Electric vehicles ‘prime candidates’ for green bond issuances
MainStreet analysis shows potential for EVs following depressed state of the green, social and sustainability bonds market in 2022.
The automotive industry’s share of green bond issuances has increased every year since 2020 and is set to grow yet further as carmakers and regulators shift towards net zero, according to a report from ESG advisory firm MainStreet.
According to MainStreet’s GSS Bonds Market Trends, 20% of non-financial green bond corporate issuance was from the automotive sector in 2022, compared to 4% in 2020. The report also showed that results were mixed across the sector, with a total of €845bn of green, social and sustainability (GSS) bonds issued, compared to € 1.05trn in 2021. Industry figures have expressed confidence that the wider sector will show some bounce back in 2023.
Max Roper, research analyst at MainStreet, said: “One out of five bonds from the non-financial sector this year came from the auto industry, and this doesn’t even consider the pivotal role of utilities in providing EVs’ charging infrastructure. Use of proceeds, such as the manufacture of EVs and batteries, are all covered by the European Taxonomy and, based on our analysis, are prime candidates for upcoming green bond issuance.”
One reason the report predicted that green bond issuance from the automotive industry would increase yet further in 2023 was looming regulations. The EU is set to phase out the sale of cars with petrol-consuming internal combustion engines by 2035, and the UK by 2030.
The report also shared predications that a total investment of €1trn across the EU will be needed by 2050 for charging infrastructure, grid upgrades and renewable energy generation to facilitate the transition to electric road mobility.
Speaking to Net Zero Investor, Tim Crawmer, global credit portfolio manager at Payden & Rygel, said: “Automotive green bonds is definitely an area that can grow because there's such a need for capex on the electric vehicle side of things. It just really makes sense as a direct funding candidate for green bond issuance.”
In data cited by MainStreet, battery EV (BEV) sales also grew 75% year-on-year in the first half of 2022, and plug-in hybrid electric vehicle (PHEVs) sales increased by more than 37%. The automotive sector saw significant issuances for the year. This includes Honda issuing green bonds totalling $2.75bn in March and, in November 2022, Mercedes-Benz launching its first green “panda bond” (a bond issued in Chinese renminbi currency by a foreign firm).
Automotive green bonds is an area that can grow because there's such a need for capex on the electric vehicle side of things. It really makes sense as a direct funding candidate for green bond issuance.
SFDR and the EU Taxonomy
A further takeaway from the report was that 37% of GSS funds are currently labelled as Article 8 (ESG-linked) under the Sustainable Finance Disclosure Regulation (SFDR). The report stated that “reclassifications from Article 9 (impact) leave only few asset managers reaping benefits of a robust sustainable profile”, likely as a result of action taken by fund managers before the threshold of reporting standards for SFDR increased as of 1 January this year.
The MainStreet report also showed that in 2022, 70% of green bonds issued were aligned with the EU Taxonomy for sustainable activities.
