SUSTAINABLE DEBT GLOBAL STATE OF THE MARKET 2020

1 SUSTAINABLE DEBT. GLOBAL STATE . OF THE MARKET . 2020. GREEN. SOCIAL. SUSTAINABILITY. Prepared by Climate Bonds Initiative. Sponsored by DekaBank and STATE Street GLOBAL Advisors. SUSTAINABLE Debt GLOBAL STATE of the MARKET 2020 Climate Bonds Initiative 1. About this report Contents Introduction 2. This is the 10th iteration of Climate Bonds' GLOBAL STATE of the MARKET Report. Historically, the report has described the shape and size of the Methodology 3. green bond MARKET , but in October 2020, we published the inaugural Report highlights 4. SUSTAINABLE Debt GLOBAL STATE of the MARKET H1 2020 with an extended remit to include social and sustainability themed debt as well as the Green 6. traditional green bond universe. This report describes the shape and Sustainability 11. size of the green, social and sustainability (GSS) themed debt MARKET up to the end of 2020. Social 14. Spotlight: The development of transition instruments 17. Cumulative size: Green, Sustainability, Social bonds December 2020.

2 Spotlight: Pandemic recovery spending 19. Spotlight: EU GSS MARKET leadership 21. Outlook 28. Appendices 29. Green Sustainability* Social*. Endnotes 30. Total size of MARKET Number of issuers 1428 178 601. Number of instruments 7716 885 1230. Number of countries 71 30 36. Number of currencies 42 33 25. *The Social and Sustainability bond database is being finalised and deal-level data may be subject to changes. Further, the Social and Sustainability bond Database follows a different (less stringent) methodology than the Green bond Database The aim of this paper is to provide an indication of the shape and size of the MARKET , and the data profile should be regarded as provisional. About the Climate Bonds Initiative The Climate Bonds Initiative (Climate Bonds) Climate Bonds conducts MARKET analysis, policy is an international investor-focused not-for- research, and MARKET development; advises profit organisation working to mobilise the governments and regulators; and administers USD100tn bond MARKET for climate change a GLOBAL green bond standard and certification solutions.

3 It promotes investment in projects scheme. Climate Bonds screens green finance and assets needed for a rapid transition instruments against its Climate Bonds Taxonomy to a low carbon, climate resilient, and fair to determine alignment and uses sector economy. The mission focus is to help drive specific criteria for certification. Climate Bonds down the cost of capital for large-scale Certification is a labelling scheme. Rigorous climate and infrastructure projects and to scientific criteria ensure that it is consistent support governments seeking increased with the 2 C GLOBAL warming limit of the Paris capital markets investment to meet climate Agreement. Certification requires initial and and greenhouse gas (GHG) emission ongoing third-party verification to ensure the reduction goals. assets meet the metrics of Sector Criteria. SUSTAINABLE Debt GLOBAL STATE of the MARKET 2020 Climate Bonds Initiative 2. Methodology Scope of analysis Social and sustainability Not included in this report We cover three SUSTAINABLE debt themes based MARKET participants have not yet developed a Transition labels on the projects, activities, and expenditures social taxonomy or equivalent classification Transition finance describes instruments financed: green, social, and sustainability.

4 And screening system, though work on this is financing activities that are not low- or zero- Pandemic bonds are included as a sub-set of the ongoing in the EU and Climate Bonds emission ( , not green), but have a short- social theme. does not screen social and sustainability bonds'. or long-term role to play in decarbonising use of proceeds against performance thresholds. The themes can be described as follows: an activity or supporting an issuer in its The use of proceeds are, however, classified transition to Paris Agreement alignment. in accordance with the respective labels and The transition label enables inclusion of a categorised as follows: more diverse set of sectors and activities. Sustainability: label describes a combination Green: dedicated environmental benefits At present, transition bonds predominantly of green and social projects, activities, or (captured since 2012) originate from highly polluting, and hard- expenditures , SUSTAINABLE ; SDG; SRI; ESG, etc.

5 To-abate industries. They do not fall into the Social: label is exclusively related to social existing definitions of green but are a critical projects , pandemic, COVID-19, housing, component of a transition to net zero. gender, women, health, education, etc. Example sectors include extractives such as Social: dedicated social benefits mining; materials such as steel and cement;. (captured since 2020) Thus, any instrument financing only green and industrials including aviation. Work projects is included in the green theme around building standards for transition irrespective of its label. On the other hand, a activities is underway; we cover this in more sustainability-labelled bond that only finances detail in the dedicated segment on page 17. social projects, as well as one that finances a Sustainability: green and social benefits combination of green and social, is considered Performance-linked instruments are combined into one instrument to fall under the sustainability theme.

6 Because Performance or KPI-linked debt instruments (captured since 2020). of this, our analysis of other themes provides an are excluded from this analysis. These This paper only analyses labelled debt. Our initial indication of capital MARKET funding aimed instruments raise general purpose finance upcoming Climate-Aligned Bonds and Issuers at each theme based on the deal label (see and involve penalties ( , coupon step- report will explore the scope of unlabelled debt Appendix B). ups) linked to not meeting pre-defined, to finance climate aligned activities. time-bound sustainability performance NB: Throughout this report Pandemic' refers improvements. The two main types of to deals with a COVID-related label such as Methodology overview pandemic response, COVID-19 etc. instrument are commonly referred to as Sustainability-Linked Bonds (SLBs) and This report is based on the Climate Bonds Sustainability-Linked Loans (SLLs). Green bond Database, as well as the Social and Sustainability bond Database.

7 To qualify for Climate Bonds does not presently examine inclusion, debt instruments must a) have a label or track data on SLBs or SLLs, preventing and b) finance SUSTAINABLE projects, activities, or inclusion of these categories of debt expenditures. in this analysis. However, coverage of performance-linked instruments is currently Debt labels describe the types of projects, in development and the theme is discussed activities, or expenditures financed, and/or their on page 17. benefits. Green', Social', and Sustainability'. labels are the most common in each theme, but a broad range of labels is used (see Appendix A). Green All deals in the green theme have been screened to verify their integrity. Screening is based on a set of process rules stipulated in Climate Bonds Green bond Database Methodology, including the following two overarching criteria:1. 1. Deals must carry a variant of the green label 2. All net proceeds must verifiably (based on public disclosure) meet Climate Bonds'.

8 Green definitions based on the Climate Bonds Taxonomy2. We review all green debt instruments to ensure their green credentials. SUSTAINABLE Debt GLOBAL STATE of the MARKET 2020 Climate Bonds Initiative 3. Report highlights At the end of 2020, the SUSTAINABLE debt MARKET Green, social, and sustainability bond issuance doubled in 2020. had reached , and almost 10,000. instruments had been issued under GSS labels 800. since 2006. Green Social Sustainability USD700bn worth of GSS instruments was issued 600. in 2020, almost double the prior year which stood at USD358bn. While green remains the dominant 400. theme, and was the largest source of outright capital, the social and sustainability themes grew USD Billions dramatically and achieved higher volumes than 200. all previous years combined. As a result, in 2020. total issuance was more evenly spread across the themes compared to prior periods. 0. 2015 2016 2017 2018 2019 2020. MARKET Analysis Source: Climate Bonds Initiative, 2021.

9 The SUSTAINABLE debt MARKET in 2020 Social bonds increased sharply in response to COVID-19. The COVID-19 pandemic caught many off 2000. guard and impacted the issuance of all types of bonds towards the end of the first quarter. Green Social Sustainability 1600. However, the bond MARKET proved to be a Number of GSS securities flexible source of finance to help with both 1200. the immediate impacts as well as longer-term recovery plans. This led to the rapid growth of 800. the SUSTAINABLE and social debt markets and the massive increase in instruments being 400. issued with a pandemic Use of Proceeds (UoP), which contributed to a ten-fold increase in the 0. social volume compared to 2019. 2015 2016 2017 2018 2019 2020. The first pandemic bond of 2020 was issued on Source: Climate Bonds Initiative, 2021. 5 February, a RMB1bn (USD143m) deal from Zuhai Huafa Group from China. Pandemic- Green bonds had a strong finish themed issuance peaked in February and 60. continued to decline for the rest of the year, 50 Green Social Sustainability especially in China.

10 Amount issued USD Billions There were large drops from all issuer types 40. in March as COVID-19 took hold, but central banks were quick to react, and the MARKET had 30. stabilised by April. 20. Sovereign issuers have the ultimate power to extend the breadth and depth of the GSS bond 10. markets due to their scale and influence. Ten 0. sovereign issuers entered the GSS bond MARKET in 2020, bringing the total number to 22. This JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC. influenced the shape and size of GSS bond Source: Climate Bonds Initiative, 2021. markets. A list of sovereign GSS bond issuers is Social bonds dominated the earlier months of 2020. on page 15. 400. Green Social Sustainability 300. Number of securities 200. 100. 0. JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC. Source: Climate Bonds Initiative, 2021. SUSTAINABLE Debt GLOBAL STATE of the MARKET 2020 Climate Bonds Initiative 4. Green bond MARKET Sustainability bond MARKET Social bond MARKET score card 2020 score card 2020 score card 2020.