April 2023 | Sustainable Finance Market Highlights

Sustainable bond issuances rose significantly in the first quarter of this year (Bloomberg), as a surge in sovereign issues helped boost volumes by 23% compared with Q1 2022. Green Use of Proceed issuances remained dominant.

In February, the European Commission announced a new Platform on Sustainable Finance. The Platform will help improve the EU Taxonomy usability in Europe and globally (European Commission).

Also in February, the Loan Market Association (LMA), the Loan Syndications & Trading Association (LSTA) and the Asia Pacific Loan Market Association (APLMA) published updated versions of the Green Loan Principles and Guidance, the Social Loan Principles and Guidance and the Sustainability-Linked Loan Principles and Guidance, reflecting market developments across the global sustainable finance markets. Some key takeaways from the update:

• Borrowers are required to set Key Performance Indicators (KPIs) that are measurable and quantifiable on a consistent methodological basis and can be benchmarked to external references or definitions.
• Stressed the importance of the materiality of the KPIs in relation to the borrower’s core sustainability and business strategy, and the importance of addressing relevant ESG challenges of its industry sector.
• Recommendation that borrowers should have an annual Sustainability Performance Target (SPT) for each KPI and where possible, disclose strategic information that may impact the achievement of the SPT.
• Post-signing verification being a mandatory requirement
• All loans originated, extended or refinanced after March 9, 2023, must fully align with the relevant 2023 Principles to be classified as “green loans,” “social loans” or “sustainability-linked loans.”

In March, the Science Based Targets initiative (SBTi) announced a new Technical Council, a permanent and independent decision-making body responsible for ensuring the robustness and credibility of the SBTi standards, methods and guidance. Technical updates are expected to be implemented in 2023 as well as a draft of Oil&Gas sector guidance, further guidance for high-emitting sectors, and on how companies can cut their value chain emissions (SBTi).

A final EU Green Bond Standards (GBS) text is expected to be published in April 2023 (Environmental Finance). Transition elements to cover the greenwashing risk will be included. Under the EU GSB, issuers are required to explain the rationale of their green bond issuances to finance their global sustainability transition.