Investor of the year (not a fund): European Central Bank

Arthur KrebbersIn an attempt to address issuer concerns over market volatility in a post-Covid environment the European Central Bank (ECB), last September, announced sustainability-linked bonds (SLBs) will be eligible as investments and collateral for various quantitative easing (QE) programmes.

Previously SLBs were not eligible assets for a range of asset purchase programmes operated by the ECB.

An SLB is a bond instrument for where the structural or financial characteristics can vary depending on whether the issuer achieves predefined environmental, social or governance (ESG) criteria.

"The ECB has taken a bold step to include SLBs as collateral providing a significant anchor to the development and credibility of this market," concluded one Environmental Finance Bond Awards judge.

The ECB entered the corporate bond market for the first time in 2016 when it launched its Corporate Sector Purchase Programme (CSPP), which enabled it to buy primary bonds issued by European companies in addition to government bonds. The ability to use SLBs to now access the CSPP was 'positively welcomed' by the market argues the ECB. As the ECB usually places an order of around half of the deal size which it claims helps in book-building, thus benefitting the issuer with the pricing of the deal.

“We’re very pleased that our customer, the ECB, has won the Investor of the year award. We submitted the ECB for this award because of their decision to make sustainability linked bonds eligible as collateral and as investments for various QE programmes, amongst other reasons. This was very much welcomed by market participants, including us, as it marked a significant step towards helping grow the European and global market for sustainability-linked bonds, a product type which we at NatWest have proactively promoted since its introduction,” said Dr Arthur Krebbers, head of sustainable finance corporates at NatWest.

In addition, the ECB claims that as the Euro market tends to be the 'first mover' in ESG innovation it believes its acceptance should help this type of product grow globally.

Clarifying the rules of access to this QE in December the ECB stated the key performance indicator of the bond should be linked to one or more environmental target related to EU Taxonomy or UN Sustainable Development Goals.