CIBC Capital Markets

CIBC Perspectives - Mid-Year Update: Sustainable Finance

Episode Summary

CIBC Capital Market’s Roman Dubczak leads a mid-year discussion with Siddharth Samarth on the latest trends and developments in global sustainable finance. The discussion highlights recent market activity, evolving regulatory frameworks, and key regional shifts, as well as insights from CIBC’s latest ESG Investor Survey and the challenges and opportunities facing clients as they navigate the transition to a more sustainable future.

Episode Transcription

Roman Dubczak

Deputy Chair of CIBC Capital Markets

Hello, everyone. I'm Roman Dubczak, Deputy Chair of CIBC Capital Markets. Welcome to today's discussion on the global sustainable finance market. As a global priority shift and regional opportunities emerge, we're witnessing significant changes in how capital is allocated to support sustainability objectives. This evolution is being driven by new financial products, changing regulatory frameworks, and a growing recognition of the need to finance both green and transitional activities across sectors and geographies. I'm excited to lead a discussion with our capital markets expert, Sid Samarth, Managing Director and Head of Sustainable Finance at CIBC. A very, very busy area for us. Welcome Sid. I'm excited about today's discussion, Sid, because there's been a lot going on, as you know, politically we're actually as busy as we've ever been in the energy market and financing the evolution of the energy markets, yet the politics as it relates to sustainable finance, nomenclature, etc. are changing. So Sid, one, give us a bit of an update just on the last quarter and activity, and then we can get into some other topics after that.

 

Sid Samarth

Managing Director and Head of Sustainable Finance, CIBC Capital Markets

Sure. Thanks, Roman. The sustainable finance market is continuously evolving and, that's evolving through new products. It's evolving in different regions due to the political pressures that you've talked about. And just issuers themselves. So a little bit of context, just, for background, I know this market is predominantly a label markets, so think green bonds, sustainable bonds, sustainably linked loans and the like. And the market grew from about $120 billion in 2016 to reach a peak of $1.6 trillion in 2021. That market has now stabilized at approximately, I would say, $1.3 trillion on a global issuance basis. And this past half year, the market issuance is about $650 billion, which is about 3% lower relative to H1 of 2024. Now, within this market, we are seeing some strong regional trends. Europe has maintained its leadership position as the European sustainable debt issuance volumes continue to comprise nearly 50% of the global market. The Asia Pacific region, which was slow to start, has picked up in terms of issuance volume and the market share for them have grown from about 16% five years ago to about 30% as of H1 2025. This has been driven again by government, the government of Japan, that launched a green transition strategy and transition financing guidelines, and they followed with their own transition bond to fund carbon capture, hydrogen and energy efficiency upgrades, and has allowed for another 22 corporate issuers to step into the transition market, which is something we've been talking about for a long time in Canada over here. The North American market has seen a decline. The political landscape in the US has resulted in limited issuance. Now, the composition of issuances has also experienced a notable shift, what we call activity based instruments, where the proceeds are allocated to specific green or sustainable initiatives, continues to gain momentum, accounting for about 85% of the total issuances. And that's up from, 72% last, last year this time. And that's come at the cost of behaviour based instruments, where the cost of debt associated fluctuates with performance based targets as they have lost favour within market investors. In terms of who's issuing, governments and supernationals continue to lead the sustainable debt market in the first half of 2025, comprising about 34% of the volumes, followed by financial services, which comprise about 26%. So it's really these two segments which are bolstering about 60% of the market. And then lastly, worth noting the growth of new products. We've seen an increase trend and catastrophe bonds, debt for nature swaps, which is a kind of a blended public private partnership to financing sustainability. And this is being seen more in an emerging country concept. So I would say these trends continue to underscore the evolving dynamics of sustainable finance. And it continues to adapt as global priorities and regional opportunities change.

 

Roman Dubczak

Deputy Chair of CIBC Capital Markets

And so Sid, thanks for that update. Clearly a lot going on. So activity levels generally maintained, the shift being to more tangible project based type of activities, which is understandable. It seems as though the trends in finance of these types of activities are concentrated probably more in the European market and the APAC market. Maybe touch on that. As a relative to North America, like the and what I mean by that is are some North American developments getting deferred given the politics and the European and Asian projects are moving ahead? Or is it really just the mix, away from behavioural towards activity based?

 

Sid Samarth

Managing Director and Head of Sustainable Finance, CIBC Capital Markets

Yeah. So I would say, it's evolving. And capital will flow where the opportunities flow. There is a lot of uncertainty within the North American, and I would say within the US context, and our clients are going to evolve from that landscape. In Europe, notwithstanding the change that you're seeing in North America, there continues to be some level of focus and stability, yet also pragmatism I would say when it comes down to achieving some of these goals. So, I think about net zero targets and net zero goals. People recognize the importance, but they also recognize that in order to get there, it's going to require a lot more work. And I think a lot of the, effervescence that we saw at the beginning that we could do this overnight is now coming to fruition, saying these are topics which are going to take time, which is going to take government policy to support. And, we're seeing that. In the UK, we've seen carbon capture and sequestration being talked about and coupled with any kind of new natural gas fired generation. So that's great to see. We're going to continue to see a focus on a nuclear SMR's but there's a recognition that may not be happening immediately. And so we need to be thinking of other things. So there's a number of nuclear projects being built out in Europe at the moment, and particularly in the UK, which is trying to help and address that goal. So there's certainly, a difference in, approach, and investors and I would say even our clients are navigating this uncertainty and trying to figure out where those opportunities lie.

 

Roman Dubczak

Deputy Chair of CIBC Capital Markets

Yeah. Now, I know, just to go back to the themes we've been talking about over the last couple of years, taxonomies, market norms, maybe touch on some of those because I think that work kind of has continued apace.

 

Sid Samarth

Managing Director and Head of Sustainable Finance, CIBC Capital Markets

Yes. A couple of, updates over there, as relates to taxonomies and then some developments from the International Capital Markets Association as recent AGM. So the first one is Australia released its of sustainable finance taxonomy in 2025. The taxonomy aims to provide guidance for qualifying green and transition finance activities in Australia, and is designed to be used by a wide range of market participants, including investors and issuers. The purpose of these taxonomies is to give clarity to market participants on what can be seen as sustainable finance, and drive capital towards them. Green activities are already aligned with the net zero pathway. Transition is a label that indicates the use of decarbonization measures to bring emissions performance of the activity closer to net zero without locking in carbon. Examples include low carbon fuels, energy storage and the like. So Australia's taxonomy sets a strong precedent. We've been talking about transition for some time, and it's supporting, the low carbon economy over there. And it could also serve as a valuable framework for other countries, including Canada. Prime Minister Carney had announced on his election platform, wanting to issue a transition label bonds by 2027. And given the similarities between the Australian and the Canadian economies, we would expect the taxonomies to share similar philosophies. In another development worth noting, the UK government this month chose not to pursue developing their own green finance framework, citing that it may not be the best and most efficient way to deliver a transition. So I think the jury's still out there in terms of what Canada does next, noting these diverging approaches. And we just talked about what's happening in the UK. Government policy is continuing to push capital towards decarbonization. And clearly they seem to be indicating that they don't need a taxonomy for that. So you could probably have a situation where some countries may choose to continue with their decarbonization trajectories without necessarily having a taxonomy associated with it, because it is a quite complex topic. So, to be seen. The second development I'd highlight is on the international capital markets side. So this is an association which needs to provide guidance for the sustainable finance market. The first one is quite topical given the current geopolitical focus on national security. Lots of questions from investors. Can I invest in defence projects and put them in my green and sustainable portfolios? They're helping move certain priorities from a democratic government perspective. Ultimately, where the principles of the, they came out with as saying, including defence spending in portfolios may not be the right way to look about it, but emphasize the role of social bonds to support vulnerable populations in fragile or conflict states. So that's the update, or at least because it's a big topic of discussion in terms of whether defence could be put into sustainable. The second one was the published guidance on sustainable bonds for nature. They noted that nature bonds would be a sub-classification of green bonds, specifically, in support of nature based initiatives, which would have the added option of using nature as a secondary designation. So it's been talked about how can we bring nature in. It's going to be part of green bonds and you're going to see a little bit more clarity on that.

 

Roman Dubczak

Deputy Chair of CIBC Capital Markets

Some significant updates there Sid. So what I'm hearing is some of your takeaways are, and look we would never have seen, predicted this say 3 or 4 years ago that, you know, a discussion on nuclear, discussion on defence related spending. Those are two macro trends that we're all facing going forward that have emerged. I think the other one worth exploring a little bit here, is the the impacts on ESG strategies. What's the resilience of ESG strategies, for one? And then secondly, CIBC conducts a regular ESG investor survey. Maybe, some highlights on that, because I think we just got the results of that one.

 

Sid Samarth

Managing Director and Head of Sustainable Finance, CIBC Capital Markets

Right. No, thanks, Roman. That's that's a great question. And it's a question that we've all to asked. Exactly, what are investors thinking about in this, with this backdrop. And so we've, as you mentioned, we've been conducting annual surveys. We've finished our sixth annual survey. You know, gathering insights from leading North American fixed income and equity investors. We collected responses from asset managers, pension funds, banks, insurers, about 35% of respondents having AUMs in excess of $100 billion. So among the trends shaping the issue landscape, some of the key insights that are worth noting is, first, notwithstanding the evolving background we've discussed, interestingly, 92% of the respondents noted that they're not changing their ESG investment strategies, and a further 66% have stated that they're not changing their investment allocations with respect to ESG investments. This is particularly insightful. I find at least, given this this macro drawbacks. So it seems like people are looking through some of this noise. They're looking at the bigger signals that they see coming over our 20 and 30 year horizon and coming to focus and keep with those trends, over there. The second is a shift in how ESG investors use ESG data. And this is something we've been seeing and continue to accelerate. ESG scores were a big part of the conversation 3 or 4 years ago, that's declined. And investors are now leveraging proprietary internal research to make their decisions on these complex topics. They recognize that distilling it into a single company score is far too complex. And they've built those teams. They have gone and built teams at each of the organizations, which can help them navigate through that analysis. And then, the third, in terms of what products or instruments that, that they would like to see, you know, the overwhelming majority continues to say, we like to use a process product. It gives us greater transparency. And so we've seen a spike of those kinds of issuances, as a result, year over year, The last thing I'll mention is within the use of proceeds, social user proceeds was there was a higher interest in social use. And we would attribute some of that to the interest, in trying to invest in Indigenous related opportunities and insurance bonds. So something I know that, stakeholders across the financial markets are trying to try and do better at. And so hopefully that will see some more issuance in the future.

 

Roman Dubczak

Deputy Chair of CIBC Capital Markets

Just on Indigenous related issuance. Is there much of a pipeline building?

 

Sid Samarth

Managing Director and Head of Sustainable Finance, CIBC Capital Markets

I think there is certainly a lot of conversation. There's certainly a lot of opportunities. It's trying to find the right mixture of risk and opportunity for the investors. So I fully expect that we'll see more to come.

 

Roman Dubczak

Deputy Chair of CIBC Capital Markets

So what I'm hearing on the investor survey is, the investment community is managing for the future. So looking through the recent... Political turbulence, if you will. They're much more sophisticated building in-house teams. And they're really, like I said, looking through all this. So it's, it's actually very good to see. Sid, great update in a very turbulent environment. Thanks for joining. And, I'm pretty sure we're going to have a lot more to talk about in the, in the next quarter, and the ensuing quarters on this topic. And I just want to thank everybody for joining us for what is really a brief summary of what's going on in a very, very busy market today, being, finance of the energy transition and the impact it's had on sustainable finance nomenclature and sustainable finance related issuing. So thanks for joining us. I hope you're going to join us for future summaries on the topic and look forward to talking to you again soon. Thank you.

 

CIBC PERSPECTIVES: 

Q3 Update - Sustainable Finance

 

Hosted by:

Roman Dubczak, Deputy Chair, CIBC Capital Markets

 

With:

Siddharth Samarth, Managing Director & Head of Sustainable Finance, CIBC Capital Markets

 

All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated, and are subject to change.

 

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