Top lead managers of 2018 predict buoyant green, social and sustainability bond market

By Elena K. Johansson

The biggest underwriters in the green, social and sustainability (GSS) bond market in 2018 have predicted a strong year of issuance.

Credit Agricole retained its position as the biggest lead manager in the green bond market and the social bond market, according to Environmental Finance's bond database.

Meanwhile, HSBC clung on to its position as biggest underwriter of sustainability bonds.

When looking at all three markets combined, Credit Agricole was on top.

The competition in the green bond market was hard fought, with Bank of America Merrill Lynch (BAML) hot on the heels of Credit Agricole. BAML's share of the deals was $9.9 billion, compared with Credit Agricole's $10.5 billion.

The margin of victory was even finer in the sustainability bond market, where Credit Agricole was breathing down the neck of HSBC. HSBC's share of the market was $2.003 billion, while Credit Agricole had $1.98 billion.

Credit Agricole was involved in dozens of deals in 2018, including many in its native France, where the labelled bond market is particularly active, but also across the globe. For example, it was lead manager for a €1.25 billion social bond issuance by the African Development Bank, a $2.7 billion dual-tranche issue from ING, and a $1.6 billion deal from ICBC in China.

Erwan Crehalet, credit analyst for green bonds and climate risks at Credit Agricole, believes that the green bond market will grow in 2019, possibly as a result of new sectors stepping in.

He predicts €180 billion of primary green, social bonds and sustainability bond issuance which, according to Credit Agricole's figures, would represent a 30% increase on 2018.

Asian and non-financial corporate issuers will be more active, he said.

Another potential boost to the market, said Tanguy Claquin, head of sustainable banking at Credit Agricole, could come from the forthcoming EU taxonomy and the resulting green bond standard.

"The main challenges are external to the green bonds market – the political and economic backdrop will be decisive to sustain the market development and keep decision makers focused on climate finance," he said. "The main opportunity certainly relies on the outcome of the EU Technical Expert Group and the final level of ambition achieved by the EU taxonomy and EU green bond standard propositions."

Suzanne Buchta, global head of ESG capital markets at BAML, sees potential growth in the asset-backed securitisation (ABS) space, whether that is residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS) or electric vehicle lease ABS.

This, and corporate issuance, will spur the growth of the green bond market in 2019, she said. Buchta observed that front-running corporate issuers in the utilities' and real estate sectors have entered the market, which have triggered their peers to follow.

"With each opening of a new sector, that enables the market, over time, to grow threefold, fivefold," she said, adding: "I think that snowballing effect will continue in 2019".

Farnam Bidgoli, head of sustainable bonds for the EMEA region at HSBC, argues that corporate issuance in the green, social and sustainability market is both a "big opportunity" and a challenge.

She also points to the disproportionate growth of the sustainability bond market, which saw $18 billion of issues in 2018, compared with $10 billion the previous year.

"The sustainability framework really came of age in 2018," she said.

An HSBC report predicts $40-70 billion in social and sustainability bonds issuance in 2019, as they continue to outpace the growth of the green bond market.

"It all comes back to the global priorities of the Paris Agreement and the UN Sustainable Development Goals (SDGs) which we continue to hear on top of investors' minds," Bidgoli explains.

Jean-Marc Mercier, global co-head debt capital markets at HSBC, added: "The test [in 2019] is impact reporting. That could be very important to demonstrate it is a robust market".

HSBC supported the issuance of large sustainability bonds, such as a €2.02 billion sustainability bond issuance by the State of North Rhine-Westphalia (NRW), a €1 billion issuance by Comunidad de Madrid, and a €750 million issuance by BNG Bank.