In the first quarter of 2021, one in five investment grade and leveraged loans issued in the European markets were linked to environmental, social or governance (ESG) objectives, according to the Association for Financial Markets in Europe’s first quarter 2021 ESG finance report. This is the highest level on record for the market, which has grown rapidly in the past four years.
BBVA is believed to have led the world’s first green syndicated loan in 2017, and that year the green-loan market (as it was then) accounted for just 0.3% of all loans originated in Europe. As of the end of 2020, the broader ESG loan market in Europe had grown to 13.7% of all loans originated.
Similar to the trend witnessed in bond markets, social loans have been a significant driver of increased ESG-related issuance, accounting for 85.1% of this market in the first quarter of 2021, compared to just 12.6% green loans. The Covid-19 pandemic has been a significant catalyst in the growth of social issuance as many issuers have raised funds to invest in economic recovery and health-related projects.
The volume of ESG- and green-linked loan issuance has steadily increased over the first quarter of 2021, starting at €6.9bn in January and reaching €21bn in March. This also followed the highest month on record for this type of issuance within Europe at €26.8bn in December 2020. Across the first quarter as a whole, this type of issuance reached €46.9bn — an 85% increase compared to the first quarter of 2020.
Europe continues to be a global leader in this market, by a considerable margin. Compared to Europe’s €46.9bn worth of issuance, €15.6bn was originated in North America and just €1.05bn in Asia in the first quarter of 2021.
Within Europe, Italy led the charge in the first quarter of 2021, accounting for €10.5bn of origination, with €8.3bn coming from Belgium, and €6.7bn and €6.5bn from Germany and France, respectively.
The investment-grade market may still account for the lion’s share of ESG-related loans, however the leveraged market share is continuing to grow, covering 28% of issuance in European markets in the first quarter of 2021.
It has also been a robust start to the year for European ESG bond issuance activity, with origination of green, social and sustainable bonds reaching €136bn. This is the highest quarterly total on record for the region and marks a 385% increase compared to the first quarter in 2020. Social bond issuance accounted for €66.3bn of that total — the highest quarterly sum on record and a 236% increase compared to the same period in 2020.
Across both loans and bonds, France was the leading issuer in the region, with its ESG transactions totalling €43.8bn, followed by EU institutions, including the European Investment Bank, at €39.9bn and Italy at €23.65bn.
