MainStreet Partners, the London-based ESG Advisory and Portfolio Analytics firm, have released its fourth quarterly GSS Bonds report. This edition focuses on the most important factors that are shaping the issuance of GSS bonds and the evolution of the market.
Since 2010, MainStreet Partners’ proprietary GSS bonds databases have provided a unique set of tools to investors to measure and manage sustainability risks and KPIs. The 3 main products applicable to GSS securities are:
· Bond Ratings – GSS bonds are analysed according to a proprietary framework that focuses on issuer-specific and bond-specific factors.
· Impact Results – impact data reported by GSS bond issuers are aggregated and normalized, based on a set of environmental and social variables.
· EU Taxonomy Alignment – environmental projects financed by GSS bonds are measured against the regulatory criteria. Like ‘Bond Ratings’ and ‘Impact Results’, the data can be aggregated at portfolio level and provide a quantitative indication of its sustainability.
The report provides an extensive overview of 2 relevant trends: trends in GSS fund reclassifications, as well as trends in Green Bond’s use of proceeds, focussing on the boom in the Electric Vehicles market.
Among the fastest growing, and most Taxonomy-friendly, green activities are electric vehicles (EVs) and EVs charging infrastructure. Regulation, and ever so the market, recognized the importance and the benefits of a systemic transition for the transportation sector.
Key takeaways from the Report:
· GSS Bond issuance has been volatile in 2022: a few months saw less than 15 billion euros come to market, but others added over 60 billion euros to the GSS Bonds market per month;
· Based on a large sample, 37% of GSS funds are currently labelled as article 8 under SFDR. Reclassifications from article 9 leave only few asset managers reaping benefits of a robust sustainable profile;
· In 2022, GSS Bonds issued by the auto industry represented an all-time high of 19% out of all bonds issued by non-financial corporates, up from 4% in 2020 and 7% in 2021;
· Battery Electric Vehicles sales grew 75% YoY in the first half of 2022 – however, a swift transition for the sector will come free of challenges. Charging infrastructure and onshoring of supply chains are already a priority for car manufactures issuing GSS Bonds: Volkswagen, Ford and General Motors are just some of the large corporates that issued GSS Bonds in 2022.
Commenting on the findings, Max Roper, Research Analyst at MainStreet Partners, said: “1 out of 5 bonds from the non-financial sector this year came from the auto industry – and this doesn’t even consider the pivotal role of utilities in providing EVs’ charging infrastructure. Use of proceeds, such as the manufacture of EVs and batteries, are all covered by the European Taxonomy, and based on our analysis, are prime candidates for upcoming green bond issuance.
By looking more in general at the entire stock of Green Bonds, energy-related activities still dominate. Our project level analysis shows that Green Bonds are on average 70% aligned to the European Taxonomy, 30% of which is thanks to renewable energy projects.
Finally, we believe that funds that are seriously committed to invest in GSS bonds can leverage a robust Taxonomy Alignment to justify their sustainability credentials – transparency and data is, and will continue to be, an essential feature of Green Bonds.”
