Crisis-related drop in green bond issuance ‘temporary’

Banks have been issuing fewer green bonds this year as a result of the coronavirus crisis

Banks have been issuing fewer green bonds this year as a result of the coronavirus crisis, despite forecasts to the contrary, but DBRS Morningstar sees this as a temporary blip amid upward momentum

This year to the end of March, overall green bond issuance dropped 36% compared to the same period in 2019 to $66.6bn, according to DBRS Morningstar. However, analysts predict that issuance will shoot back up once the effects of the crisis peter out.

According to DBRS Morningstar’s research, green bond issuance by financial institutions has been most adversely affected, dropping nearly 50% compared to record-breaking 2019 amid deteriorating market conditions. 

But banks alone are not to blame; issuance has dropped across the board. The only ones bucking the trend are government-backed entities, which have actually seen issuance rise 16% year-on-year. The likely reason for this is that these bonds are linked to national climate-related targets, and are therefore more resilient to market stress.

See also: – Covid-19 fuels social bond issuance: Will they overtake green bonds in 2020?

Yet despite the significant drop among corporates, DBRS Morningstar predicts bank issuance of green bonds will begin returning to normal as soon as “in coming quarters”.

In a recent report, named Banks’ Push for Sustainable Finance Continues Despite COVID-19 Related Disruption, the firm said: “In line with the trends observed to date, this will continue to reflect both the banks’ increasing engagement in their social responsibility role as well as their desire to appeal to a broad range of investors.

“It is important for the banks to demonstrate their ability to better align part of their lending activities to support sustainability causes, especially given that an increasing number of asset managers are committing to making a positive impact on the environment through their investments.”

Climate disclosures

At the same time, the report also notes that banking organisations have continued to increase their support for climate disclosures, evidenced by the growing number of banks signing up for Task Force on Climate-Related Financial Disclosures (TCFD).

As of the end of May, banks account for 9% of the total supporters of TCFD, with 111 organisations officially declaring their intention to disclose climate-related information – up from just 46 at the end of May 2018, though still well below the 17% made up by asset managers.

TCFD was originally established in December 2015 by the Financial Stability Board (FSB) with the aim to develop a framework for voluntary, consistent climate-related financial risk disclosures to help businesses become more transparent on these issues.

In 2017, the TCFD published a set of recommendations on financial disclosures within the areas of governance, strategy, risk management, and metrics and targets, with a strong focus on risks and opportunities related to the transition to a lower-carbon economy.

The report said: “Given the increasing awareness of climate change risks across clients, investors and regulators, we expect the number of banks that sign up to support TCFD recommendations to continue increasing.

“And, albeit disclosure to date appears to vary even amongst the banks supporting TCFD, we consider that this framework provides a sound foundation towards increased transparency on climate-related risks.” 


Natalie Kenway

Natalie is editor in chief at MA Financial covering ESG Clarity, Portfolio Adviser and International Adviser. She was previously global head of ESG insight for ESG Clarity and has been an investment journalist...