan half of the total came from 72 US muni
green bonds worth USD9.5bn. Among them, NewYork MTA priced four bonds Certified under the
Low Carbon Transport Criteria of the Climate
Bonds Standard, worth a total of USD3.9bn.
Nine sovereign issuers reopened or issued
debut green bonds in 2020, contributing to 40%
growth in this issuer type compared to 2019.
The importance of sovereign green bonds restson their size and profile, which catalyse green
market creation and make the green bondmarket more accessible to other issuer types.8
In 2020, Egypt, Germany, Hungary, and Sweden
printed debut sovereign green bonds, while
Chile, France, the Netherlands, Lithuania, andIndonesia extended their liabilities through reopenings or additional bonds. Multiple countries
from different regions have stated their ambition
to join the sovereign GSS bond market in 2021,
thus we are optimistic about the continued
growth of this issuer type, see page 15.
Among private sector issuer types, non-financial
corporates remained the largest source of green
bonds, albeit with a modest 6% growth (USD60.1
bn in 2019 to USD64bn in 2020). Around two
thirds of the bonds in this category originatedfrom Europe, with the rest coming from APAC,
North America, and LAC.
Financial corporates experienced a slightcontraction (from USD58.7bn to USD55.7bn), but
this was mainly due to much lower issuance from
Chinese banks, with European and US financial
institutions exhibiting small increases of USD4bn
and USD4.7bn respectively.
The Asset-Backed Securities (ABS) category fellby 37% year on year. Almost all (99%) of the deals
originate from the USA, and this was partially
impacted by a decline in the contribution of
Fannie Mae, from USD22bn to UD13bn.
Loans are almost always given to entities in the

EUR then USD lead green bond currency volumes 2020
100%

75%

50%

25%

0%
2014
EUR

USD

2015

2016

RMB

SEK

2017
JPY

private sector, and this category decreased by
25% year-on-year to USD9.5bn. Interestingly,
the number of countries from which green loans
originated increased to 22 from 13, suggesting
this instrument type is becoming more popular in
more geographies.
We expect to see an increase in the number ofbonds from the private sector as high-profile
public-sector support for ‘build back better’commitments crowds in private investment.

Currency
During 2020, 85% of the green bond volume wasissued in one of the ‘hard’ currencies. This is anincrease of 3% compared to 2019 and could be
due to a flight to quality, which would give hardcurrency issuers relatively easier access to thecapital markets. Green bonds were issued in 33
currencies, one fewer than 2019. The share of the
top three currencies – EUR (48%), USD (28%) andCNY (6%) – increased to 82%, compared to an
80% share the previous year but still lower than
the 84-90% achieved between 2015 and 2018.
Both USD and CNY recorded a slight decline,

350

80%

280

60%

210

40%

140

20%

70

0%

0

0-100m100-500m

2018
500m-1bn

2019

2020

1bn or more

Average*(Average & Median) USD Millions

100%

2017

GBP

2019
CAD

2020
SDG

Other

Source: Climate Bonds Initiative, 2021

Benchmark bonds dominate the green theme

2016

2018

Median*Source: Climate Bonds Initiative, 2021

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative

whereas 6% more was issued in EUR.
While issuers from 28 countries priced EURdenominated green bonds, as the reserve
currency of the world USD attracted thelargest number of international issuers,
reaching 36 countries (including 20 that wereclassified as EM). Among CNY-denominatedgreen bonds, 28 out of the 30 issuers weredomestic, plus one each from Hong Kong andSouth Korea.
The top eight currencies maintained the 94%
share of the market seen in 2019, with the onlychange in composition being SGD replacing AUD.
SGD increased its presence by 46% to USD3.3bn,
while AUD declined from USD5.4bn to USD3bn.
The SGD market was exclusively domestic, withgreen bonds from two issuers, and green loans
from a further nine.

Deal size
The USD23bn of additional issuance in 2020
exactly matched the increase in bonds falling into
the USD500m-1bn bucket. This is unsurprisingconsidering public sector issuer types, including
sovereigns, exhibited the most growth and tend
to issue deals of larger size. Benchmark-sized
deals (USD500m+) help to attract more investors
to the green bond market. Such deals are eligible
for inclusion in broad market indices, andtherefore attract non-specialised investors as wellas those with dedicated mandates. The largest
individual green deal of 2020 was the EUR6.5bn(USD7.6bn) German Bund, priced in September.
Overall, average and median deal sizes havecontinued to decline. Green ABS and loans arecharacterised by small deal sizes, and these haverespectively increased in number from 127 andone in 2016, to 525 and 51 in 2020. However,while the number of ABS deals has more thanquadrupled, the contribution to the total market
size has dropped from 10% in 2016 to 7% in 2020,
both due to a small total market in 2016 and adecreasing average (ABS) deal size.
8TenorMost new green bonds have tenor of <10-years

More than 62% of the 2020 green bond volume
had a maturity of up to 10 years, with almost
40% having a 5-10-year maturity, which was thelargest individual bracket. Among the 5-10-yearbonds, half of the amount originated fromfinancial and non-financial corporates.

120

As expected, the longer-dated (10-year+) paper
mostly originated from the public sector. Key
issuers included government-backed entities,
sovereigns, and utilities categorised as nonfinancial corporates.

80

Broadly speaking, the distribution remained
similar year-on-year, the only notable change
being the 5% decrease in the 0-5-year bracket
and 3% increases in each of the 10-20- and 5-10year intervals, both of which are explained by the
inclusion of more sovereign bonds.

40

Use of Proceeds (UoP)
Together, Energy, Buildings, and Transport
were respectively the three largest UoP
categories, contributing 85% to the total in 2020.
Energy and Transport, along with Land Use,
were the only categories to expand in 2020.
Sovereigns and government-backed entities
supported 26% year-on-year growth inTransport, with each contributing USD34bn.
Eight of the nine sovereigns issuing or increasing
their green bonds included an allocation toTransport in their use of proceeds (only Lithuania
did not). As noted, large, long-term infrastructure
projects – such as transport investments – areleast likely to be impacted by the ramifications ofa global pandemic, particularly in the short term
and in a prevailing low-rate environment. Almost
half of the Transport allocations of governmentbacked entities originated from France(USD14.8bn). China was the second largest
source (USD3.8bn), with eleven separate metro
projects raising cash in the green bond market.
Investments directed towards Renewable
Energy exhibited 19% growth compared to 2019.
Almost half of that (46%) came from financial
and non-financial corporates, including energy
companies, and others such as Telecom provider
Verizon that issued its second green bond in
September, a USD1bn 10-year.

Asia-PacificNorth America

AfricaLatin America
Europe60

USD Billions

The bond with the longest tenor was a EUR50m(USD55m) 2120 maturity from French rail
company SNCF.

100

Supranational

20

0
Up to 5Y

5-10Y

10-20Y>20Y

Energy, Buildings and Transport dominate UoP

Perpetual

N/A

Source: Climate Bonds Initiative, 2021

100%

75%

50%

25%

0%
2014

2015

2016

2017

2018

2019

EnergyBuildings

Transport

Water

Land use

Industry

ICT

Unspecified A&R

2020

Waste
Source: Climate Bonds Initiative, 2021

The Buildings category remained static ataround USD76bn. Private sector confidence tobegin new construction projects – as well as theuncertainty surrounding the occupancy rates
of existing real estate – will naturally have been
impacted by the COVID-19 pandemic. Further,bank lending will have tightened considerably for
all types of private sector loans, and a large partof this category comes from financial corporates.

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative

Land use experienced 59% growth in 2020,
but it remains one of the smaller categories,
contributing 5% overall. 51% of its total camefrom sovereigns, with six out of nine including
Land use expenditures in their frameworks.
Climate Bonds will be publishing an Agricultureand Land Use State of the Market report later in
2021, which will explore this underfunded yet
net-zero crucial category of activities.

9

Green bonds with external reviews accounted
for 89% of qualifying instruments in 2020,
compared to 82% in 2019. Climate Bonds actively
encourages greater market transparency throughdisclosure and celebrates this development.
Investors are increasingly seeking independent
proof of the legitimacy of green bonds –suggesting a greater awareness of the risks ofgreenwashing – while issuers are keen to avoid
liabilities associated with ‘getting it wrong’.
The volume of Certified Climate Bonds grewby 14% in 2020. The Certified amount reached
USD150bn in October 2020, translating into 15%of the green bond market, a milestone for the
integrity of the market. Large, high-profile issuers
including sovereigns, The Netherlands, Thailand(green allocation), and Chile, and governmentbacked entities like Société du Grand Paris, China
Construction Bank, and SNCF all printed Certified
Climate Bonds in 2020.

SPO and Certification continue growth in 2020
200
2018

2019

2020

160

120

Number of green bonds

External reviews

80

40

0
None

SPO

Certification

Assurance

Green Rating

Source: Climate Bonds Initiative, 2021

Second Party Opinions (SPO) are the mostpopular type of external review, and volumes
increased by 17% year-on-year. Interestingly, thenumber of bonds in that category declined by
2% over the period, which suggests that SPOs arebeing sought for larger individual bonds. Indeed,
there was a 32% decline in the number of ABS
issuers obtaining an SPO and, as noted above,
this issuer type is composed of many small deals.
The issuer types contributing the most to thegrowth in SPO volumes are government-backed
entities (85% year-on-year); sovereigns (75%);
and non-financial corporates (20%).
Some issuers sought external reviews frommultiple sources; including a number of CCB
issuers and issuers from Japan as commented on
in our recent Japan State of the Market report.9
Hence the sum of external review volumes isgreater than the total amount of green bonds
issued in 2020.

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative10

Sustainability
Supranationals lead on sustainability bond volumes 2020

Sustainability bondissuance increased
dramatically in 2020,
having almost reached2019 levels in the firsthalf of the year.

Regions
In 2020, sustainability bond issuance increased by
131% compared to 2019. Overall, SNAT accounted
for 63% of the volume, DM for 32%, and EM for 5%.
This translates into growth for both SNAT and DM
compared to 2019, while EM volume dropped by
9% compared to the previous year.
Most of the 260% growth from SNAT issuers
originated from development banks, especiallymultilateral (MDBs). The main driver was theWorld Bank, but other players such as the AsianInfrastructure Investment Bank (AIIB) debuted
sustainability bonds in 2020, issuing a total of
USD7bn from five deals. With its pledge to end
all coal-related financing and partnering withasset manager Amundi to create a dedicatedClimate Change Investment Framework (CIIF),
AIIB has developed a clear plan to transition

Asia-PacificNorth America

AfricaUSD Billions

80

Europe

40

0
2014

2015

2016

2017

2018

2019

2020

Source: Climate Bonds Initiative, 2021

Sustainability bond market domiciles in 2020
20

Amount issued

Issuer count

12

15

9

10

6

5

3

0

0

away from fossil fuel-related financing. The
Framework aims at facilitating the assessmentof an issuer’s level of alignment with climatechange mitigation, adaptation, and low-carbon
transition objectives.
11

Europe enjoyed solid growth of 43% (USD31.6bn
versus USD22.2bn in 2019), making up 20% of total
2020 issuance and ranking second after SNAT. Almost
half of the volume came from local governments
domiciled in Belgium, France, Germany, and Spain.
North America was among the regions showing
the most impressive development. Issuancegrew by 164% year-on-year from USD3.9bn to
USD10.4bn mainly due to several benchmarksized deals from non-financial corporates issued in
the second half of the year (see ‘Countries’ below).
Issuance from Asia-Pacific remained unchanged
for the year, amounting to USD12.8bn andmaking up 8% of overall issuance in 2020.
LAC was the only region without record yearly
issuance. Its USD888m volume only made up 1%
of total 2020 figures and came from a single deal;
however, this was a sovereign SDG-labelled bondfrom Mexico, therefore marking a crucial step indeveloping the GSS bond market at both country
and regional level.

Sustainable Debt Global State of the Market 2020 Climate Bonds InitiativeTh UK
Lu aila
xe
n
m d
bo
ur
g
Ch
Au ina
st
ra
li
M a
ex
ic
o
Ot
he
r

USD Billions

15

Supranational issuance is USD104.1bn

Number of issuers

25

at
io

• The sustainability space is evolving rapidly,
which is reflected not just in the diverse
set of themes but also the trend towards
performance-linked instruments. Responding
to these developments, ICMA publishedSustainability-Linked Bond Principles (SLBP)
in 2020 aiming to provide a market frameworkwith recommended structuring features,
disclosure, and reporting. Such instruments
remain outside the remit of this report, but
their development is discussed on page 17.

Supranational

Latin America

pran• The development of the sustainability theme wasmarked by the publication of the Sustainability
Bond Guidelines (SBG) by ICMA in June 2018. The
SBG extend good practice recommendations
around transparency and market integrity,
combining the green project categories of theGreen Bond Principles (GBP) and the social
categories of the Social Bond Principles (SBP).

120

Su

• Under the overallsustainability theme, multiple labels haveemerged which finance green and/or social
projects, assets, or expenditures (see Appendix
A). Naturally, sustainability-related labels offer
a greater degree of flexibility to issuers as such
instruments can include a more diverse setof eligible investment categories. This allows
entities to issue products with different labels
under a single sustainability bond framework.
For example, CaixaBank designed a Sustainable
Development Goals Framework with theintention to issue bonds under all three thematic
labels: green, social, and/or sustainability.10

160

na
l
Ne
US
th
er A
la
nd
Fr s
an
Ge ce
rm
an
y
Ja
pa
n
Sp
a
Be in
So lgi
ut um
h
Ko
re
a

Introduction

Source: Climate Bonds Initiative, 2021

Countries
After SNAT issuers, which constituted thelargest share of 2020 issuance, the USA
placed second in the country ranking
with USD9.9bn. Pfizer issued a USD1.3bn
sustainability bond but the largest volume
came from debut issuer Alphabet. Its USD5.8bn
three tranche deal contributed 55% of the
USA’s volume and will finance projects thatfall under the nine eligible categories ranging
from energy efficiency and circular economy& design to affordable housing and acommitment to racial equity and support
for small businesses.12
The Netherlands and France took the third andfourth spots, with similar volumes (USD7.8bn
and USD7.5bn respectively). Germany had
four deals (USD4.5bn), of which three were
benchmark-sized. One of them was market
newcomer adidas AG, issuing its maiden
sustainability bond, with a seven-year maturity,
in October. The deal funds sustainable materials
and processes, such as purchases of recycled
and sustainably sourced materials, the latterof which is also intended to positively impact
underrepresented communities.

11

In total there were deals from 23 countries in
2020. The ‘Other’ category includes bonds
originating from the Philippines, Turkey, andIceland, all of which are less frequent visitors
to the labelled bond space. Newcomers to thesustainability country list were Iceland (onebond from Islandbanki HF), and Luxembourg(inaugural sovereign bond, and a second bondfrom Micro Small & Medium Enterprise Bonds).

Development banks generate 68%
of sustainability bond issuance
Local Government 6%
Non-Financial
Corporate 8%
Sovereign 3%

Development
Bank
68%
Financial Corporate 8%
Government-Backed Entity 6%
Source: Climate Bonds Initiative, 2021

Issuer types
As previously mentioned, most sustainability
bonds came from MDBs. Development banks
thus comprised 68% of overall issuance, or
USD108bn. In recent years, the World Bank
(through its financing arm IBRD) has consistently
been the biggest player and issued a total of
USD81bn in 2020. The volume of ‘World Bank
Sustainable Development Bonds’ tripledcompared to 2019. The five themes of its
lending activities are climate change; gender;
jobs; public-private partnerships; and fragility,

market. Having jumped from USD2.6bn in 2018
to USD11.2bn in 2019, it increased another 14%
to USD12.8bn in 2020.

conflict and violence, which sit under several
different sustainable development projects andprogrammes in the IBRD’s member countries. In
addition to being large issuers in the sustainablefinance space, development banks also provide
technical assistance to other issuers, and thisis part of the World Bank’s efforts to promoteand finance sustainable development. This isparticularly pertinent in EM where, for example,
the World Bank supports sovereign issuers
throughout the process of issuing GSS bonds.
The Republic of Korea issued the first sovereign
sustainability bond in 2019. Three more countries
followed suit in 2020: Thailand (THB85bn/
USD2.7bn), Luxembourg (EUR1.5bn/USD1.8bn)
and Mexico (EUR750m/USD900m), contributing
3% of the total. In addition to financing andrefinancing GSS expenditures, such bonds do
not serve solely the purpose of raising funds.
The Climate Bonds Sovereign Green, Socialand Sustainability Bond Survey found that such
instruments have amongst other things theability to catalyse or enhance local markets,
therefore amplifying their impact beyond the useof proceeds. One example is the Belgian regionof Flanders, which issued a sustainability bondhaving been encouraged by Belgium’s green
Sovereign (see page 15).
The lion’s share of local government
sustainability bond issuance came from four
countries in 2020:

Burberry Group was the first luxury fashioncompany to issue a sustainability-labelledbond in September. The use of proceeds
included costs of responsibly sourced cotton or
products containing cotton as a main material,
expenditures related to the procurement ofsustainable and recycled packaging materials,
and green buildings.

Currency
96% of the issuance volume wasdenominated in hard currency. The share ofother currencies remains small and includes awide range, such as THB and SEK, which werethe leading soft currencies.
Most sustainability bonds in 2020 were issued
in USD. IBRD issued a total of USD84bn in avariety of currencies, most prominently USD49bn
worth of USD-denominated debt. It was activein multiple other currencies, ranging fromUYU (Uruguayan Peso, USD373m) and EUR(USD14bn), with the latter ranking second in theoverall currency list.

• Spain: Autonomous Community of Madrid(EUR1.6bn/USD1.7bn); Basque Government(EUR1.1bn/USD1.3bn); Comunidad Foral deNavarra (EUR75m/USD81m); Xunta de Galicia(EUR500m/USD587m)• Belgium: Flemish Community (EUR1.25bn/
USD1.4bn); Region Wallonne (EUR1.5bn/
USD1.7bn)

Besides European countries, issuers from otherdomiciles also raised funds in EUR, such as
Mexico with its sovereign for an equivalent of
USD820m (EUR700m).

• Germany: State of North Rhine-Westphalia
Germany (EUR2.4bn/USD2.8bn)• France: Region of Ile de France (EUR800m/
USD899m); Ville de Paris (EUR300m/USD355m)
In the private sector, issuers are increasingly
recognising the value of the sustainability label.
Issuance volume from financial corporates has
been steadily growing since the inception of the

The largest deal came from the French bank
Société Générale with a EUR1bn (USD1.1bn)
10-year bond. Similarly, the non-financial
corporate group is growing and constantly
adding new issuers. This ranges from so-called
pure plays, which derive most of their revenues
from green business activities (such as rail
company Deutsche Bahn), to sectors which areless frequently seen in the space, such as luxury
fashion house Burberry Group.

Sustainability bonds have been issued in
33 different currencies so far and the market
is getting more diverse every year. In 2020 thefirst sustainability themed bond in Armenian
dram (AMD) was issued by Micro Small &Medium Enterprises Bonds, a financial corporate
domiciled in Luxembourg which raised theequivalent of USD10.7m.

Over half of 2020 sustainability deals are in USD

Other
NZL
THB
AUD
CAD
JPY

USD

0

20%

EUR

40%

60%

GBP

80%

100%
Source: Climate Bonds Initiative, 2021

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative

12

The bucket encompassing the smallest bonds(up to USD100m) comprised the largest numberof bonds (125) but just 2% of the issuancevolume. A large part of this consists of deals by
US Municipalities.

120

120
Amount issued

100

Issuer count

100

80

80

60

60

40

40

20

20

0

0
Up to 100m

100-500m

500m-1bn

Number of issuers

In total, 85 deals worth USD144bn – making up
90% of overall 2020 issuance – were benchmarksized (USD500m or above). Fifty-five of thosewere larger than USD1bn and represented a totalof USD125bn. This included the sovereign bonds
from Thailand and Luxembourg priced in thesecond half of the year. However, most of thisbracket originated from SNAT, which made up
74% of the >USD1bn bucket. Only a small fractionof the deals with such size came from EM – intotal a volume of USD6bn –making up 73% of theoverall EM issuance volume.

2020 sees growth in >USD1bn-sized sustainability bonds

USD Billions

Deal size

1bn or more
Source: Climate Bonds Initiative, 2021

Tenor
Over 80% of the bonds issued in 2020 had an
original maturity of up to 10 years. The 0-5year bracket was the largest, with 43% of theissuance volume.
The longest dated bond came from the World
Bank, with a 50-year maturity. Overall, 18% of
the volume had a maturity of over 10 years.
Among the 18 bonds with a tenor of more than
20 years, just two were from the private sector:
a 2050 USD2.5bn tranche from Alphabet, anda 2060 USD290m bond from Tokyu Fudosan
Holdings Corp.

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative13

SocialPandemic bonds from China helped Asia-Pac achieve solid growth
250
200

Supranational

Asia-Pacific• After the inception of
the social bond market
in 2006, this theme
experienced immense
expansion in 2020, reaching USD249bn inissuance. This represents a ten-fold increase on
the prior year and three quarters of the entire
volume falling under the social theme.

150

North America

Africa100

Latin America

EuropeIssuance skyrocketed in nearly all regions in
2020. Overall, with the pandemic label as a
sub-label of social bonds, all regions saw anincrease in issuance apart from Africa. AsiaPacific’s spike can be mainly traced back topandemic bonds from China, which comprised
77% of the region’s issuance.
The opposite was true for Europe, where only 13% of
the region’s volume came from pandemic-labelledbonds. Similarly, for SNAT the pandemic label only
contributed 8% of issuance, demonstrating that thedriver for this market continues to be Asia, specifically
China with USD68bn of issuance. SNAT took second
place behind Asia in the region ranking, with 31%
which is mainly rooted – like the sustainability
universe – in development bank issuance, as wellas the EU SURE bonds which are classified as social
bonds. LAC and North America followed with 2%
and 3% of total issuance volume, respectively.

Countries
As discussed above, SNAT and China madethe largest contributions to the 2020 issuancevolume. France ranked third, with USD52.5bn
coming from only ten issuers, two of which
contributed USD46.2bn: Unédic Asseo (EUR21bn/
USD23.8bn), with six deals of which one was apandemic bond, and Caisse d’Amortissement dela Dette Sociale (EUR20bn/USD22.4bn), with five.
Japan was the fourth largest source of social
bonds with a total of USD8.8bn. Issuance was morediverse, coming from 16 issuers, but the deals
were relatively smaller. Just five were benchmark-

2015

2016

2017

2018

2019

2020

Source: Climate Bonds Initiative, 2021

China was responsible for >80% of individual social bonds
80

Amount issued

20

Issuer count

China has 446 issuers
60

15

40

10

20

5

0

0

Number of issuers

Regions0
2014

USD Billions• Pandemic bonds contributed substantiallyto the growth and accounted for 34% of 2020social bond issuance. Climate Bonds’ definitionof a pandemic bond is a UoP instrument
financing COVID-19 response measures undera label specifically related to this.

50

Su
pr
an
at
io
na
l
Ch
in
a
Fr
an
ce
So Jap
an
ut
h
Ko
re
a
US
A
Sp
ai
n
Ita
Ge ly
rm
an
y
Gu Chiat le
Sa em
ud alai
Ne Arath biaerlands• The dramatic growth can be largely attributed
to the effects of the COVID-19 pandemic
and the increasing desire of bond issuers toaddress health and other social concerns in amore strategic way.

USD Billions• The social theme
constitutes 18% of total
GSS volumes.

U
Be K
lg
iu
m
Ot
he
r

Introduction

Source: Climate Bonds Initiative, 2021

sized, and of these four (two each) came from theDevelopment Bank of Japan and Mitsubishi UFJ
Financial Group. The bonds of the latter financed
multiple categories within the healthcare
segment as well as other social categories.
The ‘Other’ category included the following
countries as newcomers, each with one deal:
Bermuda: MetroCat Re (USD100m)
Finland: Kuntarahoitus Oyj (EUR600m/USD709m)

Government-backed entities
supported market growth
Non-Financial
Corporate 8%
Sovereign 3%
Development
Bank
13%
Financial
Corporate
8%

Macao: Wynn Macau (USD1bn)
Slovenia: SID Bank (EUR350m/USD397m)
Russia: Russian Railways (RUB25bn/USD342m)

Issuer types
Non-financial corporates saw the mostimpressive increase, from USD2.4bn to
USD50.5bn, which translates into almost
2000% (20x) growth. This is important as it
shows that the private sector is also increasingly
valuing labelled instruments and channelling
funds towards social projects with a directcommitment. In total, non-financials made up
20% of the 2020 issuance volume and mainly
consisted of Chinese issuers bringing pandemic
bonds to the market. The largest deal, however,came from Wynn Macau Ltd (USD1bn).

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative

Government-Backed
Entity 47%
Local Government 1%
Source: Climate Bonds Initiative, 2021

Financial corporates more than quadrupled
their volume, with Citigroup and Bank ofAmerica issuing the largest deals (respectively
USD2.5bn and USD2bn). The former fundedaffordable housing, targeting low- andmoderate-income populations, including
14

Sovereign GSS bonds

3. Amplifying transparency The process
of issuing a sovereign GSS bond typicallyinvolved a budget tagging exercise andcommitments to report on the allocationof proceeds and their impact. These audits
greatly increase transparency for ministries
and in parliament and extend to external
stakeholders such as investors.

persons with disabilities, senior citizens, thoseexperiencing homelessness, and veterans. BoA
allocated funds to the health care industry,
specifically not-for-profit hospitals, skilled
nursing facilities, and manufacturers of healthcare equipment and supplies.
Despite making up a small portion of the volume,
it is worth mentioning that the first sovereignsocial bonds came to the market in 2020.
Notably, all of them are from Latin America.
Ecuador and Guatemala issued two and threedeals respectively in the first half of the year, andChile two deals in the second half.

DM

France30.7

DMGermany

13.6

DM

Netherlands

10.0

DM

Belgium

8.2

DM

Ireland

5.7

DM

Sweden2.3

DMHong Kong

1.0

EM

Chile

6.2

EM

Poland4.3

EMIndonesia

3.1

EM

Hungary

1.9

EM

Egypt

0.8

EM

Lithuania

0.1

EM

Nigeria

0.1

EM

Fiji

0.05

EM

Seychelles

0.02

DM

Luxembourg

1.8

EM

Thailand

2.1

EM

Mexico0.9

EMSouth Korea

0.5

Social

2. Contributing to larger strategic
initiatives In most cases a wider strategic
initiative to achieve NDC targets, address
SDGs, and mitigate climate change and social
inequalities triggered the decision to issue.
These plans included policies designed toaddress emission reduction goals as well as
net zero ambitions.

Country

Sustainability

1. Catalysing or enhancing local markets
For most countries, a motivation for and an
outcome of issuing a sovereign GSS bondwas to support the growth of a local green
bond market. Sovereign issuers serve as rolemodels for other types of issuers. They canprovide investors with safe, liquid investment
opportunities which frees up capital for otherlower rated and less liquid securities.

EM

Chile

2.1

EM

Guatemala1.7

EM

Ecuador

0.7

6. Facilitating cross border collaborationand enhance visibility Many respondents
collaborated with DMO counterparts both
pre and post issuance, in knowledge forums
and bilateral conversations. Even the use ofproceeds bore an element of international
collaboration through funds being used tofinance projects beyond the borders of theissuing country.
7. Delivering benefits that outweighchallenges Issuing a sovereign GSS bondis a large commitment and can present
challenges. For example, some issuers were
not permitted to open additional accounts
to manage proceeds from GSS bonds. The
results of the survey suggest that there aretested solutions for these difficulties andthat most sovereign GSS issuers successfully
overcame hurdles. Challenges and initialcosts were usually compensated for by
the benefits obtained including increased
visibility and reputational benefits. There are
multiple channels of support from variousorganisations such as development banks,
structuring advisors, second party opinion(SPO) providers, and NGO’s such as Climate
Bonds that help to navigate the process fromcreating the specific framework through topost issuance reporting.

Ecuador pioneered the sovereign social bond,with a USD400m debut in January 2020. The
proceeds of the bond were earmarked toprovide mortgages to low- and middle-income
individuals at preferential rates giving homes to
up to 24,000 families. The deal was supported by
a USD300m guarantee from the Inter-American
Development Bank (IDB), enhancing the appeal
for international investors, and reducing theborrowing costs for Ecuador.
Chile brought a two-tranche deal split between 8and 13-year tenors with a cumulative volume of
CLP1.6tn (USD2bn), raising funds for projects that

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative

USD bnas of
31/12/2020

MarketGreen

In January 2021, Climate Bonds publishedthe results of the Sovereign GSS Bond Survey,
which found that Sovereign GSS bonds
had the potential to change markets fromseven angles.13

5. Offering pricing benefits A broader
investor base can facilitate tighter pricing.
If this persists, we expect domestic Debt
Management Offices (DMO) to encourage
governments to identify and develop apipeline of suitable GSS expenditures.

Sovereign GSS
Theme

At the end of 2020, USD97.7bn worth ofSovereign GSS bond had been issued from 22
sources. Green remains the dominant theme,
but sovereign bonds were issued under thesocial theme for the first time in 2020 andfollowing in the footsteps of the Republic ofKorea’s debut in 2019, three more sovereigns
introduced sustainability bonds.

4. Diversifying and increasing the investor
participation In most cases, a sovereign GSS
bond broadened and diversified the investor
base, a key motivation for issuing. Sovereign
GSS bonds also encourage investors to initiate
dedicated GSS investment strategies.

support households, education, essential healthservices as well as programmes to prevent and/or alleviate the effects derived from COVID-19
amongst others. Sovereign issuance plays acrucial role in developing local markets as they
can serve as benchmarks and a blueprint forother organisations (see box above).
Government-backed entities made up 47% of thetotal issuance volume with USD118bn, of which
USD52bn came from the EU SURE bonds (seepage 24). Development banks made up 13% of
the share and local governments 1%.

15

OtherSEK

The public sector including EU SURE, brought large EUR social deals
GBP
CLP
KRW
JPY

EUR

0

CNY

20%

40%

60%

USD

80%

100%
Source: Climate Bonds Initiative, 2021

Currency

Tenor

70% of the social universe was issued in hardcurrencies and 30% in soft currencies. EUR
was top with 46%, its issuance originating from
Europe, Asia-Pacific and SNAT. The EUR was
followed by CNY, which was composed solelyof 631 pandemic bonds from China. The USD
was third with USD48.9bn across five different
regions, including SNAT.

Social bonds tend to be short dated. Tenors of
up to five years comprised just over half (53%)
of the cumulative volume in 2020 translating
into USD132bn overall. Yet again this was due
to pandemic bonds originating from China(USD66bn). As mentioned in the H1 2020
publication, this is likely due to a need to
disburse funding more quickly than for large
infrastructure projects and assets that make up alarge part of the green bond funding sphere.

Up next were JPY (2.8%), KRW, (1.1%), CLP(0.8%), GBP (0.5%), and SEK (0.4%). For the firsttime, social bonds were issued in CHF, MOP(Macanese pataca), NOK, and RUB with one deal
in each currency. Amongst those, the largest was
the first ever social bond from Russia, issued
by Russian Railways (RUB25bn/USD342m) tofinance transportation accessibility, healthcare,education, and disaster relief.

Volumes decrease toward longer-dated
bonds and so the 5-10-year bracket makes
up 24%, and tenors beyond 20-years only 6%.
In the second half of the year Urban
Renaissance Agency and University of Tokyo
National University Corp issued long-datedsocial paper, both from Japan and maturing
in 2060, and raising JPY30bn (USD288m) withtwo deals and JPY20bn (USD190m) with one
deal respectively.

Social bond growth came from a handful of large deals
Amount issued

160

Issuer count

600

120

450

80

300

40

150

0

0

The number of deals rises dramatically towards
the lower size brackets, with the 100-500m range
comprising 260 deals (USD53bn) and 565 with a sizeof up to USD100m (USD21bn). The latter was mainly
driven by Chinese pandemic bonds summing
USD18bn, and similar in the USD100-500m bracket,
with 189 deals and issuance of USD38bn. The
largest bonds (by far) were issued by the EU, its
five deals reaching EUR39.5bn (USD51.7bn) andfinancing eligible assets under the ‘EU SURE Social
Bond Framework’, such as short time work schemesor similar measures designed by Member States
to protect affected employees, including selfemployed people (see page 24).

Up to 100m

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative

100-500m

500m-1bn

Number of issuers

Similar to the sustainability bond space, 86 deals
were benchmark-sized (USD500m+). Amongthese, 49 were at least USD1bn and made up a
total volume of USD151bn.

USD Billions

Deal size

1bn or more
Source: Climate Bonds Initiative, 2021

16

Spotlight: The development of transition instruments
Transition finance: a more
inclusive shift to green?
The speed at which
the sustainable financelandscape is currently
evolving warrants
repeated emphasis. An
important dimensionof this evolution isthe discussion and debate around so-called
transition finance. Although the green bondmarket continues to grow fast and offers anatural solution for issuers that can alreadyidentify suitable assets, projects, and activities
eligible for labelling per current green definitions,the universe remains small.14 In response toconcerns that the scope of “traditional” green
issuers and sectors is too narrow, the distinct
concept of transition bonds and wider transition
finance aims to facilitate the inclusion into thisarena of entities typically engaged in emissionsintensive activities which are looking todrastically reduce their carbon emissions throughchanging business models or the use of newtechnologies.
Large emitters are generally familiar with andregularly utilise bonds to meet their fundingneeds, but the adoption of thematically labelledbonds – green or otherwise – remains limited.
Transition bonds offer a pathway to making thesustainable finance space more inclusive, withthe double dividend of adding much-demanded
diversity around industry sectors and risk
profiles to suit a broader spectrum of investor
mandates and contributing to market liquidity.15
The point around inclusivity is a key facet of theconversation: in the end, if the collective goalof a Paris-aligned net-zero global economy is
to be met, all sectors must be engaged in theeffort. Prominent examples of the tricky-yetnecessary industries include extractives likemining; materials such as steel and cement;
and industrials, including land and water-basedtransportation (automotive and shipping).

The credible transition journey
By the end of 2020, 11 bonds had been issued
with the transition label, including earlyexamples from the likes of EBRD and energy
company SNAM, as well as a recent deal from the
Bank of China.16 This segment is poised for rapid
growth over the coming years as stakeholder andregulatory pressure mounts for companies andgovernments at various levels to transition awayfrom assets and activities at risk of becoming
stranded.
The market response has been mixed andthere is debate around the transition bonds
issued thus far. The primary concerns are aroundthe relevance, reliability, and availability oftransition pathways – and thus the appropriate
uses of transition bond proceeds – for specificsectors. Being able to demonstrate requisite
ambition in terms of pathways and the choiceof the most advanced and suitable technologies(not necessarily synonymous with mostcommercially viable) will be key for issuers
seeking to establish credibility for their transition
strategies and related finance.
To address concerns requires ambition – thisis a focal point addressed in recent thinking andpublications that aim to provide guidelines andstandards for this nascent segment. Climate
Bonds’ Financing Credible Transitions (FCT)Whitepaper took on this momentous challenge in
September 2020.17
The approach laid out in the paper is flexible as
it allows for transition of whole entities as well as
individual activities.

For activities, it distinguishes between a rangeof activities that will need to transition, startingfrom those that are already near-zero and canbenefit from marginal improvements. Other
activities, including steel and cement production,
are likely to be needed for essential green
infrastructure beyond 2050 and have a clear
pathway to zero that investment can facilitate.
Interim activities cover those that can later bephased out and replaced with other alternatives.
The final category includes activities consideredessential to modern economies, such as aviation,
but do not yet have a clear, viable net-zero
pathway, and that further work must be done todefine this. The approach recognises that certain
activities are at high risk of becoming stranded
and must be phased out with urgency. Fossil
fuel power generation is the pertinent example
here, and though there will be some measuresthat could contribute to short-term reduction inemissions (e.g., improving the energy efficiency
of a power generator on an oil-producing facility),
the five transition principles are vital toensure that the transition bond market does
not contribute to locking in these activities.
A complementary publication from ICMA – theClimate Transition Finance Handbook –was published in December 2020, laying out
proposed process guidelines for this segment,
not dissimilar from those of the more establishedgreen, social and sustainability bond markets.
Although the consensus-building process has
begun, investors will need to place the transition
finance segments under continual scrutiny toensure no “transition-washing” occurs.

5 principles for an ambitious transition
1. In line with 1.5 degree
trajectory. All goals
and pathways need toalign with zero carbon by
2050 and nearly halving
emissions by 2030.
2. Established by science.
All goals and pathways
must be led by scientificexperts and be harmonised
across countries.
3. Offsets don’t count.
Credible transition goals
and pathways don’t
count offsets, but shouldcount upstream Scope 3
emissions.

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative

4. Technological viability
trumps economic
competitiveness. Pathways must
include an assessment of current
and expected technologies.
Where a viable technology exists,even if relatively expensive, it
should be used to determine thedecarbonisation pathway for that
economic activity.
5. Action not pledges.
A credible transition is backed
by operating metrics rather thana commitment/pledge to follow atransition pathway at some point in
the future. In other words, this is NOT
a transition to a transition.

17

Entities and the performancelinked model
A further recent
development insustainable finance ispushing the borders
beyond the establisheduse-of-proceeds
model: the emergenceof performance- or
KPI-linked debt instruments, also known
as Sustainability-Linked Bonds (SLBs) andSustainability-Linked Loans (SLLs). As opposed
to financing a specified pool of assets andprojects, there is typically no constraint on theuse of proceeds – i.e., finance raised is for general
corporate purposes.18
SLBs and SLLs are ‘target based’ or‘performance based’ where the coupon/interest depends on the borrower’s performanceagainst predetermined sustainability-related
KPIs. Therefore, instead of financing specificassets, they aim to incentivize the issuer/borrower to achieve wider Sustainability
Performance Targets (SPTs) at the issuer level.
A prolific example of this type of instrument is
the General Purpose SDG Linked Bond issued by
Italian energy utility Enel, a seasoned green (useof proceeds) bond issuer, in September 2019. To
avoid a step-up of the bond’s coupon by 25 basis
points, the company committed to increasing its
installed renewable energy generation capacity
to 55% of its total capacity by the end of 2021.
There are some concerns related to SLBs,
in particular that the KPIs set are entity-specificand difficult to benchmark against peers oragainst, for example, wider global goals suchas the Paris Agreement. For SLLs, an additional
concern is that there is currently very limited
transparency in the market so although,on paper, the market has seen impressive
growth, it is difficult to assess the impact andambition of each loan. These concerns are notinsurmountable and with some clear guidance
the market could be a valuable addition to thesustainable finance landscape, especially inenabling entity-level transitions.

SLB/Ls can be a critical tool in financing
entity-level transition pathways. The conceptof transition finance is, importantly, applicableto whole entities as well as individual activities.
While the use-of-proceeds green bond model has
primarily been used to finance individual activities,
SLBs and SLLs could be used to incentivise anentity to pursue an entity-level transition pathway
in line with the Paris Agreement.
To fulfil this potential, it needs to be clear what
constitutes a sufficient level of ambition for
the KPIs to which the cost of funding is (at least
partially) tied.
ICMA’s Sustainability-Linked Bond Guidelines,
the LMA’s Sustainability-Linked Loan Principles
and the above-referenced Climate Bonds FCTWhitepaper have made some headway inunpacking possible routes to good practice, with
iterations and additional work expected over the
coming years to help create robust definitions andcement market conventions for this nascent but
promising segment.

As with transition finance, this will require thedevelopment of appropriate sector- and/or
entity-level pathways to decarbonisation andother sustainability ambitions, such as zerowaste or switching to only recycled inputs into
production processes.
To allow the market to scale up as quickly as
possible and facilitate organisational learningand change, the Climate Bonds Taxonomy (andthe derivative Database Methodology) has, todate, focused on the instrument, not the issuer,
meeting the relevant green definitions. If donewell, SLBs, SLLs and transition bonds can help
broaden this focus from instruments to whole
entities while avoiding controversies and risks
to investors.19

The transition principles referenced above could
have particular relevance for SLLs and SLBs todemonstrate impact, in particular:• Established by science – all goals andpathways, climate or otherwise, must be led
by scientific experts and are not entity - orcountry-specific. They should also be simple
to evaluate rather than using black-box
scoring metrics.
• In line with a 1.5°C global trajectory–
climate-related goals and pathways need toalign with zero carbon by 2050 and nearly
halving emissions by 2030. As above, it needs
to be easy to evaluate entity progress in linewith these goals.
• Action not pledges – a credible transition isbacked by operating metrics that a pathway
is being followed rather than a commitment/
pledge to follow a transition pathway atsome point in the future. KPIs specified in the
SLBs and SLLs are a perfect opportunity todemonstrate these operating metrics publicly.

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative18

Spotlight: Green recovery finance
The need to ‘Build Back Better’

this deal was THB30bn (USD945m) followed by agreen tap of THB20bn (USD705m).21 The bond ispart of a 15-year benchmark bond programme tobe issued over the next two fiscal years in sectors
related to green and sustainable infrastructure.

for example greening policy by incorporating
subsidies for green activities and removing
subsidies for brown activities.

The COVID-19 outbreak had and still has a visible
impact on most economies. The disruption
has driven companies and governments into
crisis mode. While tackling the pandemic andits economic impact, calls to ‘build back better’and forge paths for a ‘green recovery’ combinedwith future growth remain high on the global
agenda. Governments and regulators mustensure that there is a green and sustainable slant
to policy and budgetary response measures tobring economies back on track. Many countries
have put climate and sustainability at the coreof economic planning and government policy,
and multiple countries have committed to being
carbon neutral by 2050 – or earlier. The emerging
signs of government action are welcome afteralmost a year of crisis and concrete measures tosupport a green recovery from the pandemic arestarting to materialise. However, looking at thegreen ratio of the recovery spending it is obviousthat many countries’ share of green spending
remains below 30%.20 Further, it is crucial thatsuch measures are not offset by supporting or
bailing out ‘brown’ industries without green
conditions attached.

There are also multiple ways to raise funds
and to distribute them with the simultaneous
aim of supporting an economic recovery andcontributing to sustainable development.
Examples of funding sources include issuing
sovereign green, social or sustainability (GSS)
bonds that help with such initiatives and ensurethat capital streams flow into expenditures that‘build back better’.

Nigeria’s Economic
Sustainability PlanAs the largest oil and gas
producer in Africa, Nigeria hastaken a different approachto resourcing funding needs.
With a stated objective todecrease reliance on fossil
fuels, the pandemic accelerated the decision tostop fossil fuel subsidies by removing the pricecap that was in place for gasoline and moving
instead to a market-based pricing regime. Thismeasure is expected to save the government atleast USD2bn per year.22 Other measures suchas a commitment to install solar home systems
serving about 25m people (covering up to fivemillion households) currently not connected
to Nigeria’s national grid, are part of the Nigeria
Economic Sustainability Plan released in March
2020. Nigeria is facing severe impacts fromthe COVID-19 pandemic as well as multiple
climate change risks, and this stimulus package
addresses both issues in a strategic manner. The
plan unlocks NGN34tn (USD5.9bn) in funds andincludes investments in clean energy, agriculture,and infrastructure.23

Thailand’s Sustainability bond
In September 2020,
Thailand, issued a sovereign
sustainability bond – thegreen part being Certified
against the Climate Bonds
Standard. The proceeds haveboth green and social components, financing
green infrastructure through the Mass Rapid
Transit Orange Line (East) Project, as well associal impact projects to assist with the COVID-19
recovery. These include access to essential
healthcare as well as supporting small- andmedium-sized enterprise loans. For the latter, thetarget population are employees or freelancers
affected because of the spread of infectious
diseases such as COVID-19, as well as farmers
registered with the Ministry of Agriculture andCooperatives. The inaugural original amount of

Nevertheless, there are several examples ofgovernments building green elements into theirrecovery. This has emerged as the way forward
for multiple countries and an increasing numberof commitments and actions can be observed.
Such plans can have different green elements,

Green recovery spending by country
Recovery spending (USD) 100bn

200bn

300bn

419bn

Green Recovery Spending as % of Total Recovery Spending
Greener

100%
TurkeyEmerging Developing Economies
Advanced Economies

80%
CanadaNorway60%

40%

Denmark
Finland

Switzerland

BrazilGermany
PolandIreland20%

United States Austria

0%

RussiaColumbia

0%IsraelFranceSwedenChile

UAE ThailandSaudi Arabia

0.1%

Bubble size represents
total recovery spending
in USD billions.

India
MexicoNigeria1%

Japan
Australia

Philippines
10%

100%

Recovery spending as % of GDP [LOG SCALE]
More spending
Source: Smith School of Enterprise and the Environment

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative19

Fiji’s stimulus checklist andReserve Bank support
In Fiji, as in multiple othercountries, the central bank– here the Reserve Bank ofFiji - has introduced initiatives
to assist exporters, largescale commercial agricultural
farming, and renewable energy businesses toobtain credit at concessional rates under the‘Import Substitution and Export Finance Facility’.
The Import Substitution arm of the mechanism
promotes and allows competitiveness indomestic commercial agricultural production andagricultural produce as well as to renewable andenergy efficiency businesses. Qualifying entities
include new and existing businesses involvedin the production of import substitutes such as
fruit and vegetables, industries or businesses that
promote renewable energy sources, and initiatives
that have a direct reduction on imports of nonrenewable fuels, such as public transportation.
The concessional rates are available throughapproved lenders which are licensed commercial
banks and credit institutions, as well as the Fiji
Development Bank24

Sweden’s budget statement
Sweden embedded its
commitments to ‘A powerful
and green economic restart’and ‘Investment in sustainablegrowth and climate transition’into its 2021 budget statement.
These objectives will be reached by measures
such as credit guarantees for large-scaleindustrial investments that contribute toachieving environmental and climate goals,
reduce emissions and enable Sweden toremain a leader in innovative industries. Further
investments in energy efficiency measures in thebuildings space as well as charging infrastructure
for electric heavy goods vehicles are planned.
Sweden also foresees a tax reduction on green
technology as well as extended resources forclimate and environmental research.25 Further,
the Government has imposed strict climate andenvironmental requirements on Scandinavian
Airlines tied to its recapitalisation. Because of
these, the company is now sharpening its climate
targets and aims to decrease its carbon dioxide
emissions by 25% by 2025, five years earlier thanpreviously planned.26
The Government’s goal is for Sweden to be
the world’s first fossil-free welfare nation, also
reflected in its inaugural September 2020
sovereign green bond which finances a broad
range of green expenditures.

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative20

Spotlight: EU GSS market leadership
The EU is a global leader
in the fight against climatechange with the ambition
to be the first climate
neutral economic unionby 2050. Further, the EU
is committed to the UN
2030 agenda for sustainable development withthe stated intention to embed the Sustainable
Development Goals (SDGs) into all policies andencourage all member states to do the same.27

Snapshot of green, sustainable and social debt issued
by EU 27 domiciled entities

The climate agenda is more prominent in Europe– and especially the EU – than any other region.
The EU has been a pioneer in implementing
policies, regulations, and targets to support thetransition to a carbon neutral, climate-resilient
economy. These include efforts to develop theGreen, Social and Sustainability (GSS) bondmarket as an efficient funding vehicle for the
public and private sector to accommodate therequired borrowing for the transition.
European leadership in the form of institutional
and policy support is contributing to the growthof the GSS bond market from four angles28:
1. Climate and economic policy –The firstclimate action initiatives under the European
Green Deal (EGD) include• European Climate Law – to enshrine the2050 climate neutrality objective into EU law.
Expected June 2021.
• European Climate Pact - to engage citizens
and all parts of society in climate action.
Underway.
• 2030 Climate Target Plan – to further reduce
net GHG emissions by at least 55% by 2030. By
June 2021, the European Commission (EC) aims
to have reviewed and revised all relevant policy
instruments required to achieve the statedemission reduction target.
• New EU Strategy on Climate Adaptation
to make Europe a climate-resilient society by
2050, fully adapted to the unavoidable impactsof climate change. Adopted February 2021.

Total GSS

Green

Sustainability

SocialAmount issued (bn)

598.7

429.6

69.6

99.5

Amount outstanding (bn)

589.9

422.4

69.5

98

Bonds issued

1458

1252

104

102

Bonds outstanding

1347

1148

100

99

Number of countries

20

20

9

12

Currencies

25

22

6

6

Number of issuers

405

329

53

45

Figures do not include SNAT bonds

2. Adaptation and resilience, including
pandemic recovery – EU spending on the
COVID-19 recovery has been explicitly linked to
expenditure on green and social objectives. This
will be funded through the GSS bond market.
3. Regulation and standardisation –standardisation of frameworks, taxonomies,
data and disclosure will have multiple impacts.
For example, the EU Taxonomy can be used asa reference tool for allocating budget to climate
friendly activities as well as increasing theaccessibility and transparency of the GSS bondmarket for both issuers and investors.
4. The European Central Bank (ECB) – the
ECB has supported the growth of the GSS
bond market by including such bonds in
its quantitative easing buying programme,
and its operational expenditure is linked tosustainability. The ECB Banking Supervision
department has also requested that banks
conduct a climate risk self-assessment and draw
up climate action plans for assessment in 2021.
Bank-level climate stress testing will commencein 2022.

In other words, a climate-resilient,sustainable growth plan is the new paradigm
for the EU. Portions of the EU budget have been
earmarked to contribute to the EU’s climate
goals. Some of this will be funded directly
through the GSS bond market. Further budget
will be leveraged to encourage crowding in ofprivate investment, a large portion of which will
also be funded through the GSS bond market.

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative

21

The current shape and size of
the EU GSS bond market

Green, social and sustainability debt has been issued from entities
in 20 out of 27 EU member states

Percentage of green, social andsustainability debt

Country
France

124.3

13.8

Entities from the 27 EU Member States have a
total of USD21tn of bonds outstanding.29 As ofthe end of 2020, USD590bn of that amount had
been issued under GSS themes.30 Green remains
the dominant theme, and reflecting the growth
globally, the social theme expanded rapidly in2020. Nevertheless, at under 3% of outstanding
debt, there is huge potential for the GSS space
to grow.

Germany

93.3

Netherlands

Green

Sustainability

SocialTotal GSS

Sovereign

58.9

197.0

Green

20.9

4.6

118.8

Green

54.4

13.5

17.4

85.4

Green

Spain

35.7

10.2

9.8

55.6

Intended

Sweden

43.0

0.3

1.0

44.2

Green

Italy

18.8

2.4

4.6

25.8

Issued 2021*

Belgium

10.5

6.2

1.2

17.8

Green

Overview of countries

Denmark

11.3

11.3

Intended

Entities from 20 out of 27 member states haveissued GSS bonds, with France, Germany, and theNetherlands filling the top three spots.31

Finland6.8

7.5

Ireland

7.6

Portugal

5.5

Austria

4.3

Poland4.6

Luxembourg

4.6

Hungary

Issuer Types
Overall, 60% of the GSS debt from the EU 27
member states originates from the public sector.
The top three issuer types are government
backed entities, non-financial corporates,
and financial corporates. The non-financial
corporates are dominated by utilities, the mostprolific of which are repeat green bond issuers
Engie (USD14.3bn), Iberdrola (USD13.2bn), andEnergias de Portugal (USD5bn).
Ten member states have issued sovereign GSS
bonds, showing leadership in assisting GSS
market creation. 32 In addition, Italy issued its
debut green bond in March 2021, and Denmarkand Spain have indicated a commitment to issue
sovereign GSS bonds.

EUR Benchmark bonds
EUR denominated bonds (including SNAT)
contribute USD694.5bn (40%) to the GSS debt
market. Of that volume, USD635bn (91%)
comprises benchmark-sized bonds, the mostof any currency. Broadly speaking, larger bonds
attract capital flows because they can offer
improved liquidity in the secondary market andqualify for inclusion in broad market benchmark
indices.

0.7

0.5

7.6

Green

0.6

6.1

Intended

0.4

5.2
4.6

Green

6.4

Sustainability

2.2

2.2

Green

Greece1.5

1.5

Slovenia

0.1

Lithuania

0.8

0.8

Latvia0.1

0.1

Estonia

0.1

0.1

Totals

429.6

1.8

0.5

0.4

69.6

Green

598.7

99.5

*Italy issued its first green bond in March 2021, not included in figures.

GSS issuance from the EU 27 is led by the public sector
Sovereign

Green

Non-Financial Corporate

Sustainability

Local Government

SocialLoan
Government- Backed Entity
Financial Corporate
Development BankABS
SNAT bonds not included in figures

020
40
USD Billions

60

80

100

120

140

160

180

Source: Climate Bonds Initiative, 2021

Most EUR GSS debt is bonds >USD500m
>500m

100%

<500m

75%
50%
25%
0%
EUR

USD

CNY

GBP

CAD

AUD

SEK

JPY

SDG

NZD

THB Other

Source: Climate Bonds Initiative, 2021

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative

22

Alignment of climate andeconomic policy
On 19th December 2019, Ursula von der Leyen,
President of the EC, presented the EGD andannounced the ambition for Europe to become
the first climate-neutral continent in the world
by 2050. The European Climate Law which
will manifest this commitment, is expected
to become legally binding by June 2021. The
EGD aims to achieve economic growth throughthe development of green technology, andincreasing sustainable industry and transport,
while cutting GHG emissions and preserving theenvironment.
In her September 2020 State of the Union
address, President von der Leyen announced
an increase in the Nationally Determined
Contribution (NDC) targets from 40% up to atleast 55% (of net reduction in GHG emissions
below 1990 levels) by 2030.
Under the Climate Target Plan, the Commission isin the process of preparing legislative proposals
on how this target can be achieved. A review ofpolicy instruments that will contribute to this is
expected to be completed in June 2021.
Overall EU spending for 2020-2027 is expected to
be EUR2.4tn (USD2.9tn). This comprises:
1. The EU budget, regulated through theMultiannual Financial Framework (MFF), of
EUR1.1tn.
2. EUR750bn for Next Generation EU (NGEU), a
programme to combat the medium-term impactsof COVID-19 (see page 23).33
3. Emergency measures to deal with theimmediate impacts of the COVID-19 pandemic
worth an additional EUR540bn, of which around
EUR90bn will be sought from the debt markets inthe form of EU SURE social bonds.
At least 30% (EUR540bn) of the first two sources
is to be spent on climate action channelled
through the EGD – this represents the highest
share of the largest EU budget to date.

1. Just Transition Fund (JTF) of EUR40bn,
generating at least EUR89-107bn of financing.
This will mainly be distributed through grants.
2. InvestEU Just Transition Scheme –mobilising EUR30bn in investments. Thisshould crowd in private investment and lead toincreased opportunities for growth in the GSS
bond market as firms are encouraged to invest in
green assets.
3. EIB Public Sector Loan Facility – EUR10bn
in loans backed by EUR1.5bn of the EU budget,
mobilizing up to EUR30bn of investments.
This will leverage public finance through thecapital markets.34
Crucially, the EU Taxonomy will be used todetermine eligible green expenditures in the EU
budget. This will ensure all funds are directed
towards environmentally sustainable investments.

Impact on the GSS bond market
Spending linked to commitments on climate andsocial projects through the MFF, Next Generation
EU (NGEU) and the COVID-19 emergency
plan ensure that EU policy is backed by solid
financial planning. Such public investment will
substantially contribute to the developmentof a greener ‘real economy’, which will provide
additional green assets and motivate entities
to implement transition strategies. The Climate
Bonds Green Bond Treasurer Survey publishedin 2020 described the results of interviews
with 86 treasurers who had issued at least one
green bond. The shortage of green assets in
the real economy was highlighted by multiple
respondents as a potential barrier to GSS bondmarket growth. 35 Crowding in should multiply thegrowth of the GSS bond market – for example,
the EU’s commitment to increased spending
on charging infrastructure could lead more
automobile manufacturers to issue GSS bonds
to fund the transition away from ICE (internal
combustion engine) powered vehicles.

The action plan of the EGD and related policies
will be financed through the European Green
Deal Investment Plan (EGDIP), which will requireat least EUR1tn in sustainable investments
until 2030. This will be financed through the EU
budget (MFF) and leveraging additional public
and private financing.
Some of the funds will be reserved for thoseterritories facing the greatest challenges
in meeting the transition, through the Just
Transition Mechanism (JTM). The JTM will
mobilise at least EUR100bn over the period 20212027, which should reach close to EUR150bn over
the ten years to 2030. Financial support for the
JTM will come from:

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative

COVID-19 recovery in the EU –turning crisis into opportunity
Immediate response to COVID-19
The COVID-19 pandemic had severe social andeconomic impacts on Europe, as in all otherregions. In early April 2020, EU finance ministers
agreed a EUR540bn package of measures to help
member states, companies, and workers copewith the immediate impacts of the COVID-19
pandemic. This will be disbursed on multiple
levels as follows:
For Eurozone countries only
At state level – via the European Stability
Mechanism (ESM). ESM is the lender of last resort
for EU countries experiencing severe financial
distress. The ESM’s Pandemic Crisis Support
Instrument is a credit line for member states,with the potential to disburse up to EUR240bn.
The credit line will be available until 2022 tosupport domestic financing of direct and indirect
healthcare, cure, and prevention related costs
due to the COVID-19 crisis.36
For all EU Member States
At company level – via the European Investment
Bank (EIB). The EIB is offering a EUR25bn
guarantee fund to mobilise up to EUR200bn
for EU Member States. The guarantee fund isdesigned to primarily support final private sector
beneficiaries in EU Member States that are highrisk but viable in the long-term and, in the absenceof the COVID-19 pandemic, would meet a lender’srequirements for commercial financing.
At individual level – via the Support to mitigate
Unemployment Risks in an Emergency(EU SURE) programme, in the form of loans.
Funding under the EUR100bn SURE programme
is available to EU Member States requiring
substantial financial assistance to combat thedomestic impacts of COVID-19, such as sudden
increases in unemployment.
EU SURE bonds have already been issued under
the social bond theme to support the SURE
initiative. The proceeds are being redistributed asloans backed by the EU budget and guarantees
from member states according to their share in
the EU’s GNI. All member states will have accessto the resources, but SURE have the greatest
impact on workers in the worst affected areas.37
The EU is classified as a supranational issuer
and is rated AAA by Moody’s and Fitch, and AA by
Standard and Poor’s. Nevertheless, this gives the
EU a higher credit quality than all except five of
the Member States, hence EU bonds can achievea lower cost of capital than most members.38

23

The EU SURE Programme
On 20th October, the EU sold the first
SURE bonds under the social theme,
worth EUR17bn, the largest such thematictransaction. The deal comprised a EUR10bn
10-year, and a EUR7bn 20-year, under aframework aligned with the ICMA Social
Bond Principles (SBP). The Eligible Social
Expenditures also contributed to some of theUnited Nations’ Sustainable Development
Goals (SDGs).39 In particular, SDGs number 3(Good Health and Well-Being) and number
8 (Decent Work and Economic Growth) are
purposefully targeted by the SURE instrument.
The SURE bonds received enthusiastic support
from the market with order books reaching
EUR233bn, which covered the final total deal
size by more than 13 times, leaving huge
unmet demand on the table. For context,

CouponMaturity

Pricing date

0.1%

04/10/2040

20/10/2020

0%

10/04/2030

0%among 18 EUR denominated bonds issued in2020 with a social, sustainability, or pandemic
theme and an initial deal size of at least EUR1bn,
the second largest book cover was the EIB 2028
sustainability bond issued in April 2020, which
was 7.3 times oversubscribed.
From an investor perspective, the EU SURE
position as the largest issuer in the GSS market
makes it hard to ignore since it will be included
in both thematic and broad-market EUR indices.
Further, the individual bonds represent large,
liquid instruments, with close to the highest
credit rating, and the 2040 maturity had a tenorlong enough to offer a positive yield. This was adiversification play for every single investor
in the world, resulting in the exaggerated
levels of interest. Bonds can provide a haveninvestment in turbulent times and investors canSecondary to this was the social label. The
social theme enables investors to commit toa responsible investment strategy with a clear
and transparent use of proceeds, which will be
tracked and reported on throughout the life of
the bond (as per the ICMA SBP). This meets theneeds of dedicated GSS investors.
Further, SURE bonds were priced in November
2020 with similarly intense pricing dynamics(see table) and by the end of 2020 the total
liability had reached EUR39.5bn (USD51.7bn).

Book size

Book coverPrice guide

7

88

12.6

17

14

-3

20/10/2020

10

145

14.5

6

3

-3

04/11/2025

10/11/2020

8

105

13.1

-7

-9

-2

0.3%

04/11/2050

10/11/2020

6

70

11.7

24

21

-3

0%

04/05/2035

24/11/2020

8.5

114

13.4

-2

-5

-3

A recovery plan to kickstartthe EU economy
In July 2020, the European Council agreed on
the terms of the longer-term European Recovery
Plan, known as Next Generation EU (NGEU).
NGEU has the stated ambition to steer PostCOVID-19 Europe towards a greener, more digital,
more resilient future.40
NGEU could reach EUR750bn (USD830bn), themajority of which (EUR672.5bn) will be disbursed
through the Resilience Recovery Facility (RRF).
The RRF offers financial support to public
investments and reforms and will be madeavailable to qualifying member states throughgrants and low-interest loans.41
To qualify for funding under the RFF, eachcountry must submit national plans forinvestments and reforms with clear milestones
and targets including at least 20% for the digitaltransition plus a minimum of 37% towards green
initiatives. These should include targetedmeasures to reduce dependence on fossil
fuels, enhance energy efficiency, and invest
in preserving and restoring natural capital,and should be aligned with the EU Taxonomy.
Furthermore, all recovery loans and grants tomember states will have ‘do no significant harm’environmental safeguards attached.

Size
EUR Bnbe particularly cautious in the run-up to major
political events – this deal came to the market
a fortnight prior to the US election. Eligibility
for the ECBs Asset Purchase Programme(APP) and Pandemic Emergency Purchase
Programme (PEPP) added another dimension
to the demand for the bonds.

The EU will borrow 30% of the total required
amount (EUR225bn) through green bonds, which
are expected to emerge in Q2 2021. Consideringthat total green bond issuance reached USD1tn
in November 2020, this will be a huge boost to
the green bond market. The EU will immediately
become the single largest source of green bonds,
and the scale will impact not just the size but also
the shape and profile of the green bond market.
The liabilities will be supported by the EU
budget, and underlying that, the commitments ofindividual Member States.

Impact on the GSS bond market
By the end of 2020, the EU was already thelargest seller of GSS bonds, with USD51.7bn ofsocial bonds and another EUR50.8bn expected
in 2021.42 With such a large issuance programme,
the EU is demonstrating confidence in the bondmarket as an efficient source of funding for thetransition and this endorsement will lead tofurther GSS market creation. The availability oflarge, liquid instruments – such as sovereign
GSS bonds from EU member states and EU
supranational GSS bonds – will encourage moreinvestors to consider dedicated mandates. This
support will give issuers from all asset classes
an incentive to bring GSS themed bonds to themarket with the knowledge that they have that

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative

LandingspreadSpreadcompression

extra pricing lever. Further, the size of the EU GSS
bonds will ensure that they are included in all
broad market bond indices and all types of bondinvestors will have to consider them; the EU istherefore contributing to the mainstreaming of
the GSS bond market.

A complementary asset for
GSS bond investors
While EU bonds issued under SURE, andthose anticipated through NGEU, are andwill be safe, large, liquid investments, they
will not replace the need for individual
member states to come to the market
with sovereign GSS bonds. A diversified
fixed income portfolio must include bonds
from both sovereign and supranational
issuers, thus the two are complementaryand investors pursuing dedicated green
bond mandates should welcome theopportunity to diversify their asset classrisk. The Climate Bonds European Green
Bond Investor Survey published in 2019asked respondents in which asset classes
and sectors they wanted to buy more green
bonds.43 Sovereigns, and non-financial
corporates were highlighted.

24

EU Action Plan on Sustainable
Finance – standardisation ofdata and disclosure
The growth of the green bond market has beencharacterised by concerns surrounding a lackof standardisation, and the credibility of various
sustainability claims. To establish integrity in themarket, the EC established a High-Level Expert
Group on sustainable finance (HLEG) in 2016. The
HLEG was invited to advise the EC on how to:Core components of the EU Taxonomy

Substantiallycontributeno significant
+ Do
+
harm

to at least one of thesix environmental
objectives

to any of theenvironmental
objectives

Comply withminimum
safeguards• channel public and private capital towards
sustainable investments;• identify how financial institutions and supervisors
could protect the stability of the financial systemfrom risks related to the environment; and• deploy these policies on a pan-European scale44
The recommendations of the HLEG formed
the basis of the Action Plan on Sustainable
Finance adopted by the EC in March 2018. The
Plan outlined an ambitious legislative agenda
with a comprehensive strategy to connect
finance with sustainability. It included 10 key
actions divided into three categories:• Reorienting capital flows towards a moresustainable economy• Mainstreaming sustainability into risk management• Fostering transparency and long-termism in
the financial markets
The EC subsequently convened a TechnicalExpert Group on sustainable finance (TEG) todevelop four elements of the action plan:
1. an EU Taxonomy to determine whether an
economic activity is environmentally sustainable
and meets minimum social safeguards;
2. an EU Green Bond Standard;
3. methodologies for EU climate benchmarks
and disclosures for benchmarks; and4. guidance to improve corporate disclosureof climate-related information.

The EU Taxonomy
The EU Taxonomy is a classification systemthat categorises economic activities consistent
with the low carbon transition, adaptation,and other environmental objectives. This will
have multiple applications, from determining
which expenditures qualify for environmentally
sustainable funding from the EU budget toassessing climate risks in investment portfolios.
The EU Taxonomy can provide the basis forstrategic direction towards a target of net zero.
EU taxonomy alignment forms the lynchpin of
the proposed EU Green Bond Standard (GBS),
benchmarks, Standard Financial Disclosure
Regulation (SFDR) and a set of revised corporate
disclosures on Taxonomy-aligned activities as partof the Non-Financial Reporting Directive (NFRD).

Under the EU Taxonomy Regulation, activities aredefined as environmentally sustainable if they:
1. make a substantial contribution to one of six
environmental objectives: climate change mitigation;
climate change adaptation; water & marine
resources; circular economy; pollution prevention
and control; and biodiversity and ecosystems;
2. do no significant harm (DNSH) to any of thesix environmental objectives;
3. meet minimum safeguards; and4. adhere to technical screening criteria.
At the time of publication, delegated acts
outlining technical screening criteria forclimate change mitigation and climate change
adaptation had been developed and were
expected to be finalised and applied by Q2 2021.
The other four objectives are work in progress.

The EU Green Bond Standard
The EU Green Bond Standard (GBS) is a proposed
voluntary standard for issuers wishing to alignwith best practice in the market. It is designed tobe relevant and practicable to EU-based users
as well as those in other territories and is basedaround four components:
1. Proceeds should be aligned with the EU Taxonomy.
2. Publication of a green bond framework,
including the four pillars of the ICMA GBP45.

The Low Carbon Benchmarks Regulation
The Low Carbon Benchmarks Regulation (LCBR)
is intended to provide investors with a tool forcomparative analysis of low-carbon benchmark
methodologies by obliging benchmark providers
to make disclosures regarding the methodology
used to measure and reconcile ESG and low-carbon
factors in the composition of benchmarks.46
At present, benchmarks labelled as ‘low carbon’
do not have to meet common standards, leaving
potential for a lack of uniformity, transparency,
reliability and ultimately, comparability. LCBR
introduces two categories of benchmark, an EU
Climate Transition Benchmark (EU CTB) and an
EU Paris-Aligned Benchmark (EU PAB), both ofwhich have defining characteristics.
Secondly, the LCBR requires that for eachbenchmark offered, benchmark providers should
indicate whether the benchmark incorporates
ESG objectives, and whether any of thebenchmarks in the provider’s suite of products
have an ESG focus. The only exceptions are forbenchmarks pertaining to currency or interest
rates, and the disclosure requirements apply toall providers either in the EU or providing services
to those in the EU.
Most of the obligations under LCBR were effectivefrom 20 April 2020, with others applicable from31 December 2022.

3. Mandatory reporting on use of proceeds
and impacts.
4. Mandatory verification of the green bondframework and final allocation report by external
reviewers. Reviews should be formally accredited
and supervised as per the GBS requirements forexternal reviewers.
At the time of writing, the EU GBS was still in draft,
expected to be finalized by June 2021. Some green
bond issuers had already started to incorporate
the components into their frameworks using best
efforts, including frameworks from Tritax (GreatBritain) and SwissCom (Switzerland), issued
through a Netherlands SPV to enable qualification
for the ECB CAPP), and Cicero’s second party
opinion of UPM’s (Finland) framework.

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative

25

The Sustainable Finance Disclosure
Regulation (SFDR)

Impact on the GSS bond market

The Sustainable Finance Disclosure Regulation(SFDR) was adopted in November 2019. SFDR
includes three main deliverables:
1. Any Financial Market Participant (FMP) withmore than 500 employees must publish andmaintain a due diligence statement on the policies
around considering any principal adverse impacts(PAI) of its investment decisions on sustainability
factors. This must be tailored to the nature andscale of activities and the types of financial
products provided. Entities must follow thecomply or explain rule, and if the PAI of investment
decisions on sustainability are not considered,
the reasons for this must be published on thecompany website, together with detail on whether
and when this might change.
2. In pre-contractual documents, investors
should classify financial products into one ofthree categories:
Light Green: Financial products that
promote environmental or social characteristics(Article 8 – Light Green)
Dark Green: Financial products with sustainable
investment as their objective (Article 9 – Dark
Green), andGrey: Other Products which do not use ‘ESG’or ‘sustainability’ in their names and are notpromoted as being sustainable (Article 6 – grey).
3. If an FMP classifies its products under a green
shading as stated above, it will also need to makea product-level disclosure per the Regulatory
Technical Standards (RTS) in regular reporting.
The current draft RTS includes a mandatory
reporting template for PAI and a set of indicatorsfor both climate and environment-related
adverse impacts as well as adverse impacts inthe field of social and employee matters, humanrights, anti-corruption and anti-bribery. RTS
can thus be considered a kind of reverse ESG
disclosure, useful in bringing rigour to the current
ESG space, which relies predominantly on
positive disclosures.
The first two had to be in place by the end of
March 2021 while the third must be applied fromJanuary 1st, 2022.

The EU Action Plan on Sustainable Finance andthe resulting standardisation will have multiple
impacts on the GSS bond market, primarily bymaking genuine GSS instruments easier to identify
and therefore preference. Standardisation of
disclosures and the constituent data will inspire
the confidence of both issuers and investors, thus
growing the market to support more climatefriendly and socially impactful liabilities.
The SFDR (together with the Non-Financial
Reporting Directive) will, when harmonised,provide a full picture of Taxonomy-compliant andexplicitly non-compliant activities and financial
products. This will provide asset owners andinvestors at all levels with a new dimension ofmuch-needed standardised transparency tomake more sustainable investment and asset
allocation decisions.
This reinforces the EU’s commitment to thetransition towards a low-carbon economy, thecontinuing growth of sustainable finance andthe positioning of Europe’s financial sector as
a leading global destination for investment ingreen technologies.
In contrast to the green universe, there are currently
no common standards in place for sustainability
and social bonds. The EU commission is currently
developing a social taxonomy.

The ECB – recognisingclimate risk
Financial and price stability are the corecomponents of any central bank’s mandate.
Climate change has historically not been regarded
as central bank business, the concern being a
potential loss of market neutrality if preferencing
a small universe of climate-related investments.
However, climate risks introduce increasingly
pertinent risks to the financial system, and the
ECB, like all central banks, needs to consider how
minimising those risks can be incorporated into
strategic direction and operations.
The ECB is currently undergoing a monetary policy
strategy review which is expected to conclude in
the second half of 2021. Issues including but notlimited to historically low interest rates, limits tolowering rates, employment, social inclusion,
climate change, and financial stability are alreadyrelevant to the mandate.

In early 2021, it was announced that the ECB
will set up a Climate Change Centre with the aimof incorporating climate change considerations
into its work. There will be five work streams: 1.
financial stability and prudential policy;
2. macroeconomic analysis and monetary
policy; 3. financial market operations;4.EU policy and financial regulation, and
5. corporate sustainability.47

Quantitative easing
After the global financial crisis, interest rates inmost developed economies including Europe,
reached historical lows and could no longer be
manipulated to stimulate economic activity.
Hence, in mid-2014 the ECB initiated its Asset
Purchase Programme (APP) as part of a packageof non-standard monetary policy measures that
also included targeted longer-term refinancing
operations. As of December 2020, net purchases
were slated to continue at around EUR20bn permonth. No date limit was put on this, except to
say it would be extended until shortly before the
ECB starts raising interest rates. Reinvestment
was also extended until post the point where the
ECB starts raising rates.
The ECB added the pandemic emergency
purchase programme (PEPP) in March 2020
in response to risks to monetary policy andeconomic outlook caused by the COVID-19
outbreak. The PEPP extends to all the asset
categories included in the APP plus Greek
Government securities. By the the end of 2020
the initial investment of EUR750bn had been
increased to EUR1.9tn, and the time frame
extended until at least the end of March 2022with reinvestment of proceeds extended until atleast the end of 2023.
On 20th September 2020, the ECB broadened theeligible investment categories of the APP and
PEPP (and central bank collateral) to include
bonds with coupons linked to sustainability
performance targets. The decision became
applicable from 1st January 2021.
At the end of December 2020, the total holdings
were divided into four categories plus the PEPP.
The holdings amounted to investments of almost
EUR3.7tn, which was several multiples of theentire green bond market, and almost ten times
the size of the eligible universe of bonds issued
by Eurozone-based entities. The split of theholdings is shown in the below table:

ECB holdings at the end of 2020
Programme

Asset Backed
Securities
Purchase
Programme (ASPP)

Covered Bond
Purchase
Programme(CBPP3)

Corporate
Sector Purchase
Programme(CSPP)

EUR bn (as ofDecember
2020)

29.4

287.6

250.4

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative

Public Sector
Purchase
Programme(PSPP)
2,341.6

Total Asset
Purchase
Programme (APP)

Pandemic
Emergency
Purchase
Programme (PEPP)

2,908.9

757.2

26

The ECB has stated that green bondpurchases under the CSPP and the PEPP
constitute around 20% of the eligible
universe contributing to what the ECB describes
as a well-diversified portfolio. The eligible
universe is investment grade rated bonds issued
from one of the 27 member states, denominatedin EUR, and not a bank. Bonds can be boughtin either the primary or secondary market. As of
December 2020, the holdings of the CSPP and
PEPP included 100 green bonds from 50 issuers
from a total of 1582 bonds from 338 issuers. The
size of each holding is not disclosed.48 49

Prudential risk - Banking supervision
To ensure the resilience of the banking sector, ECB
Banking Supervision is the division responsible
for making sure banks effectively manage their
exposures to and disclosures of risks. It has
identified climate risks among those expected tostrongly increase over the next five years.50
In November 2020, the ECB published a final
guide on climate-related and environmental risk
for banks.
The ECB will follow up with banks on two levels:
1. 2021: request that banks conduct a climate
risk self-assessment in light of the supervisory
expectations outlined in the guide, and to draw
up climate action plans.
2. 2022: conduct a full supervisory review ofbanks’ practices and take concrete follow-up
measures where needed.
Bank-level climate stress testing will commencein 2022. However, for market neutrality reasons
the ECB has not embedded climate action
into its mandate, which means that climate
considerations are not part of its decisionmaking process at present.
The ECB continues to develop its supervisory
practice in close coordination with the EC andthe European Banking Authority (EBA). The EBA is
exploring how ESG risks can be incorporated into
the prudential framework but this is not presently
being done. The ECB is a contributor to the workof the Network of Central Banks and Supervisors
for Greening the Financial System (NGFS) and theBasel Committee on Banking Supervision.51 The
NGFS has published a set of climate scenarios
to provide a common reference for regulators toassess climate risk, and the ECB will likely begin
to require greater disclosure of climate risks.

Managing ECB resources sustainably
Independently from its supervisory tasks, the
ECB manages other resources to help fund its
operating expenses, and these appear to haveintegrated sustainability objectives.
1. For its own portfolio, the ECB has a sustainable
and responsible investment (SRI) strategy.
Around 3.5% of its EUR20.8bn portfolio isinvested in green bonds, which the ECB has
stated it intends to increase.
2. ECB investment in the EUR denominated Bankfor International Settlements (BIS) fund wasannounced in January 2021. The BIS green bondfund invests in renewable energy production,energy efficiency and other environmentallyfriendly projects.
3. The ECB staff pension is managed externallyand pursues broad sustainable portfolio
management principles. 52

Impact on the GSS bond market
Since 2016, the ECB has constituted a large-scale(likely the largest) buyer of all types of assets inthe EUR bond market. At the end of 2020, theprogramme holdings were around EUR3.7tn.
While it is not known in advance which issues
the ECB will get involved in, the presence of alarge-scale buyer has added a demand pressurethat has resonated throughout the whole market.
While there may be room for the ECB to increase
its support for GSS bonds through both theprimary and secondary markets this does notseem feasible given current pricing dynamics.
Such action would certainly squeeze pricing
further, giving rise to potential distortions which
the ECB has stated it wants to avoid. It should
also be noted that the ECB does not exclude
companies active in fossil fuels or other polluting
industries and has not yet announced an
intention to do so.
Every sector has a role to play in thetransition. To align with the net zero ambition of
the EU, the ECB could consider an independentview to assess transition planning, for example
using the Transition Pathway Initiative (TPI), or
ACT Initiative. In this way, it could preference
investment in the entities with the clearest andstrongest decarbonization plans, while stillreflecting the shape and size of the EUR bondmarket.
While the ECB may begin to require disclosureof climate risks, there has been no indicationthat it will apply climate adjustments to bankcapital requirements, collateral pricing, or asset
purchases for now.

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative

Summary – EU-led developmentof GSS bond markets
The global financial system must transition toaccommodate the greening of the real economy.
A large, liquid GSS debt market with manybuyers and sellers will facilitate that and can also
catalyse larger systemic impacts.
The largest and most developed GSS market isin Europe, and the EU is taking an active role ingrowing the market. The EU and its institutions
are both large-scale buyers and sellers of
GSS debt, helping to attract private capital tocontribute to a greener economy. The EU has
stated its objective to be the first net zero blocby 2050 and has cemented this commitment
by linking budget to green policy objectives.
This explicit link is important because theprivate sector can follow that capital and create
development opportunities.
The EU Sustainable Finance Action Plan
has the potential to impact the transparencyof the GSS bond market in an unprecedented
way when all its components are implemented.
Respondents to the Climate Bonds Green Bond
Treasurer Survey noted that a lack of clarity ofgreen definitions, together with a lack of suitableassets, could hinder market development.53
The Action Plan will help to address bothconcerns. The EU Taxonomy and a possible EU
Green Bond Standard will provide clarity andharmonization around green definitions andtransition, helping issuers to select appropriate
projects or expenditures for funding via green
bonds. Further, it can support potential policy
measures that would directly increase real
economy investments in green assets andoperations. EU investment in infrastructure –such as that planned under the EGD – will attract
crowding in, and an active, liquid, GSS bondmarket can support this development.
Finally, while price stability is the priority of
the ECB, there is broad acknowledgement thatclimate risks pose threats to financial stability.
There is also general agreement that the ECB
could implement mandatory disclosure of
related risks, thus enabling more accurate pricingof climate change risk.
Through its actions the EU is demonstratingthat introducing definitions early and inconcomitance with other policy measures, candevelop the GSS market to support the transition
to a low carbon and fair economy.

27

Outlook
2020 proved the most prolific year ever for GSS
bonds with record issuance amounts in all threethemes. The growth in the market demonstrates
the role that finance can play in the transition toa low carbon economy, and more equal society.
The impact of COVID-19 caused economic andsocial disruption. However, the bond market
proved to be a flexible source of finance tohelp with both the immediate impacts, and thelonger-term recovery plans.
We expect 2021 to enable a sustained resurgencein GSS markets, driven by increasing policy
support such as that witnessed in Europe, andother nations who have committed to reaching
net zero by 2050, including China, and the US.
The USD1.7tn of GSS debt described in this paper
remains a small fraction of the global USD100tn
bond market. While GSS is in the minority now,
it is growing rapidly, and fast appealing to amainstream audience at both institutional andretail levels. Social and sustainability themes
will continue to grow, as economic measures
become more focussed on rebuilding a fair andmore equal society.
We expect GSS issuance to proliferate, setting
the pace towards the vital global milestone of
USD1tn in annual green investment, dominatedby seven themes into 2021/22:
1. The return of green
multilateralism as a WhiteHouse committed to action has
re-joined the Paris Accord, adding
momentum to COP and is pushingclimate higher on the agenda at G7, G7+, G20,
OECD and a host of other international bodies.
Further, the recent announcement that the G20
Sustainable Finance Study Group (SFSG) will be
re-established after a 2-year hiatus will add to thismomentum . Importantly, it will be co-chaired by
The Chinese central bank and the US Treasury.
2. A new climate triple-axis
between China, EU and US has
the potential to develop as theworld’s largest economic blocs
seek to align on the fundamental
mid-century goal of zero-carbon. The gradualharmonisation of taxonomies, described below,
will support the cross-border investment criticalto the achievement of zero carbon targets.

3. The development andharmonisation of green
taxonomies is a priority for2021. The International Platformon Sustainable Finance (IPSF)
is leading on this and has initiated a working
group on taxonomies that will work toward a“Common Ground Taxonomy” highlighting thecommonalities between existing taxonomies.
The aim of the Common Ground Taxonomy is toenhance transparency about what is commonly
green in IPSF member jurisdictions and to scale
up cross-border green investments. Work is
initially focused on existing taxonomies (EU andChina) but is intended to be used as a starting
point for other jurisdictions developing theirown taxonomies. Other nations are exploring thepossibility of developing their own taxonomies
in the coming year, including South Africa,
Colombia, India, Vietnam, and others. At thesame time, the importance of harmonisation
to aid cross border capital flows is now clear.
The recent removal of ‘clean coal’ from the draft
People’s Bank of China Green Bonds Endorsed
Projects Catalogue is one example of thealignment of green definitions in the world’s
largest green market.54
4. Build back better and therise of the Sovereign GSS
Bond Club as governments,
policymakers, and developmentbanks back new sovereignissuance in developed and emerging economies
to accelerate private sector issuance andsupport market development. Sovereign andsub-sovereign issuance will be driven by the
post-COVID recovery plans as well as targets forcarbon neutrality. Over 110 countries that havecommitted to becoming carbon neutral by midcentury, including Japan and South Korea, theEU and China. Governments must act on thesecommitments by implementing large-scale green
infrastructure plans as part of the post-covid
recovery to build back better. GSS bonds will be
critical to financing these plans.

6. Better understanding ofclimate risk stimulates demand:
There is increasing understanding
and recognition that GSS
investments are shielded fromcertain risks including but by no means limited
to the risk that policies will be implemented topreference green and penalise brown. This isreflected, to an extent, in the pricing dynamics
seen in the liquid portion of the green bondmarket.55 As these risks are better understoodand investors look to mitigate them, demand for
GSS product will continue to grow and continue
to outstrip supply.
7. Sustainability is increasingly
embedded in investment andfinancial market infrastructure
as the influences of the EU
Sustainable Action Plan/ Taxonomy
and central bank and financial regulator actions
filter through multiple jurisdictions. This isalready underway through the taxonomy work
as well as through climate stress testing that isbeing undertaken by leading central banks andshared across the world through the Network
for Greening the Financial System (NGFS).
Forecasting by groups like the Inevitable Policy
Response (IPR)56 will increasingly influence risk
analysis and portfolio construction as large
investors respond and rebalance to the coming
acceleration of climate policy and targets.

5. Transition, Transition,
Transition of carbon intensive
industrial sectors like cement
and steel is key to achieving atransition to net zero by 2050.
The year ahead will need to see articulation andimproved definition of transition pathways forindustrial sectors to align with the goals of theParis Agreement. This will enable institutional
investors, policy makers and the market toincreasingly focus on preferencing and directing
capital flows to support entities and activities
that are following credible transition pathways
and away from those that are not.

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative28

Appendices
Appendix A
The following table shows examples of labels ineach theme.
with a sustainability, social, or pandemic label (areminder that performance-linked loans are notincluded).
Green

Sustainability

SocialBlue

ESG

Affordable Housing

ClimateGreen Innovation

Climate AwarenessPositive Impact

Education, Youth and
Employment

Climate Resilience

SDG

Environmental

Sustainability

Green
Renewable Energy
Solar
Sustainability Awareness

Gender Equality
Healthcare

Sustainability AwarenessSocialSustainable
Development

Social Housing

Sustainable Housing

Water
Wind

SDG Housing

Social Inclusion
Socially Responsible
Investment
Sustainable Development
University
Wellbeing

4. In addition to the exclusion of performancelinked instruments and transition labels, we
excluded several deals because we could not
find publicly available labels. This included someby repeat issuers, most of which had issued
clearly labelled deals – where possible, wesuggest improving the availability and clarity of
information related to each deal, including labels.

Climate Bonds Database updates
Climate Bonds has been expanding data
coverage to other labelled debt instruments,
particularly sustainability and social bonds,
and a separate database covering these will belaunched later in 2021. The extended databases
will complement other enhancements toour data collation and analysis including thecollection of more granular information on the
Use of Proceeds and impacts of green bonds,
more robust and detailed analysis of climatealigned issuers, and a more detailed assessmentof SDG alignment.

Women
Women’s Livelihood
Pandemic

COVID-19 Social
COVID-19 Response
COVID-19 Social Inclusion
Fight COVID-19
VaccineAppendix B
Methodology notes and caveats
1. Due to the methodological difference between
Green and other themes, it is important to notethat our analysis of other themes is merely anindicator of the financing aimed at each, basedon the deal’s label.
For instance, some deals labelled as ‘SDG’, andtherefore included under the Sustainability
theme, may only actually finance social projects.
Importantly, there will also, for example, bevarious deals under the Social and Sustainability
themes that finance, in whole or in part,
pandemic-related investments. We are working
on the more granular UoP analysis for otherthemes and will share the results in due course.

2. Some of the analysis is shown in terms of‘number of issuers’ rather ‘amount issued’ – thisreflects the number of issuers in each individual
theme. The total number of issuers is slightly
lower than the total adding across themes, sincesome issuers have printed deals that cover morethan one theme. For example, the infographic
shows 90 issuers in the Sustainability theme, 106
in Social, and 447 in Pandemic; adding these
gives a total of 643, but it is actually 627.
3. Our Green Bond Database includes manyloans and ABS (securitised) deals. We havehistorically treated these as issuer types, andthe same applies to this report. However, under
our new methodology, these are considereddifferent instrument – not issuer – types. It
remains uncommon to see loans or ABS deals

Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative29

Endnotes
1. Climate Bonds Initiative, Green Bond Database Methodology
2. Climate Bonds Initiative Climate Bonds Taxonomy
3. IPSF sub-group on social taxonomy
4. Based on the MSCI Market Classification
5. Bloomberg 21/03/2021 search based on Country of Risk, split by
year of pricing
6. FAnalysis of the twin bond structure and pricing dynamics can befound here: https://www.climatebonds.net/resources/reports/greenbond-pricing-primary-market-h2-2020
7. As of 11th March 2021.
8. https://www.climatebonds.net/resources/reports/sovereign-greensocial-and-sustainability-bond-survey
9. Japan SOTM
10. CaixaBank SDG Framework
11. AIIB CCIF link
12. Sustainalytics SPO of Alphabet’s Sustainability Bond Framework
13. Sovereign GSS Bond Survey
14. Estimates range from under 1% to about 4% of the conventional
credit markets.
15. Climate Bonds Green Bond Investor Survey found that investors
would like to see more thematic issuance from key sectors thatcurrently comprise a large part of conventional bond portfolios,
including industrials and materials.
16. Announcement from Bank of China
17. Climate Bonds Financing Credible Transitions Whitepaper
18. Introduced in Climate Bonds’ Green Loans, Australia and New
Zealand 2020 paper
19. The recent case of the State Bank of India is a prime example ofthis. https://www.assetnews.com/asset-managers/after-axa-amundidumps-indian-bank-sbis-green-bonds-over-coal-financing
20. Smith School of Enterprise and the Environment (link)
21. The Thai Sustainability bond was subsequently tapped twice in
2021 to reach a total size of THB85bn/USD2.7bn by 25th February.
22. World Resources Institute: https://www.wri.org/blog/2021/01/
nigeria-moves-toward-sustainable-covid-19-recovery
23. Budget Office of the Federation – Federal Republic of Nigeria:
https://www.budgetoffice.gov.ng/index.php/nigeria-economicsustainability-plan

24. Budget Office of the Federation – Federal Republic of Nigeria:
https://www.budgetoffice.gov.ng/index.php/nigeria-economicsustainability-plan
25. Government Offices of Sweden: https://www.government.
se/4a73a0/contentassets/ddfaf5ce78494ce991ec231acf9c5b83/
summary-budget-statement.pdf
26. Government Offices of Sweden: https://www.government.
se/4a73a0/contentassets/ddfaf5ce78494ce991ec231acf9c5b83/
summary-budget-statement.pdf
27. https://ec.europa.eu/international-partnerships/sustainabledevelopment-goals_en
28. European is used as a term here to denote policy actions
and funding mechanisms related to the European Union andits Member States.
29. Bloomberg as of 28/02/2021
30. GSS figures do not include supranational issuers
31. Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Malta,
Romania, Slovakia have yet to come to the market.
32. Belgium, France, Germany, Hungary. Ireland, Lithuania,
Luxembourg, Netherlands, Poland, and Sweden
33. https://www.consilium.europa.eu/en/infographics/mff2021-2027ngeu-final/
34. https://ec.europa.eu/regional_policy/en/newsroom/
news/2020/01/14-01-2020-financing-the-green-transition-theeuropean-green-deal-investment-plan-and-just-transitionmechanism
35. https://www.climatebonds.net/resources/reports/green-bondtreasurer-survey-2020
36. https://www.esm.europa.eu/content/europe-response-coronacrisis
37. https://www.euractiv.com/section/economy-jobs/news/
eurogroup-agrees-on-e540-billion-corona-package/
38. As of February 2021, Denmark, Germany, Luxembourg,
Netherlands, and Sweden had AAA ratings from the three main
rating agencies.
39. https://sdgs.un.org/goals
40. https://ec.europa.eu/info/strategy/recovery-plan-europe_
en#nextgenerationeu

41. https://ec.europa.eu/info/business-economy-euro/recoverycoronavirus/recovery-and-resilience-facility_en
42. https://ec.europa.eu/commission/presscorner/detail/en/
IP_20_2501
43. https://www.climatebonds.net/resources/reports/green-bondeuropean-investor-survey-2019
44. https://ec.europa.eu/info/publications/sustainable-finance-highlevel-expert-group_en
45. https://www.icmagroup.org/assets/documents/Regulatory/
Green-Bonds/Green-Bonds-Principles-June-2018-270520.pdf
46. https://www.eversheds-sutherland.com/global/en/what/articles/index.page?ArticleID=en/Financial_services/Low-CarbonBenchmarks-Regulation
47. https://www.eureporter.co/environment/2021/02/12/ecb-sets-upclimate-change-centre-2/
48. https://www.ecb.europa.eu/mopo/implement/app/html/index.
en.html#cspp
49. Green determination based on Climate Bonds Green Bond Database
50. https://www.bankingsupervision.europa.eu/banking/priorities/
risk_assessment/html/index.en.html
51. https://www.bankingsupervision.europa.eu/press/publications/newsletter/2020/html/ssm.nl201118_4.en.html
52. https://www.ecb.europa.eu/press/pr/date/2021/html/ecb.
pr210125~715adb4e2b.en.html
53. https://www.climatebonds.net/files/reports/climate-bonds-gbtreasurer-survey-2020-14042020final.pdf
https://www.responsible-investor.com/articles/china-and-the-us-tolead-rebranded-g20-sustainable-finance-study-group
54. https://www.climatebonds.net/2020/06/chinas-top-regulatorsannounce-they-will-exclude-fossil-fuels-their-green-bonds-taxonomy-it
55. Climate Bonds Green Bond Pricing In the Primary Market H2 2020
56. IPR 2021 Policy Forecast

Authors: Caroline Harrison and Lea Muething
Contributors: Krista Tukiainen and Bridget Boulle
Suggested citation: Harrison C., Muething L., Sustainable Global State of theMarket 2020, Climate Bonds Initiative, April 2021.
Design: Godfrey Design

Prepared by Climate Bonds Initiative.

© Published by Climate Bonds Initiative, April 2021
www.climatebonds.net

Sponsored by DekaBank and State Street Global Advisors.

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Sustainable Debt Global State of the Market 2020 Climate Bonds Initiative30