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The sustainability of sustainability: green finance during the pandemic

Sustainable finance has been resilient amid the market shock, as a heightened awareness of environmental, social and governance (ESG) behaviours has coincided with a surge of regulatory changes and an uptick in green capital-market activities.

Green finance: an irrevocable trend

The rise in capital-market activities described as ESG-focused or sustainable over the last two years has been elevated and widespread, touching all areas of the market.  Regulators, asset managers, finance-trade organisations, investment banks, corporates and investors have all participated in this green wave. 

This growing prominence of green finance is often pointed to as a typical sign that we are reaching the height of a bull market – with the implication that the rush of ESG-focused activities was an ephemeral phenomenon in the waning months of the economic cycle. 

Yet if this were true, sustainable capital-market activity would have come to an abrupt halt in the first half of this year. Looking back over the past six months, this is clearly not the case. Instead, evidence suggests that the green evolution in finance has been resilient throughout the coronavirus crisis and represents a long-term, secular change. 

A closer look at a small sample of green-finance activity and regulatory developments in the first half of this year supports this view (click on the drop-down boxes to find out more).

  • Volkswagen presented its Green Finance Framework, which includes clear guidelines for sustainable debt instruments and the creation of a Green Finance Committee.1
  • Barclays announced its ambition to be net-zero by 2050.2
  • A coalition of German companies – including ThyssenKrupp, Salzgitter, Bayer, Covestro, E.ON, HeidelbergCement, Puma, Allianz and Deutsche Telekom3 – encouraged the government to link coroanvirus aid to action on climate change.

The European Union

  • 180 signatories from industry, governments and non-governmental organisations attached their names to the Chairman of the Environmental Committee of the European Parliament’s letter which calls for mobilisation to support a green recovery in the aftermath of the pandemic.
  • A new Sustainability-related Financial Disclosure Regulation requires fund managers to disclose how sustainability is integrated into investment processes, including any adverse impacts of investments on sustainability, from Q2 2021. If an ESG or sustainable product has a reference benchmark, the index used must be disclosed, as well as how it relates to sustainable outcomes – including, where relevant, the Paris Agreement on Climate Change.4
  • A new Sustainable Benchmark Regulation also requires benchmark providers to prepare new EU climate-transition benchmarks and EU Paris-aligned benchmarks. In addition, all benchmark providers need to state whether and how they integrate ESG factors.5
  • A new EU sustainable taxonomy has been developed. It sets out what is considered sustainable economic activity in the climate-change space, with other activities to follow,6 and could potentially underpin a new Ecolabel fund label. This taxonomy also underpins the new EU Green Bond Standards.7

The UK

  • The Department for Work and Pensions (DWP) set out new requirements for pension-fund trustees. Trustees must produce a Statement of Investor Principles that includes details of how they take climate change and wider ESG issues into account, including through reviewing default strategies.8
  • The FRC Stewardship Code, published at the end of 2019, significantly strengthened the stewardship requirements that form an optional ‘gold standard’ for firms.9 It puts investors, society, the environment and the economy of a level footing, and suggests that it is difficult for the former to thrive financially over the long-term if the latter is not taken into account. The code expects stewardship across all asset classes and geographies, and reporting now focuses on outcomes and impact – not just policies. Signatories need to submit a report for assessment by January 2021, and if satisfactory, signatory status is awarded in March.
  • The Prudential Regulatory Authority/Financial Conduct Authority and the DWP are running two processes that aim to implement the Taskforce for Climate-related Financial Disclosures in the UK. Reports are likely to be published this summer, with the expectation that they will become the best-practice approach. In 2022 we can expect this approach – or something close to it – to become mandatory, in line with announcements in the BEIS Green Finance Strategy.
  • The Investment Association has produced an industry-led taxonomy for navigating sustainable and ESG funds.10
  • The British Standards Institute has produced a Sustainable Firm standard and is consulting on a Sustainable Investment standard.11


  • Japan’s Ministry of Environment published its updated Green Bond Guidelines, which were last released in 2017. The guidelines now include loans.12
  • The Japanese Stewardship Code has been strengthened. It now explicitly asks signatories to consider medium- to long-term sustainability and ESG factors in their engagements.13

The Philippines

  • The Bangko Sentral ng Pilipinas will require ESG disclosures according to a new set of rules.14


  • The ICMA issued guidance on bonds issued to help address social problems created by the coronavirus pandemic.15
  • Global loan-market associations launched new guidance documents to support the Green Loan Principles and the Sustainability Linked Loan Principles.16

  • Brown became the first Ivy League university in the US to go fossil-fuel free: it plans to divest 90% of its endowment from fossil-fuel companies and to sell the remaining 10%.17
  • Georgetown said it will divest from public fossil-fuel companies within the next five years and from existing private investments over 10 years.18
  • Arizona State University committed to adding $100m in socially responsible investments to its portfolio.19

  • Siemens Gamesa converted a floating-rate sustainability-linked loan into a fixed rate that “will also include an environmental, social, and governance (ESG) trigger that incentivises Siemens Gamesa to improve its ESG rating, and obliges it and HSBC to make annual charitable donations”.20
  • UPM signed a €750m revolving credit facility with a margin tied to long-term biodiversity and climate targets.21
  • Pirelli subscribed to a new €800m sustainable bank line.22
  • Philips issued €1bn in corporate bonds whose proceeds are tied to innovation related to its ESG framework.23
  • Engie issued a triple-tranche green bond worth €2.5bn.24
  • Pfizer Inc released its first sustainability bond, worth $1.25bn.25
  • Bank of America issued its inaugural social bond, which addresses the impact of the coronavirus pandemic, worth $1bn.26
  • The first-ever, US-issued convertible green bond is launched by Plug Power, a provider of hydrogen engines.27
  • EQT launched an ESG-linked, fund-level subscription credit facility for its private equity business.28
  • iTraxx launched the first-ever ESG credit-derivates index.29

Sustainable investing: driving a green recovery

The coronavirus pandemic has also resulted in a paradigm shift for responsible-investment strategies – many of which outperformed during the crisis. Up until the sell-off in March, responsible portfolios were often used a risk-mitigation tool: investors incorporated ESG factors with the view that it would help them avoid companies that destroy shareholder value.

But the pandemic has ushered in a heightened sense of social awareness. Policy makers, companies – and indeed society as a whole – now realise there is a need to build resilience in healthcare, food and water security, as well as across supply chains. Moreover, the crisis has also put climate change and workers’ rights under the spotlight. 

This shift in consciousness can be seen when looking at sustainable fund launches. Despite the volatility experienced during the first quarter, about 100 sustainable funds were launched throughout the world in Q1 2020, up from just over 80 in the same period a year earlier (see figure 1).

Figure 1. Holding up: global sustainable fund launches

Source: Morningstar, as at March 2020.

Trends in active equity fund flows paint a similar picture. Outflows of about 4% have been recorded since early 2019, while ESG funds have enjoyed comparable inflows of more than 18%. The shift was most evident during the first quarter of this year, when – despite the volatile market – inflows increased by 90% year-on-year.

The increase was most notable in the US – which lags behind Europe in terms of assets under management in sustainable strategies – and where net flows reached a record $10.5bn. To put this into perspective, total net flows in 2019 were $21.5bn – which was already four times the previous calendar-year record. We expect this stratospheric growth to continue.

We can see a similar phenomenon in the fixed-income universe. The Climate Bonds Initiative estimates that at least $49bn-worth of US green bonds will be sold this year, up from less than $1bn in 2013. And during the first quarter, issuance of sustainability-tagged bonds grew by 70% year-on-year (see figure 2).

Figure 2. Bounding ahead: sustainable bond issuance

Source: BloombergNEF, as at March 2020.

Also notable is the changing mix of bonds issued: while the number of green bonds issued declined on a year-on-year basis for the first time in months, this was more than offset by so-called social and pandemic bond issuance.

We see this as an important step in the development of mature, sustainable credit markets. It shows that there is a keen source of demand for a plethora of sustainability-linked bonds – particularly during periods when they can help to solve an urgent problem.

A call to action   

The rise in green capital-market activity over the last six months has been nothing short of astonishing – and all the more so given that policymakers, companies, investors and individuals have been blindsided by the wide-reaching impact of the coronavirus pandemic.

Yet it seems that the exogenous shock of the virus has prompted a rethink – and a realisation that there is an urgent need to prepare and protect against future global threats. During these turbulent times, a focus on good ESG behaviours is more important than ever and can help highlight the changes that we need to make to create a more equitable, sustainable society. 


  1. 1‘Volkswagen presents Green Finance Framework’, published by Volkswagen on 5 March 2020.
  2. 2‘Barclays announces ambition to be a net zero bank by 2050’, published by Barclays on 30 March 2020.
  3. 3‘German companies call for COVID-19 aid to be tied to climate action’, published by Reuters on 27 April 2020.
  4. 4‘Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector’, published by EUR-Lex.
  5. 5‘Regulation (EU) 2019/2089 of the European Parliament and of the Council of 27 November 2019 amending Regulation (EU) 2016/1011 as regards EU Climate Transition Benchmarks, EU Paris-aligned Benchmarks and sustainability-related disclosures for benchmarks’ published by EUR-Lex.
  6. 6‘EU taxonomy for sustainable activities’, published by the European Commission on 18 June 2019.
  7. 7‘Usability guide: EU green bond standard’, published by the EU Technical Expert Group on Sustainable Finance in March 2020.
  8. 8‘Clarifying and strengthening trustees’ investment duties’, published by the Department for Work and Pensions in September 2018.
  9. 9'UK Stewardship Code’, published by the Financial Reporting Council.
  10. 10'Launch of industry-wide common language brings clarity to responsible investment’, published by the Investment Association on 18 November 2019.
  11. 11‘BSI launches first sustainable finance guide setting standards for financial institutions to align to global sustainability challenges’, published by BSI on 20 January 2020.
  12. 12‘Expansion of environmental finance’, published by Japan’s Ministry of the Environment and ‘Japan expands green bond guidelines to include loans’, published by Environmental Finance.
  13. 13‘The Council of Experts on the Stewardship Code’, published by the Japanese Financial Services Agency.
  14. 14‘Climate stress tests and ESG disclosure required under new rules for Philippine banks’, published by Responsible Investor on 4 May 2020.
  15. 15‘Green and Social Bond Principles with ICMA underline relevance of Social Bonds in addressing COVID-19 crisis and provide additional guidance’, published by ICMA on 31 March 2020.
  16. 16‘Global loan market associations launch new guidance documents to support the Green Loan Principles and the Sustainability Linked Loan Principles’, published by Loan Market Association on 5 May 2020.
  17. 17‘Activists praise Brown for moving to divest from fossil fuels’, published by the Boston Globe on 9 March 2020.
  18. 18‘Georgetown to divest from fossil fuels’, published by Inside Higher Ed on 7 February 2020.
  19. 19‘Arizona State adds $100m in socially responsible investments to portfolio’, published by Fund Fire.
  20. 20‘Siemans Gamesa follows ESG derivatives trend with IRS’, published by GlobalCapital on 9 March 2020
  21. 21‘UPM signs a EUR 750 million revolving credit facility with a margin tied to long-term biodiversity and climate targets’, published by UPM on 17 March 2020.
  22. 22‘Pirelli subscribes to a new 800 mln euro sustainable bank line’, published by Pirelli on 31 March 2020.
  23. 23‘Philips successfully prices offering of Notes for EUR 1 billion’, published by Philips on 25 March 2020.
  24. 24‘ENGIE issues a triple tranche senior bond for a total amount of 2.5 bn EUR’, published by Engie on 24 March 2020.
  25. 25‘Pfizer completes $1.25bn sustainability bond for social and environmental impact’, published by Pfizer on 27 March 2020.
  26. 26‘Bank of America Issues $1 Billion Corporate Social Bond’, publ.ished by Bank of America on 19 March 2020.
  27. 27‘Plug Power Inc. Launches First Ever Convertible Green Bond Offering in the US to Fund Company’s Hydrogen Strategy’, published by Plug Power on 13 May 2020.
  28. 28‘EQT launches ESG-linked fund to incentivize portfolio companies’, published by S&P Global Market Intelligence on 11 June 2011.
  29. 29‘First of its kind ESG Index - iTraxx MSCI ESG Screened Europe Index’, published by HIS Markit on 12 May 2020.

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