10 February 2020
HSBC became the largest green, social and sustainability (GSS) bond market underwriter in 2019, in a year marked by rapidly accelerating diversification of the market.
According to data from the Environmental Finance Bond Database, the FTSE 100-listed bank dislodged French lender Crédit Agricole Corporate & Investment Bank (CA-CIB) which has topped the table for the last two years.
Across all three GSS bond markets, total volume at HSBC jumped two-thirds to $19.2 billion in 2019 from $11.5 billion in 2018.
“From our perspective it was a very successful year, and clearly coincided with further growth on the issuer side – across not only the sectors that were already quite involved in the space, but across many of the other main sectors, geographies and markets,” HSBC co-head of debt capital markets, Adam Bothamley, told Environmental Finance.
“So, yes, growth in volume but also growth in breadth of the issuer base,” Bothamley added. “It is very exciting to be at the heart of that.”
CA-CIB continued to grow its activities in the market, but at a slower pace than HSBC. It experienced 24% growth to $16.9 billion in 2019, from $13.6 billion in 2018, resulting in it slipping to third position.
Second position was taken by Bank of America Merrill Lynch (BAML) following a 56% volume growth to $17.3 billion from $11.1 billion the year prior. BAML has steadily risen up the league table in recent years, having been in fourth position in 2017 and third in 2018.
CA-CIB's head of sustainable banking, Tanguy Claquin, told Environmental Finance that 2019's growth reflected the rising demand for labelled bonds.
"Clearly all the drivers are active right now and we keep on having what was the main driver for the market over the last few years: that is, the increase of investor demand," Claquin said. "So, we have more and more investors entering this market."
This has been helped by the "strong signal" being sent by regulators to deliver a "viable framework" on which to continue to build the market. In particular, Claquin highlighted the progress the European Commission had made in agreeing a Taxonomy on green assets after the report of the EU technical expert group on sustainable finance (TEG).
Nonetheless, Claquin pointed to the rising sensitivity in broader society to environmental, social and governance (ESG) concerns.
"Clearly the number of weather or climate-related crises across the world which clearly changed the mindset of many people," he said. "So, now they have to take that into account in their lives and the way they do business. So, I think that all the drivers – sometimes, unfortunately, in terms of the deepening of the climate crisis – are pushing the growth of this market."
HSBC also rose to the top of the underwriters table for the green bond market, which continues to comprise the bulk of the green, social and sustainability bond market. Its share of deals was worth $14.8 billion, displacing CA-CIB in the top spot.
|Top 10 green bonds lead managers in 2019|
|Rank||Lead Manager||Volume ($M)|
|2||Bank of America Merrill Lynch||13,974|
|3||Credit Agricole CIB||13,699|
“The growth in corporates was a key focus for us over the course of the year,” said HSBC head of sustainable bonds Farnam Bidgoli. “It was really exciting to see some of these new sectors breaking in.”
“We started the year with Telefonica’s inaugural green bond and that broke open green bond issuance from the telecommunication sector for Vodafone and Verizon and others to follow,” she added. “That’s a sector that was totally absent until 2019.”
“Similarly, sovereign issuance played a big part in the growth of the market last year and we were active on all of the inaugural sovereigns that came to the market: so, the Netherlands, Chile, Korea and Hong Kong,” Bidgoli continued.
The €6 billion ($6.7 billion) green bond issued by the Netherlands in May 2019 was a particularly large and interesting one for HSBC during the year.
“The Netherlands deal was a really exciting transaction because Dutch investors had always been quite active in the green bond space,” Bidgoli said, adding that there were a “couple of interesting innovations in this bond.
“They were the only sovereign to list specific budget items in the framework and very specific projects, instead of broader project categories which is the approach that you see with many sovereigns,” Bidgoli said. “And of course, they were the first sovereign to attain Climate Bond certification on the underlying projects behind the bonds. So, I think that was a step, in terms of transparency, that we had not seen from other sovereigns before that.”
HSBC also managed to hold onto its top position as lead manager on sustainability bond issues in 2019, with volumes almost doubling to $3.9 billion in 2019 from $2.0 billion in 2018.
|Top 10 sustainability bonds lead managers in 2019|
|Lead Manager||Volume ($M)|
|3||Credit Agricole CIB||2,542|
|5||Bank of America Merrill Lynch||2,254|
Whilst it squeaked the top spot in 2018 with a $27 million edge over second placed CA-CIB, in 2019 it was a sizeable $958 million ahead of second placed JP Morgan.
The US bank had not even featured in the top 10 sustainability bond underwriters in 2018.
CA-CIB also lost its 2018 position as the largest social bond lead manager, falling to seventh after volumes halved from $1.5 billion in 2018 to $693 million in 2019.
MUFG Securities headed the social bonds lead managers rank with $1.7 billion volume. MUFG had not featured in the top 10 social bond lead managers in 2018.
|Top 10 social bonds lead managers in 2019|
|Rank||Lead Manager||Volume ($M)|
|3||Bank of America Merrill Lynch||1,117|
|7||Credit Agricole CIB||693|
The social bond market, in particular, saw the most dramatic change among the top underwriters in 2019. Only four of the top 10 in 2018 held onto their place in the top 10 in 2019: CA-CIB, Natixis, JP Morgan, and Société Générale, and even these lost ground to the new entrants.
In particular, two Japanese new entrants – MUFG Securities and Mizuho Financial – surged to the top of underwriters of social bonds. The pair benefitted from co-leading on four social bond issues from Japanese road operator East Nippon Expressway – with a combined value of JPY150 billion ($1.4 billion) – which claimed to provide affordable basic infrastructure, as well as on a JPY30 billion issue from Japan Student Services Organisation.
Along with Nomura and SMBC Nikko, both MUFG Securities and Mizuho Financial also served as co-lead managers on the JPY20 billion social issue from clinical testing firm Miraca.
CA-CIB's Claquin said that one of the most striking aspects of 2019 was the increasing diversification of the GSS market, both in terms of the issuers and the GSS-focused funding methods deployed.
Claquin pointed towards a rising number of sovereigns tapping the market. The French firm assisted issues from both Chile and South Korea.
"It is very nice to see [sovereign green bonds] from countries where responsible investing is nascent," Claquin said. "Clearly the governments of those countries are very proactive in pushing this asset class. That is a development of which we are very proud."
In addition, Claquin said the increase in the number of sustainability-linked loans, transition bonds, and other innovative products was a "natural development" for the market.
"You have a big movement towards sustainable finance in the fixed income market," he said. "There is a very big product – green bonds – which keeps on driving market growth, and the largest part of the trade is done as green bonds. But, as is always the case, there are people trying to innovate to bring new ideas and new structures."
Claquin said CA-CIB was proud to have been involved in the "very important" UN Sustainable Development Goals-linked bond issued by the Italian utility firm Enel.
The issue, however, has drawn criticism by some market participators as a "backward step" or even as a case of "greenwashing." Others, meanwhile, praised the SDG-linked bond as potentially "better" than a green bond.
There are, Claquin argued, a number of different concepts being tested in the market currently. But, for him, sustainability-linked loans have "huge potential" and could be a "breakthrough" for the market as they "open the sustainable market to a wide array of issuers which otherwise would not have access to the market".
SEB head of climate & sustainable finance Christopher Flensborg agreed, telling Environmental Finance that sustainability-linked loans – primarily through revolving credit facilities – had experienced a "quite significant" increase in uptake in 2019.
"As long as they are relevant and as long as they are ambitious, you can say that it is helping to drive the sector," Flensborg said.
"In this case it is a little bit more broad than just being green, a lot of people have been looking into social factors, like equality or other things, and this means that this market is a little bit more colourful than the green bond market and it is taking a little bit of focus away from the green bond market."
Supporting these more innovative GSS issues, however, comes with associated risks. Flensborg said that some of their stakeholders were a "little upset" by SEB's involvement in the €125 million ($139 million) green bond issued by Canadian oil & gas transportation firm Teekay Shuttle Tankers in October 2019.
The controversy focused on the fact that the proceeds were used to finance ships that are propelled by electric engines, although the cargo of the ships was oil.
Similarly, Flensborg said the SEK1 billion green bond from Swedish state-owned airport operator, Swedavia, had not seen "as many investors as we had hoped".
Flensborg added, however, that the criticism of the Teekay and Swedavia deals was largely constructive. Opposition was primarily to the issues being named as green bonds as opposed to transition bonds or something similar, rather than opposition to such funding being extended.
Flensborg emphasised this discussion is very important and that the SEB would continue to support companies with "high ambitions in moving towards a sustainable future" and willing to engage with specific criticisms to "refine and define" the market better in the future.
Amongst the lead managers that fell out of the tables, Swedish corporate bank SEB was prominent after it failed to appear in any of the GSS top 10 lead managers lists or the cumulative rank.
In 2018, however, SEB had been the eighth largest lead manager on green bonds by volume and the sixth largest social bonds underwriter. Overall, this had secured it a place as the eighth largest underwriter of GSS bonds in 2018.