SSAs stay ahead of changing Kangaroo and global market norms

WEHLERT This year is the second year of a revival of the US dollar market. It followed a period when the euro market was the more attractive option for overall funding during QE. However, with the end of QE, the euro market began to widen, as expected.

With the euro and US dollar markets at equal levels versus swaps, we pursued large transactions in both. I’m particularly glad we completed a 10-year US dollar green bond in March, as these opportunities are rare. We took advantage of US dollar market windows when available, especially given the distinct investor base behind the US dollar – there is still more demand internationally for US dollars than euros, which remains more driven out of Europe.

We will finish our funding programme with €78 billion (US$81.5 billion) issued, in November. This is earlier than normal. We aim to let the market settle before announcing the funding programme for next year, at the beginning of December.

BRUSAS We tend to be more active at the beginning of the year – in January to March – then the next big month is usually September. We have seen this pattern for many years – we usually have some 60-70 per cent of the funding plan completed by [northern hemisphere] autumn, and this year was no exception. Added to this, in 2024 everybody had the US election in mind.

Right now, we have completed all the more critical, bigger benchmark transactions we want to do during the year. We have about €8.7 billion done out of an €8-9 billion funding programme. We have not closed down and we are happy to continue issuing, but more likely in private placement format, taps and whatever opportunistic deals we see.

We will do some pre-funding, just to lift some of the pressure from Q1 2025 so we don’t have to be competing for windows in the very first weeks of the year. This said, we have a substantial amount of maturing bonds in Q1 2026, which need to be refinanced one year ahead, so we need to be active at the beginning of 2025.

BERGSTRÖM We started the year with plans to launch our first trade in March. However, the market was highly constructive and orderbooks significantly oversubscribed so we decided to take advantage of the opportunity and proceeded with a five-year dollar transaction, which we capped at US$1 billion – a solid benchmark size that suited our needs at the time. Following this, we remained relatively quiet until August, when we completed two additional benchmark transactions: one in US dollars and one in euros.

Our funding needs have been smaller than usual this year. They will increase again next year and in 2026. But for 2024 we are only looking to finish the year at approximately US$6 billion, of which we have issued US$5 billion. For the remainder of the year, there is probably no space to do a benchmark so we will be looking for private placements.

HEGEN As with the other issuers, we also started unusually early this year. Being a relatively small issuer and as markets have fewer windows available, it is important to be agile and act quickly. We do not want to go head to head with a direct peer. This led to our decision to proceed with our 10-year euro deal on 3 January. We would normally wait for EIB [European Investment Bank] or KfW [Bankengruppe] to open the market. Looking back, we are very happy we went ahead.

We are also nearly done with our benchmark deals for the year, which means we will shift our focus more toward private placements and other arbitrage opportunities.

FLORI Typically, we aim to be about 70-75 per cent done with our funding before the summer, as the latter part of the year could be trickier to navigate with fewer issuance windows. Our decision to fund in volume earlier this year wasn’t solely due to increased volatility potentially triggered by the US election; we also saw strong investor demand. By summer, we had already completed more than 80 per cent of our funding – a result of issuing larger benchmarks than usual to navigate limited issuance windows while meeting significant demand.

For instance, our first two benchmarks in euros and dollars were each 1.5 billion – something we haven’t done before – thanks to record and high-quality orderbooks. We usually complete a benchmark deal in each currency during Q1; this year we issued them within the first two weeks.

DORE It’s slightly different for us because our fiscal year starts on 1 July. So, while our peers may be winding down, we’re ramping up our funding since we are only into the second quarter of our fiscal year.

Even so, we had a very strong start in January, including issuing the first Australian, Canadian and US dollar trades of the calendar year. We also issued in other currencies, such as sterling and euros, which aligned with the demand patterns we anticipated.

We knew there would be fewer issuance windows, with potential for increased volatility given the high number of elections across major jurisdictions. Our strategy, therefore, was to take advantage of any available windows early in the year.

Even as we moved into our new fiscal year, in July, we kept this proactive approach. By the end of October, we had achieved significant progress: with a funding programme of US$50-55 billion for IBRD [International Bank for Reconstruction and Development – World Bank] and US$10-15 billion for IDA [International Development Association], we have raised more than US$25 billion for IBRD alone, achieving nearly 50 per cent of our funding programme within the first quarter of our fiscal year.

This pace made sense, given the strong demand, potential volatility ahead and limited issuance windows. Beyond our core funding, we also executed a major trade for IFFIm [International Finance Facility for Immunisation], for which we serve as treasury manager. This US$1 billion transaction was the largest ever for IFFIm since its inaugural trade in 2006. It attracted a record orderbook of more than US$4 billion.

We have observed many issuers front-loading their programmes and, consequently, we have seen a reduction in supply in the last quarter of the year, particularly at the short end of the curve. This supply reduction was reflected in the impressive demand for the IFFIm transaction, which was short-dated.

MORRISON I agree that there have been limited issuance windows this year. As we planned for 2024, we put a lot of thought into the shortened timeline and the fewer execution windows that would be available throughout the year.

We opted for a moderate front-loading approach, aiming to maintain a steady presence throughout the year. By midyear, we had completed about two-thirds of our C$15 billion (US$10.6 billion) programme. We decided to reserve a larger portion of our Canadian dollar funding for the second half, when we typically enjoy reliable and consistent market access even in volatile periods.

Throughout the year, we have found the market to be surprisingly robust – particularly in US dollars, where we have enjoyed continuous access and successful trades. On the other hand, euros and sterling have been a bit less certain, making it essential to choose windows carefully to get trades off the ground.

LOVE We didn’t do anything particularly different this year. Our funding year aligns with the calendar year, and we typically experience stronger demand in the first quarter, which was consistent this year. Anticipating this, we generally aim to fund 60-70 per cent of our programme by the end of June, mindful that summer demand can be unpredictable and tends to slow down.

We aim to be close to finishing our funding task by late November, around Thanksgiving, and this year, with the US election on the horizon, our goal was to complete most of our funding by the end of October. We are pretty much there now – we had a target of approximately US$14 billion and we have reached US$13.6 billion by 28 October.

Looking ahead, aside from potentially exploring some private placements or pre-funding for next year if the opportunity arises, our funding will likely wrap up soon. This is not atypical for EDC [Export Development Canada].

MONTEIRO We also did some pre-funding for our FY25 programme. We did a US$2 billion global benchmark at the end of June, in anticipation of the US election. By 24 September, we had reached US$7 billion out of our US$15 billion task for the fiscal year.

In most calendar years, we usually look at the January window. We issued ahead of this in 2024 because we anticipated January being super crowded. In November 2023, we issued a US$1.5 billion social bond that was really well received – with an orderbook of US$6 billion. This allowed us to increase our target size by US$500 million. In fact, in Q4 last year we issued in a range of markets – also due to the fact that rates were rallying at the time.

FAN We front-loaded the 2024 borrowing programme in anticipation of expected volatility in the second half of the year due to the US election. At the end of Q1, we were around 45 per cent done of the then projected US$19.5 billion programme – compared with 27 per cent in 2023 and 36 per cent in 2022. The programme was increased later in the year, to US$21 billion, in part due to a desire to smooth out the 2025 borrowing programme – which is forecast to be in the context of US$21 billion. We also completed the 2024 programme earlier than usual, in mid-October.

In addition to US dollar fixed-rate globals, we have enjoyed an increase in US dollar demand in the form of private placements, floating-rate notes and callable bonds. We have also seen increased demand for Indian rupee denominated bonds due to the currency’s inclusion in the J.P. Morgan Emerging Markets Bond Index. This is our third-largest currency of issuance in 2024, behind US dollars and sterling.

DORE One thing we have noticed this year is the incredible depth of the US dollar market. Previously, we were cautious about sequencing transactions, avoiding overlap among issuers to ensure smooth absorption of trades, particularly outside the euro market – which is the only one that traditionally has been able to absorb multiple simultaneous transactions.

However, with fewer issuance windows this year, issuers haven’t had the option to wait. The markets have absorbed supply very effectively, revealing unexpected depth in the SSA space.

For the first time this year, we tested issuing euros and US dollars on the same day – a triple tranche two- and 10-year in US dollars alongside a seven-year in euros. Historically, we might have paired a major currency like the US dollar with a more niche one, like the Australian dollar, as they have distinct investor bases. But issuing euros and US dollars concurrently is unprecedented given their overlapping investor bases.

Remarkably, within 24 hours we completed US$6.5 billion and €2.5 billion, and another US$1 billion in callable format, marking our largest single-day funding amount or 20 per cent of our funding in one day.

FAN IADB [Inter-American Development Bank] has noticed an increase in demand from hedge funds, which has translated into an increase in orderbook sizes. We welcome these orders as they help generate momentum in the early stages of the bookbuild process, creating a positive perception of the transaction.

We have also noticed an increase in demand from bank treasuries – including to some extent smaller banks and private banks – as these accounts sought to increase their HQLA [high-quality liquid asset] portfolio holdings.

BRUSAS We value the participation of a diverse range of investors and especially during the bookbuild process it is good to get a wide range of support to get a dynamic orderbook.

We have noted that some hedge funds have shifted toward a buy-and-hold strategy, which could be acknowledged in allocations. But especially in cases of oversubscription, and since we want to support our more traditional investors like central banks and bank treasuries, we usually need to adjust and scale down final allocations.

BERGSTRÖM Demand from hedge funds has been strong, which we view as essential in driving momentum in orderbooks. We also believe it is important for them to gain some level of appreciation and participation in the final orderbooks.

HEGEN This also holds for us: we have seen an increase in participation from the hedge fund investor base. As they add value in generating momentum to deals, I think it is important to show our appreciation.

However, it is not always clear what they are aiming for. This has resulted in some meetings with this investor base to get to know each other a bit better. Since summer, when the market became somewhat more challenging, we have seen the orders of hedge funds tapering off. Nevertheless, they are still active.

MORRISON In Q1, we witnessed an outsized increase in hedge fund interest in the SSA space, resulting in quite substantial orderbooks. We recorded our second-largest US dollar orderbook ever in October. By this time, though, hedge fund interest had mostly tapered off, as many funds were already well invested. We have strong relationships with a few hedge funds that we find very positive for our programme.

We differentiate among hedge funds, though – as we would with any investor group. Our best relationships are with funds that are consistent across our programme in primary, trade our bonds in the secondary market and generally have reach across markets.

DORE We haven’t seen a huge influx of hedge fund money in our Australian dollar transactions. In January, we executed World Bank’s largest ever Australian dollar trade – a A$2 billion (US$1.4 billion) deal. This deal was driven primarily by bank treasuries, official institutions and some new offshore investors. Typically, we get 30-50 per cent domestic participation in our Kangaroo bonds; in this trade domestic uptake dropped in percentage terms but the absolute amount remained strong.

Hedge funds participate in currencies like US dollars and euros, though with differing quality particularly in their holding periods. Hedge funds play a role by providing a float and therefore enhance liquidity. This is because many of our bonds are held by central banks and official institutions, and liquidity books holding for HQLA purposes, meaning they are typically buy-and-hold. In this context, having some float in secondary-market activity is not a bad thing. Diversity of investors is also positive.

One challenge with hedge fund participation is interpreting orderbook quality. In the past, a large orderbook was an indication that a deal was going very well. Now, with more hedge fund involvement, it’s sometimes harder to ascertain how well a transaction is doing just going by orderbook size.

LOVE In the past, if we wanted more buy-and-hold investors in the book, there were questions raised about hedge funds’ behaviour and impact. But discussions with syndicate now are focused on the fact that hedge funds definitely have an important role to play when we issue a bond, especially in building early momentum and supporting trading activity.

Of course we wouldn’t allocate the entire book to hedge funds; we want to have a diversified book that includes high-quality, buy-and-hold investors. But having a certain percentage of hedge funds helps maintain secondary trading, so we try to be as fair as possible when considering our allocation process.

FLORI We don’t typically see heavy hedge fund involvement, yet this year they have appeared in our books in size. Having surprisingly direct and very fruitful meetings with hedge funds has been a new experience for me. I have noticed that they seem to be approaching bonds with a quasi buy-and-hold mentality, which is not what I would have expected. In our experience, hedge funds have generally been satisfied with the allocations they receive, even if they are relatively small.

In Australia, where we hadn’t issued in some time, we returned with a benchmark earlier this year. Although hedge funds didn’t participate due to timing – it was priced too early in the European morning – we still had productive discussions leading up to execution.

HEGEN It is sometimes challenging to gauge hedge fund demand accurately. During the COVID-19 era, with high liquidity in the market, orders tended to be inflated so issuers had to avoid overallocation and ensure strong performance.

The dynamics have shifted. A hedge fund placing a sizable order definitely does not want 100 per cent but its specific target can be tricky to pinpoint. This makes the allocation process more nuanced, especially when aiming for the deal to perform well for our core official institution investor base.

WEHLERT Hedge funds are indeed tricky to navigate, particularly regarding orders. We maintain good relationships and there is a level of trust. Hedge funds have also built strong connections with issuers, which has made them helpful in the price-discovery process. Overall, our view on their role has grown more positive.

However, we don’t want orderbooks to be too big – if we go too wide, the orderbook may grow larger but volatility increases, which doesn’t benefit anyone. I’m also critical of platforms like the MTS electronic trading system, as they can create volatility and encourage pricing toward the dealer community only. This is not helpful as it ultimately drives spreads wider. Hedge funds add some value at the margin, but it is important to discuss their true interest and allocate orders thoughtfully.

Another observation is that we see more trading activity in euros than US dollars. Tight US Treasury spreads are not attractive to dealers and hedge funds. The focus there is more on the rate, especially with the two-year Treasury still offering 4 per cent yield. This attracts official institutions and central banks, which are more buy-and-hold.

Meanwhile, spreads in the euro market are much wider: some of our bonds have traded 50 basis points over Bunds in the recent past, making them attractive to trading accounts that hedge via Bunds. This increased opportunity explains the stronger hedge fund presence in euros, which differs from historical trends.

Hedge funds can also provide lead orders for taps, which is a big advantage. This is the reason we have early bird language for accounts that commit early in the process.

BERGSTRÖM The point about relationships applies to all investors. Each type of investor plays a crucial role and contributes a piece to the puzzle in every transaction. Maintaining long-term relationships is essential. Squeezing out the last basis point might not be worth it as we will return to the market, perhaps as soon as next month, and we need their support again. The goal is to encourage investors to build and extend their positions, fostering a desire to buy from us again.

FAN At the moment, I do not see a significant crowding-out effect as there is a slightly different and unique investor base for the Canadian provinces and pension funds. These investors are typically seeking higher-yielding product, and they have traditionally not been active buyers of SSA names in Australian dollars. Of course, there may be some crossover – for example, hedge funds and asset managers.

However, these and other traditional SSA investors also focus on aspects such as new-issue premium, if any, relative value and perceived secondary-market performance. These factors affect the decision-making process rather than the outright spread or yield alone.

MONTEIRO I agree that issuance from Canadian borrowers is a benefit for investors – including offshore buyers. For reserve managers, the Australian dollar proportion has increased while US dollars has decreased. This means there needs to be more supply for the reserve managers, so it’s positive that the Canadian issuers are in the market. On the other hand, the hefty new-issue premia offered by the Canadian names have been crowding out more traditional SSAs, including IFC [International Finance Corporation].

DORE I believe this trend benefits the market overall. As new issuers enter, it encourages diversification within investor portfolios and potentially expands market capacity as investors open lines for new entrants. This can add liquidity, strengthening the market as a whole.

A positive impact, however, depends on issuers and investors adopting a strategic approach. If participants approach the market with a view toward building lasting relationships, rather than seeking short-term arbitrage, it supports stable and sustainable growth.

MORRISON We are focused on taking a strategic, programmatic approach to the Australian market. We issued A$3.75 billion in 2023, followed by A$4.2 billion in 2024. Both years, we followed a similar pattern with three benchmarks: one in January, another in April and a green bond later in the year. This is the pattern we aim to establish going forward.

According to my research, total Australian dollar SSA issuance is down to A$34.5 billion from A$36 billion as at 18 October, with Canadian-origin supply excluding CPP Investments up by A$8 billion year-on-year.

For Canadian provinces, most issuance occurred in the 10-year part of the curve and – given Australia’s current rate environment and elevated swap spreads relative to other core markets – these trades offered about 100 basis points over Australian Commonwealth government bonds. It was a Cinderella moment for the 10-year trade for the provinces.

It is worth noting that the 10-year point on the curve hasn’t been a traditional focus for SSAs, at least not in size. However, Canadian borrowers are quite familiar with the 10-year segment across available currencies, which aligns well from an ALM [asset-liability management] perspective.

The Australian dollar market has been the second-largest in our programme for the past two years so it is a really meaningful currency for us. However, whether the specific dynamics that made 10-year issuance attractive for the provinces in April and May 2024 will persist is hard to predict.

DORE One point to consider is ensuring market supply is adequately absorbed. When supply meets demand, this is ideal – it is what we all want. If supply exceeds demand, it creates a challenge. Participants may hold significant long positions in bonds, which negatively affects secondary-market performance. Poor performance in the secondary market can make it harder for others to access the market and can have a ripple effect. Healthy performance across the board benefits the entire market.

We aim for deals that are well-calibrated to demand and absorbed by the market. While we sometimes want larger transactions, we adjust the size to match demand. This approach helps maintain a well-functioning market. Ultimately, though, the more issuers we have in the market the better.

LOVE I completely agree, and I’d add that as the market gets more issuers it becomes increasingly important for investors to understand the distinctions between credits. Jennifer, I’m sure you’d agree that while investors seek diversity, they also need clarity on the variations between issuers. For example, there are significant differences between a Canadian province, a Canadian pension fund and EDC.

This underscores the importance of investor education, especially as more players enter the market. Transparency is key in helping investors understand how each credit functions and how differences between issuers should influence pricing expectations.

It is for this reason that we have made a concerted effort in investor education. We visited Australia this year to re-establish connections and help investors understand the distinctions of our credit profile.

FLORI I hadn’t realised there was so much issuance from Canadians provinces and pension funds until preparing for this discussion – 40 per cent of this year’s supply is indeed a remarkable figure. What I had noticed, though, was the increased interest and participation from international investors, including Japanese accounts, which show interest in longer-term assets like those sought by life insurers.

Additionally, there has been a rise in Australian participation in our books, which has been uncommon. Superannuation funds are now actively looking at our bonds. This is supportive and allows for greater issuance volume overall.

From discussions with Canadian issuers like CPP Investments, it is evident they approach the market differently. They have strategic, multiyear issuance plans with regard to Australia and often don’t swap, allowing them more frequent market access than other SSAs. This unique approach means they are not necessarily crowding us out; their frequent access and reduced constraints are distinct from our strategy.

This said, if the market had been more conducive in the sense of aligning with other markets and the cross-currency swap being more favourable, CEB could have done more.

Overall, I view increased Canadian activity as a positive development, bringing greater and more regular global attention to the Australian market. Previously, months could go by with minimal market presence. But there is now regular issuance from Canadian names as well as others, and this is quite helpful for liquidity perception.

While the Australian market may not yet be a third market for us, its growth is evident. As the investor base expands to include renewed domestic, Asian and European investors, so too does the issuer base.

BRUSAS There are several obstacles for us, particularly relating to being a smaller issuer. First, the basis swap needs to work for us to swap into euros. We also need wider spreads and some pickup relative to domestic semi-governments. Outright yield also possibly plays a role. In fact, we feel we haven’t been fairly priced in Australia versus our peers, especially relative to our pricing in euros and US dollars. This has been a challenge.

I’m not certain if big issuance from the Canadian and semi-government issuers has crowded us out but there may be a perception that their offerings are more attractively priced. As a smaller issuer, we have limited flexibility to adjust our pricing too far from where we are positioned in euros and US dollars.

Pricing dynamics in the Australian semi-government market, particularly the wider spreads resulting from increased issuance, may have affected demand and pricing for SSAs.

Nevertheless, similar to the comments about the Canadian issuers, as the semi-government market expands it draws more attention from investors to Australian dollar-denominated assets. This can also benefit SSA issuers by broadening the investor base and enhancing liquidity. One would also imagine investors may seek diversification opportunities beyond semis, leading them to consider SSAs.

A key distinction from other markets is Australia’s treatment of SSA assets in the local HQLA regime. Unlike some domestic assets, SSAs are not considered HQLAs on equal terms as semis and they carry additional costs in an HQLA portfolio. This has led to limited participation from bank treasuries, which are less inclined to hold SSAs in their portfolios on a larger scale.

In a crisis scenario, if banks predominantly hold domestic assets in their HQLA portfolios lack of international diversification could limit their ability to respond effectively. This underscores the need for a broader approach to liquidity management and asset allocation.

We hope investors currently buying semi-government or Canadian bonds will recognise the value of diversification and consider the wider SSA sector, including NIB bonds.

HEGEN On our side, the most important factor to be active in non-euro markets is the basis; all-in funding cost is what matters the most. However, the Australian dollar market is important for us from a diversification perspective, so we try to be active there on an annual basis. We are happy we could issue a Kangaroo deal at the beginning of the year. I’m not sure whether the Canadian issuance affected us – I’m just happy we could still manage to issue.

LOFSTEDT The challenge has been the cost of euro funding, particularly in the belly of the curve, and now the dynamics around the 10-year part of the curve – where SSAs are tighter than semis for the first time ever. Japanese investors, while still active, have been less engaged in the 10-year space – which is the attractive segment for many SSAs issuing in the Kangaroo market.

HEGEN Exactly – I think this has been the main driver for our limited presence in the Kangaroo market recently.

FAN We acknowledge the recent market turbulence, including increased investor scrutiny on greenwashing and the loss of credibility for instruments like SLBs – noting, though, that IADB is not active in SLBs. Despite these challenges, according to BNP Paribas data, by the end of Q3 2024 total ESG bond issuance stood at approximately US$844 billion equivalent, compared with US$662 billion equivalent for the same period last year and already above the US$800 billion equivalent issued in 2023. These numbers indicate that the market is still growing, albeit not at the same pace as in previous years.

From the perspective of IADB, we continue to enjoy strong and consistent demand for our labelled bonds. This allows IADB to focus investor discussions on the bank’s mission and lending operations rather than just the financials. By committing to strong governance and high standards in IADB’s operations, we maintain investor trust in our labelled bonds. We believe they remain effective vehicles for directing capital to funding the bank’s mission to improve lives in Latin America and the Caribbean.

This year, we have focused on issuing Sustainable Development Bonds (SDBs). These bonds channel funds into IADB’s strategic lending priorities, which seek to reduce poverty and inequality, address climate change and bolster sustainable growth in Latin America and the Caribbean. In 2024, we issued US$9.4 billion of SDBs as part of our US$21 billion programme.

We are also exploring other ways to grow our ESG toolkit, including the establishment of a new sustainable debt framework allowing for the issuance of green and social bonds as well as outcome bonds.

LOVE We remain committed to the ESG market, as shown by our recent 10-year US dollar green-bond transaction that also demonstrated strong demand remains for these products.

As always, transparency in reporting on how the funds are being used and the impact they are having are critical factors in raising capital for labelled bonds. It is important that we continue to keep pace as the sophistication of these categories improves and the dialogue with investors becomes more transparent.

BRUSAS Demand for sustainable bonds remains strong and our experience reflects this trend, with a record year for issuance of use-of-proceeds (UOP) green bonds. Additionally, we are committed to expanding opportunities to support the green transition across our loan and bond offerings.

This year, we also updated our green-bond framework and our sustainability policy, and introduced a new climate strategy – all of which are progressing well.

Our increased issuance this year can be attributed, in part, to changes in our framework. While we have introduced more stringent eligibility criteria, incorporating aspects of the EU taxonomy and ensuring that counterparties demonstrate adequate ESG performance, we have also expanded our categories to include sustainable technology innovation, sustainable manufacturing, carbon capture and storage, and climate adaptation. This broadens the range of environmental benefits supported by our bonds.

The recent loss of credibility associated with certain SLBs, coupled with increasing concerns about greenwashing, has prompted issuers to adopt a more cautious approach. This shift can be beneficial as it encourages greater transparency and accountability through robust frameworks and clear reporting that adhere to best practice guidance.

At NIB, we offer sustainability-linked loans (SLLs) and we have taken the initiative to coordinate a task force within the International Capital Market Association [ICMA] Principles to establish guidelines for a new product called sustainability-linked-loan financing bonds. The Loan Market Association is also involved in this effort, and we believe these guidelines will positively influence the market for SLBs and SLLs.

This collaborative approach aims to enhance the credibility and effectiveness of sustainable finance instruments, ensuring they play a vital role in directing capital toward ESG initiatives.

MONTEIRO We have a substantial pipeline of green and social bonds we want to issue in the Australian space, in benchmark format. We have issued A$1.2 billion of social bonds and A$100 million of green bonds in the Kangaroo market – which comprises around 35 per cent of our total volume.

The UOP component has been our focus on sustainable bond issuance until recently. This has changed of late, when we updated our Kangaroo prospectus to include ESG and sustainability language – we talk about the UOP going toward sustainable projects. The idea behind this is to keep up with market developments so that, in future, all our issuance can be viewed as sustainable regardless of the label.

We are also working on getting an SPO [second-party opinion], which we hope will be published by the end of January 2025, with our impact report. We will be introducing new business lines for IFC social bonds. Right now, we have included business and gender. We are adding education, health and food security – all in line with our corporate strategy.

On the green side, many investors are asking if we can issue a biodiversity or blue bond. We don’t want to fragment the market with different labels, but if we issue a green bond we try to feature blue or biodiversity projects.

FLORI We issue Social Inclusion Bonds (SIBs), which are relatively straightforward. We also do social loans. This simplicity is beneficial as it helps investors clearly categorise our bonds within their funds. Investors also appreciate the robust reporting we provide, which aids their own reporting requirements.

Over the past few years, we have observed investors across all regions becoming increasingly sophisticated. While northern European investors remain leaders in this space, other regions – including Japan and the US – have significantly advanced, asking targeted questions and familiarising themselves with our framework and projects.

As a 100 per cent social institution, we are dedicated to developing this market in a sustainable way – echoing Angela’s point on the need for frameworks, boundaries, rules and thresholds. We are actively collaborating with ICMA to establish a structure similar to what exists on the green side, though it is more complex for social bonds.

The growing investor base for social bonds is clear and we have issued SIBs in six currencies – euros, Australian, US and Canadian dollars, Norwegian krone and Swedish krona – to a diverse range of investors. This year, more than 40 per cent of our funding has been in this format, driven by strong investor demand. In our Australian dollar trade, the cornerstone investment was due to the social label.

As investors are becoming more sophisticated and with many now conducting their own assessments, a greater number of investors see us as a pure player and as such put us in the social basket. In fact, they apply this classification across all our bonds.

Additionally, we have always followed the climate and social nexus – that we cannot be green without being social and vice versa. This is now written in stone and is part of our strategic framework, requiring all our lending to be Paris Agreement-aligned while maintaining our social objective. We are also focused on developing a just transition product, which is central to our institutional mission.

BERGSTRÖM We are currently in the process of updating our sustainable framework, which we aim to finalise by year end with a planned launch in late December or early January. This is an update of our existing framework, which already allows us to issue green, social or sustainability bonds.

As an export credit facilitator, green bonds have typically been a better fit for SEK. However, in revising our framework, we identified some categories that align well with social objectives – so we may issue social bonds in future. While demand isn’t unlimited, it is substantial. Our primary limitation is the availability of suitable assets for the bond pools.

Being based in Sweden, we place a high priority on sustainable transition – which aligns with our commitment to lead in this space. At the same time, we are very diligent about labelling as it is crucial to avoid greenwashing or social-washing accusations. Currently, we only have outstanding labelled bonds in euros and Swedish krona, primarily in green format. We may explore other currencies in future.

HEGEN Having a labelled bond requires extra effort – for example to collect data and report thoroughly. But this is a good thing, because ESG is about transparency. It is crucial to avoid concerns about greenwashing.

Historically, labelled bonds have been a scarce and highly sought-after product, but as they become more common investors are understandably asking tougher questions. This means it is not always easy, but it also helps maintain integrity in the market. We have noticed that investors now almost all have their own taxonomies.

Another shift we have noticed is that more investors are involving their specialist ESG teams, which ask in-depth questions about things like biodiversity and social impacts. While climate-related metrics are well defined with clear KPIs, reporting for social and biodiversity impacts can be more challenging. The challenge in the coming years, especially for EU-based issuers, will be to engage in these discussions and work toward setting standards in these areas.

For NWB Bank, which is focused on Dutch water authorities, ‘blue’ initiatives are particularly interesting. It is not necessarily about having more labels, more colours or more differentiation of products, but rather addressing urgent global challenges, like water, where international collaboration is essential – just as we have seen with climate over recent decades.

DORE Labelled bonds have transformed the capital market and how we engage with investors. Many now take an issuer approach, meaning that – regardless of whether or not they label their bonds – issuers are being assessed based on integration of ESG criteria in the investment process, while investors are seeking transparency and information on how their funds are contributing to positive impact.