Leading underwriter of Sustainable Bonds
Sustainable acting and managing are founding principles and part of the Cooperative DNA
Corporate Responsibility has a long tradition at cooperative banks. Accordingly, at DZ BANK, as central institution of the cooperative network, sustainability is anchored in our DNA. Sustainable Finance is therefore an essential part of our core business. With our Sustainable Financing products, we take into account environmental, social and ethical criteria and thus specifically promote the sustainable development of our society and the responsible use of limited resources.
Accordingly, we at DZ BANK have a team within our Capital Markets division that is dedicated to Sustainable Finance. For many years, the bank's DCM team has been actively contributing to the further development of the market for Sustainable Finance as a reliable partner for issuers. This was done, among other things through innovations such as ESGlocate (an innovative allocation tool for issuers of Sustainable Bonds), the KPI Library (a tool for the rapid identification of possible KPIs for Target-Linked structures) or FrameNow (an automated construction kit that supports and accelerates the creation of Sustainable Finance Frameworks).
Our ESG experts provide issuers with holistic support in the context of a Sustainable Finance Transaction, i.e. in structuring, placement and reporting. In addition to our activities in the primary market, we also develop and shape the topic of Sustainable Finance in numerous national (e.g. Forum Nachhaltige Geldanlagen (FNG), Green and Sustainable Finance Cluster Germany (GSFCG), Sustainable Finance Advisory Board of the German Federal Government) and international (Climate Bonds Initiative, ICMA Green Bond Principles, UN PRB) initiatives and working groups.
The signs are good: The Sustainable Bond market is warming up for new records
2023: Positive turnaround, but no new heights yet
For a long time, it looked as if 2023 would be the second consecutive year in which the Sustainable Bond market would see a decline in new issuance volume. Ongoing geopolitical uncertainties, macroeconomic headwind, increased cost of capital, a volatile overall market and challenges about sustainable finance regulation are just some of the factors that have led to the postponement or even cancellation of sustainable projects, a slowdown in sustainable lending by financial institutions as well as a slowdown in sustainable funding activities.
However, the year ended on a conciliatory note, with the new issuance volume growing by around 14% to just under USD 866bn. The Sustainable Bonds' share of total market new issuance increased from 18.5% in 2022 to 19.8% in 2023.
With a share of 59%, Green Bonds reasserted their position as the dominant Sustainable Bond label in terms of issuance. Target-Linked structures faced another challenging year as many investors continue to criticize the lack of materiality of the selected KPIs and the level of ambition of the underlying sustainability targets. With a share of 40%, SSAs remained the biggest contributor (by volume) and hence a solid anchor and guarantor for quality in the Sustainable Bond market. With an increase of 25%, issuance by financial institutions has continued its uninterrupted growth over the past 10 years.
Without doubt, 2023 was a record year for Sovereign Sustainable Bonds issuance. The new issuance volume increased by around 49% to USD 156bn (2022: USD 105bn), hence surpassing the previous record volume of USD 117bn in 2021. At the end of 2023, 52 Sovereigns had issued Sustainable Bonds with a cumulative volume of more than USD 450bn.
A look into the crystal ball: A promising start in 2024 whets the appetite for more
If the promising start to 2024 continues, the market would be poised to surpass the USD 1 trillion mark, to warm up for new records in 2025 and the following years.
We are confident that the upward trend will persist in 2024 and forecast that the new issuance volume in the Sustainable Bond market will increase by 20% to around USD 1,04trn. We expect market growth in all segments of the market.
We forecast accelerated, sustained growth from 2025 onwards. As central banks are expected to begin to cut interest rates and more existing sustainable debt matures, issuance will pick up. Growth could be even stronger if fiscal obstacles can be overcome, especially in Europe. The share of Sustainable Bonds in total issuance is expected to rise to around 22% in 2024 and will be more than a quarter in a few years.
Green Bonds are expected to continue to dominate the Sustainable Bond market in 2024. Among other things, we expect Green Bond issuance by the EU, one of the largest Green Bond issuers, to accelerate in 2024 as well as a strong contribution from other Sovereigns.
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Our initiative for the markets of tomorrow
The Sustainable Finance market is characterised by innovations, both in structural and technical terms. With our innovation projects "ESGlocate" and "KPI Library", we at DZ BANK contribute to the further development and standardisation of the market and offer our customers innovative solutions for specific challenges within the issuance process. In doing so, we set new standards in the market with our ideas for solutions for both structuring (KPI Library) and placement (ESGlocate).
More and more issuers are using the option of a sustainability-focused allocation process as they are interested in putting a sustainable exclamation mark at the end of the value chain of a Sustainable Bond transaction. ESGlocate is an innovative, data-based ESG scoring tool used by investors in the context of Sustainable Bond transactions.
DZ BANK has recognised the dynamics in the Sustainable Finance Market and launched the DZ BANK KPI Library, an innovative project for issuers of so-called Target-Linked structures. Based on the economic sectors in which the issuer is active, the KPI Library provides a list of possible key performance indicators (KPIs) that could underlie such a transaction. The guidelines of the ICMA Sustainability-Linked Bond Principles, the Sustainable Development Goals of the United Nations and the EU Taxonomy, among others, serve as orientation.
Your added value
Support for numerous inaugural transactions as well as transactions of regular issuers. In 2023: 34 Green, Social, Sustainability and Sustainability-Linked SSD transactions of more than EUR 27 billion for SSAs, FIGs and Corporates.
One of the most established bookrunner track records among German banks since 2007. DZ BANK is one of the leading European dealer banks in its core market for Sustainable Bond transactions (Green, Social, Sustainability and Sustainability-Linked Bonds).
DZ BANK-USP: Sustainable Investment Research with a unique ESG analysis and rating methodology; strong relationships with SRI investors in the cooperative network and beyond.
DZ BANK as an innovator in the ESG market: ESGlocate – sustainability-focused allocation of Sustainable Bonds; KPI Library - comprehensive KPI database for issuers of Target-Linked transactions; FrameNow - Automated construction kit that supports and accelerates the creation of
Sustainable Finance Frameworks.
Regular Sustainable Finance publications on structural background, market developments in the Sustainable Bond segment and the regulatory environment as well as upcoming events.
Further development of the Sustainable Finance market: DZ BANK is involved in numerous national and international initiatives and working groups to strengthen and further develop the market for Sustainable Finance.
Successful placements for ESG issuers
Selected structuring mandates since 2022
