Bringing transparency to the sustainable bond market

With more than 4,800 bonds included, the Nasdaq Sustainable Bond Network offers an unrivalled overview of the global market. Ann-Charlotte Eliasson explains how the network is digging into the SDGs, expanding into Asia, and offering additional services to investors

Environmental Finance: Nasdaq launched its Sustainable Bond Network (NSBN) at the end of 2019 – what was the thinking behind the initiative?

Ann Charlotte EliassonAnn-Charlotte Eliasson, head of European debt and sustainable bonds, Nasdaq: The idea behind the Nasdaq Sustainable Bond Network is to increase the transparency of the sustainable bond market by collecting the data that investors need in one location, enabling comparability and aggregation. The intent of the platform is for issuers to showcase their green, social and sustainability bonds to investors, and to allow investors to be able to access, understand, collect and compare sustainable bonds, including their impact. This will give them the opportunity to assess the impact they have contributed to through their investments.

The network is not a typical exchange initiative but rather a response to the sustainable bond market's needs. Nasdaq got into the sustainability bond world in 2015 when we launched a dedicated listing segment for green, social and sustainability bonds on Nasdaq Stockholm; at the time, we were the first exchange doing so. To be eligible for the Sustainable Bond Market, issuers have to fulfil certain criteria, such as annual reporting of use of proceeds, and we also encouraged impact reporting.

When we entered into dialogue with issuers and investors, we found they were quite far from each other regarding relevant measures. It was difficult for issuers to know which indicators that investors would be interested in, and what they should therefore report on. There was a lot of time and energy wasted. We decided to apply the typical responsibility of an exchange – to help issuers and investors come together in as straightforward a way as possible – and apply it to the sustainable bond market. As investors are active all over the world, we realised that what we have observed in the Nordic sustainable bond market was also a challenge elsewhere, so we launched the Nasdaq Sustainable Bond Network.

To be clear, the network is not a listing venue for bonds; it instead collects information on sustainable bonds' use of proceeds, impact, frameworks, certifications, etc. By doing so, in the words of Emilie Béral of Vigeo Eiris, it helps "investors to make data-driven decisions for investment due diligence, selection and monitoring". The collected data is available in regular Nasdaq market data feeds and will also be available in our investor portal that we are launching during the spring.

EF: What distinguishes the NSBN from other initiatives in this area?

ACE: When we launched the network, there were no other platforms where you could easily aggregate impact and allocation figures. As investors' portfolios of sustainable bonds grew, we realised it wouldn't be possible to keep track of annual PDF reports on allocation and impact that have become the norm. Therefore, we wanted to create a platform that would both simplify the reporting from the issuers and the data collection and analysis undertaken by the investors. The Nasdaq Sustainable Bond Network is not just a database, it is a tool that can help both issuers and investors make their processes more efficient.

So we looked into what issuers were reporting, talked to investors, and we looked at the analysis that the Climate Bonds Initiative (CBI) carried out on post-issuance reporting. In that process, we realised a local initiative called the Nordic Public Sector Position Paper on Green Bond Impact Reporting had gained a lot of traction. We used that framework as a base for the first draft of our dataset and list of KPIs, and we begin asking issuers to present their data accordingly, and how KPIs that they already presented could be transformed into ours.

EF: How has participation in the NSBN grown since its launch?

ACE: The network now comprises 350 issuers and approximately 4,800 bonds, out of a global universe of around 7,000. Among those issuers, around one-third are Nasdaq ESG transparency partners, who release their sustainable bond reports and detailed data directly to the network. Information on other bonds is collected by Nasdaq using publicly available information which we then transform into our standard to improve comparability between bonds.

After collecting the data, we offer issuers the opportunity to become a Nasdaq ESG transparency partner, which allows them to edit and enrich the data that will be disclosed on the network. If they decide not to, we continue to collect the data ourselves. The reason for this dual approach is that it would be time consuming to get full coverage if we solely relied on the issuers uploading the sustainability information, meaning that the network would be less useful for investors. We now have full coverage of European sustainable bond issues, and we expect to reach full coverage of the Asian market by the time of the launch of the investor portal. We are expecting to reach full global coverage later this year.

We're also really pleased with the increase that we've seen over the last year in the number and breadth of issuers joining the network. When we launched, we started with a handful of very different issuers in terms of both size and geography, such as the very large Fannie Mae, and a number of smaller Swedish firms and a few municipalities in the US and Europe – which illustrated the breath of the network and that the reporting burden was reasonable for smaller issuers as well as larger ones.

Since then, we have attracted a wide range of issuers and investors. For example, we've welcomed supranationals such as the International Finance Corporation and the African Development Bank, as well as a wide range of corporates. On the investor side, we were particularly pleased to have BlackRock join our NSBN advisory board in June, along with APG, Alecta, Allianz Global investors and Pimco. However, we have not yet started any investor dialogues outside the advisory board, ahead of the launch of the investor portal.

A screenshot from the upcoming NSBN investor portal, showing the landing page with portfolios, high-level statistics and related SDGs

EF: Does the NSBN requesting that issuers submit specific KPIs risk increasing the reporting burden that they face?

ACE: At present, many issuers report impact a certain way, but then find themselves fielding numerous enquiries from investors for different information, or in different formats. Going forward, I expect them to refer to the data on the Network instead.

The whole idea for this is that we can support issuers. Rather than them spending hours and hours in meetings figuring out what to report, and hours and hours searching for data and filling in spreadsheets from different investors, they can instead spend their time continuing to make investments that deliver positive environmental and social impacts. That's why we embarked on this.

This is where our advisory board has been really important to us. It consists of issuers, investors, debt capital markets bankers and sustainable bond expert companies, such as second-party opinion providers. We're an exchange, and we know about financial technology, but we're not experts on sustainable bonds. We depend on our advisory board to help us make decisions on things like data and KPIs.

Last but not least, the platform is designed to accommodate as much of the existing reporting as possible. An active participant is not required to report any specific KPIs on the network. Most issuers' reports are already great, it's just that the effort involved in collecting and gathering the data within them has become burdensome.

EF: The NSBN encourages issuers to map their impacts not only to the Sustainable Development Goals (SDGs), but down to the target level?

ACE: That's right. We are encouraging issuers to report now not only on the 17 SDGs but, to the extent possible, on the 167 SDG targets that underpin those goals. The reason we are encouraging that is because investors said they would like to see such reporting. This will become a feature on the NSBN Investor Portal, which we are currently testing ahead of its launch during the spring. The portal will allow investors to upload their sustainable bond portfolios and they will be able to see, for those bonds included in the platform, the impact of their portfolio translated into KPIs and SDGs. This will both be useful for investors' own impact reporting, but it will also allow investors to find bonds that deliver specific impacts. So, if they are particularly interested in SDG 13, for example, they could search on that.

EF: What's the NSBN's view on sustainability-linked bonds?

ACE: When there are developments in the market, such as new products, for example, we bring them to the advisory board for discussion with the experts on whether they should be included on the network or not. When sustainability-linked bonds began to emerge, we discussed them in the advisory board and decided to include them. However, due to their construction, we are looking to do some development to make sure we capture a data set that is going to be quite different from the use of proceeds-type bonds we include today.

We also looked at transition bonds. For a subject as controversial as climate transition financing, we needed more than one discussion to decide whether to include them or not. In the end, we decided to disclose them on the network as well since investors who are not interested in those type of bonds can just use the search function to exclude them.

Another change we have made in response to the evolving market relates to second-party opinions. When we launched the network, it seemed obvious to us, being located in the Nordics, that all the bonds included on the network should have a second opinion or third-party review from an expert organisation. But, at our first advisory board meeting, the non- European members questioned that decision, and suggested that they would rather see the underlying sustainability bond information and make a judgement for themselves. So, a second-party opinion is no longer a necessary criteria for inclusion on the NSBN. We of course include all pre- and post- issuance verifications when they are available, as many investors are keen to see them.

Nasdaq Sustainable Bond Market Network Advisory Board Members

EF: You have announced plans for a tie-up with the Singapore Exchange on the NSBN. Can you explain what's involved?

ACE: We're aiming to have global coverage of the sustainable bond market, but we face some challenges in Asia. For example, some issuer reports are only in local languages, and while the Nasdaq group has a presence in the region, we don't have enough capacity there in the sustainable bond space. So, given our long relationship with the Singapore Exchange – which is one of the leading exchanges in the region and which already lists a large number of sustainable bonds – we thought it would be a good idea to partner up with them.

They will follow the approach we have taken in Europe: Nasdaq ESG transparency partners in the region will showcase their bonds through the partnership while, to complement this, Singapore Exchange will collect the relevant data from other Asia-Pacific sustainable bond issues.

EF: What are the next steps for the NSBN?

ACE: Our role is to bring together issuers and investors, provide transparency in the marketplace and facilitate trading. We rely on our advisory panel to guide us on how we should develop the network, and what additional features we should consider developing. We will continue to listen closely to the guidance they provide, and we look forward to continuing to be at the service of the sustainable bond market as it evolves

Contact: Ann-Charlotte Eliasson
Email: Ann-Charlotte.Eliasson@nasdaq.com
nasdaq.com