ESG record growth in the covered bond market, but still a delicate plant

The first half of the year is over. Time for a ESG mid-term review (as of 30 June 2021). In the first six months of the current year, a total of eleven covered bonds in ESG format and denominated in euros were issued amounting to a total of EUR 8.25bn, whereby we refer in this study to ESG covered bonds with an issue volume of at least EUR 250m. This means that the total ESG volume from the previous year was already exceeded in the first half of 2021 (2020: EUR 8.15bn). This seems particularly remarkable considering the low new issuance activity in the covered bond market. As in previous years, green mortgage covered bonds continued to dominate this year's ESG issues on the primary market.


All in all, the total outstanding volume of ESG covered bonds amounts to EUR 32.2bn. In line with developments in the ESG primary market, mortgage covered bonds currently outweigh ESG bonds overall (84%), while the share of outstanding public-sector covered bonds has further decreased. In addition, green covered bonds continue to have the highest market share of the total ESG outstanding volume (65%).


In the current environment, which is characterised in particular by somewhat weaker demand for covered bonds compared to the first quarter of the year, bonds issued in ESG format stand out positively and - from an investor's perspective - often bring with them an increase in attractiveness. Although we do not see the systematic spread difference (greenium) between ESG and conventional covered bonds on the secondary market that is often discussed in the market, in our view there is likely to be a lower placement risk for ESG issuers overall. This is particularly relevant for those issuers whose bonds do not qualify for the ECB's purchase programme.


All in all, we assume that the ESG bond segment will continue to gain importance in the covered bond market in the future. The first half of the year in particular has shown that ESG issuers have successfully issued more and more bonds in ESG format despite the overall weak primary market supply. Therefore, the ESG delicate plant should continue to grow vigorously in the future!

Verena Kaiser

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