Sustainable Finance Market Update – Capital Markets

Financial Centres for Sustainability (FC4S) is launching the fourth report of the Road to COP26 Sustainable Finance Market Update Series. These decks review the main market developments to mobilize green and sustainable finance and bring examples of supporting national and international guidance and regulations.

The fourth edition is about Capital Markets and how financial materiality of environmental and climate risks is prompting several stock exchanges to require disclosure of ESG information. The number of ESG ETFs and the volume of ESG AuM worldwide have been growing fast. Despite its growth, ESG ETFS share of total ETF markets is still small and concentrated in developed countries.

Highlights:

• Concern about the financial materiality of environmental and climate risks is prompting several stock exchanges to actively promote the adoption of ESG and climate-related frameworks and standards and to require disclosure of ESG information.
• Market growth in green and sustainable bonds has been underpinned by principles that aim to facilitate comparability and provide issuers with key guidance. The use of external reviews on sustainable bonds complementing the use of principles has become a market practice to reduce the risk of SDG-washing.
• While green bonds still represent the majority of sustainability related bond issuance, social and sustainability bonds have seen a rapid growth during the Covid-19 pandemic. According to BloombergNEF their cumulative issuance reached us$209 billion (April 2020 – December 2020).
• Equity and fixed income ESG indices grew fast in the past and, the variety of sustainability indices has been growing, including bond, equity and transition indices. According to the Index Industry Association, equity and fixed income ESG indices grew globally by 40.2% from September 2019 to September 2020.
• The growth of the sustainability market has given rise to new and innovative forms of financial products, such us green securitization, catastrophe (CAT) bonds, sustainability-linked bonds and nature performance bonds.