ESG issuance of bank bonds jumps in May

The month of May is nearing its end and with only a few days left it seems that banks stepped up issuance of ESG bonds this month. EUR 5.4bn of green bonds and EUR 2bn of social bonds were issued up until 26 May, accounting for 20% of total issuance. This is the highest monthly share so far this year (see graph below) and well above the 14% average (which is the share of ESG bank bond issuance in 2022 as a whole).

The EUR 7.4bn of ESG bank bonds (including covered bonds) were met with almost EUR 20bn of demand, resulting in an average bid-to-cover ratio of 2.7x. However, demand was rather mixed in May, with bid-to-cover ratios ranging from 1.1x to 9.2x. Still, on balance, ESG bank bonds benefit from a larger investor base as well as some funding advantage. The graphs below show the average bid-to-cover ratios and new issue premiums of green, ESG, and non-ESG bank bonds. This year, ESG bank bonds attracted around 25% more demand than non-ESG bank bonds, while the average new issue premium was more than 2bp lower.

It is interesting to note that the market welcomed the first social Tier 2 bond since August last year. French issuer BPCE raised EUR 500mn with a 10NC5 social Tier 2, which was priced at MS +265bp and attracted EUR 4.6bn of demand. This made it the most oversubscribed ESG bank bond of this year so far. The proceeds of the bond will be used for loans granted to ‘clients whose activities contribute to local economic development across the employment conservation and creation category’. More specifically, these are ‘loans to customers or projects with geo-scoring of areas with high unemployment/low income/low job creation…’, which tend to support access to decent work and economic growth, reducing poverty and reviving economically depressed areas (see here).