GSS issuance and the growth of qualifying assets

International banks are keen to increase their activity in sustainable debt markets. Whether this means more green, social and sustainability (GSS) bonds depends on the scale of their qualifying asset books and how demand for labelled product evolves.

RICH How active are banks as issuers of green, social and sustainability (GSS)bonds? How much issuance is there and in which currencies – and what are the aspirations for growth?

KOBAYASHI We had very good demand from domestic investors for our Australian dollar green bond. We need to consider our green-bond issuance from an economic point of view, though, because we have limited eligible green assets. This means we need to consider the currencies that will be most effective for demand and which markets will be most suited to our ESG [environmental, social and governance] approach.

If we think issuing an Australian dollar TLAC green bond will give us the best outcome, we will do so. But US dollars and euros are also very good markets for green bonds.

We also understand that Australian domestic investors tend to prefer Australian domestic assets to back green-bond issuance. So we need to be conscious of the projects we have in Australian dollars.

TANAKA Mizuho issued a €500 million (US$550.3 million) green bond in 2017. Our plans for future issuance are still to be decided, but we will consider further issuance based on investor demand and market conditions.

YEOH Our activity is more on the asset side. We are monitoring our portfolios and have policies on sustainability for our lending, rather than pumping out green bonds. We did issue one green bond, in 2017. But, when we speak to investors, we get the feeling the emphasis is on what the issuer’s asset book looks like rather than on particular transactions.

KAU We do not have set currencies for GSS issuance. We can issue in a large variety of markets. We have recently priced a European sustainable development goals (SDG)-linked tier-two bond, which is only the second SDG-linked bond we have issued. We also have one outstanding Australian dollar green bond.

It is a growing space and ANZ has just announced a target of A$50 billion (US$34.1 billion) of what is effectively SDG-like lending by 2025. This is a substantial amount, so the bank is very motivated to generate more qualifying assets. We anticipate growth on our liability side as we issue more funding for these projects.

KAUFMANN We issued our first green bond in 2018 using assets from our renewable-energy portfolio – off- and onshore wind and solar. With this transaction, we have been able to generate significant interest from investors that have dedicated portfolios for green investments. Thanks to this deal, we have also been able to get new investors for Commerzbank.

Going forward, green bonds will play a role for all issuers. However, we have to keep in mind that we need to have infrastructure in place that enables us to identify green assets and to run the necessary reporting.

HALES In 2014, TD issued the first green bond from a Canadian commercial bank: a C$500 million (US$377.2 million) three-year bond. In 2017, TD issued its second green bond, a US$1 billion three-year bond. The bank continues to monitor opportunities for further GSS bond issuance.

ZAUNMAYR The global market is seeing the emergence and growth of sustainability-linked loans and some market participants believe these could provide massive growth to the ESG debt asset class. Which banks are SLL lenders and could these and other loan products provide asset growth for GSS bond programmes?

KAU Yes, SLLs could provide assets for GSS issuance. This said, we haven’t been funding-constrained at all over the past few years and funding certainly hasn’t limited our ability to make loans. Generally speaking, lending growth in the past few years has been modest as a result of the slower economy and much tighter credit and lending standards environment – so it has not been a liability-driven credit squeeze at all.

Second, ANZ is very focused on the ESG space. As the pools of liquidity that are restricted to ESG-type investments increase they will facilitate increased lending on the asset side.

In time, there will hopefully be a relative-pricing response as the demand for ESG-linked products increases. This, in turn, will enable ANZ to provide cheaper funding to our ESG lending business and enable us to generate more lending through this mechanism.

KAUFMANN Commerzbank is exploring opportunities on the loan side. A few months ago, the bank introduced a green residential-mortgage programme to the market – in which we offer mortgages to clients at an advantage if they are fulfilling predefined emissions criteria.

It is set up in a way that we can identify these loans. I can imagine banks continuing to explore these opportunities to grow their GSS loan portfolios.

KOBAYASHI MUFG has set sustainable-finance goals of ¥20 trillion (US$184 billion) across a range of products, including loans, between financial years 2019 and 2030. Of this, ¥8 trillion is for the area of environmental – green-linked or SDG-linked loans would come under this.

As we increase our lending to these projects, our eligible asset base will also increase. This should increase our capability to issue green bonds, among other products.

TANAKA Mizuho has actively tackled SLLs in two cases. The first example is an SLL facility in Hong Kong, the first ever to be executed in that jurisdiction. The borrowing company’s ESG performance is assessed by an independent third party. The second example is green loans in Thailand, which are also the first such loans executed in the country. They are also positive incentive loans, in which the commercial terms are linked to improvement in the company’s ESG rating.

Such efforts are expected to contribute to expansion of our issuance of GSS bonds in the future.


When we speak to investors, we get the feeling that the emphasis is on what the issuer's asset book looks like, rather than on particular issuance.