Beyond ESG: Shaping Sustainable Bond Markets with Daniela Antonini #6

Green and social bond markets have evolved significantly in recent years, driven by new regulatory frameworks, growing investor expectations, and an increased focus on transparency. Daniela Antonini of Banco BPM joins this episode of Mortgages Covered to explore the key trends and challenges shaping today's ESG and sustainable finance landscape.

This Episode of Mortgages Covered explores:

• Banco BPM's Green Social Sustainability Bond Framework to ensure taxonomy alignment of its assets. 
• The issuance of covered bonds under the EU Green Bond Standard.
• The transition towards more evidence-based issuance.
• The differing market experiences and developments related to EU green and social bonds.
• The key priorities and strategic objectives of the ECBC ESG Bond Task Force.

Transcript

SPEAKER_00 0:01

The topic of ESG is so important in cover bonds. We've heard a lot about it at a lot of conferences. It's a topic which is still going on despite the market reaching some kind of maturity of regulation and size. And we're going to be discussing it in this podcast. Welcome to the EMF ECBC Mortgage Covered Podcast. I'm delighted to be joined today by Daniela Antonini of Banco PPM, who is a pioneer in the green bond sector generally. Daniela, thank you so much for joining us today. Tell us about your EU green bond standard transaction, the recent one.

SPEAKER_01 0:47

Yeah. Thank you. Yes, uh, we were pioneers since um we issued uh in the ESG format uh first in uh back in uh 2021. We published our first uh green social sustainability bond framework, then we updated it in November 2023, and finally we also published uh the fact book under the new regulation on European green bond. And last year we showed our first green bond in the European Green Bond format. We refinanced the mortgages which are taxonomy aligned because the main difference between ICMA uh aligned green bond and the European Green Bond Standard is that the asset must be taxonomy aligned. So the effort was on the framework in order to update the criteria for the taxonomy alignment of the asset. As a bank, we have a big portfolio of green mortgages and renewable energy projects. But uh what is important is that with this transaction, we've financed a portfolio of green mortgages. So basically, mortgages which were granted to buy an energy-efficient house with uh class APC, or which is in the top 15% in terms of primary energy demand. We are really very proud because we were the first Italian bank to publish a fact sheet, the second bank worldwide. And um yeah, and the transaction also went very well because we attracted a lot of asset managers, a lot of uh Article 9 funds. So we we saw the difference with respect to two other transactions with this one.

SPEAKER_00 2:50

One of the things which intrigues me about the EU green bond standards is that the market's grown up very nicely based on the ICMA principles. What advantage does it does this EU standard bring over a traditional green cover bond?

SPEAKER_01 3:08

What I think is that the market is moving from the issuer storytelling so based on the principle on the market principals to a more evidence-based issuance environmental impact. The good thing is that in my opinion, UGB are very much aligned with the ikma principals it's based on the same principals but introduce a little bit more sam rules on the eligibility of assets that refer det to the taxonomy, rules on the reporting and on the verifikation. But they are the same principle they are in the ikma principel no changes only more strict, strikter rules let's say. So the issue is not self under his responsibility, but it followed the issue follows the regulation. I think this is the main difference. And what is the benefit? The kons are that it's costly of course. You have to put more effort on the origination of the assets. But the benefit is, I think, is from the investors because they already know that uh it is green. They don't have uh to do a due diligence like they tell me they do in normal green or social bond? They see the framework, analyse all the categories. When they see that UGB, they already know that it's a green, and they can put in their uh in their funds.

SPEAKER_00 5:03

And talk to me about the cost of it. How difficult was it to reach this higher standard? And is that just about extra origination and extra data gathering, or does it actually exclude some mortgages?

SPEAKER_01 5:16

Uh the effort is uh for on the assets, uh as I said. Uh but but we have to consider that in this year we have had also the green asset ration disclosure. So uh having mortgage taxonomy aligned now is uh a must for all the banks. Uh yes, unfortunately we have to exclude the ones that are not taxonomy aligned, but I think that this is the path for the future. We started by gathering the APC when nobody knew what was. Um we have uh changed our origination processes. Now we are introducing a little bit more complexity. But on the other side, uh we avoid greenwashing because uh we we are aligned with the taxonomy. There's a lot to do as a bank, as uh the regulators, because uh there is not um comparability about APC uh PCs across the European countries as an example. But we are going that way, and this is a further step, I think.

SPEAKER_00 6:29

You remember a few years ago when when you were pioneering regular green bonds, ICMA green bonds, all the market conversation was about a greenium, whether you actually make a basis point saving. Are you having that conversation again with the EU green bond standards or is it just about investment diversification?

SPEAKER_01 6:45

Uh this is the main topic and the main question asked by my board of directors because they want to know how much is the premium. So uh yes, is it the discussion is still there? There is not so big premium as you can imagine, but uh every transaction, both on the green ICMA principle or green UGB, uh we see that the execution is uh uh much better, easier than on normal bond.

SPEAKER_00 7:25

Just because of more investors?

SPEAKER_01 7:27

Yeah. Because of more investors and with more quality. I think that that is the real benefit.

SPEAKER_00 7:35

More quality in terms of the they buy to hold, or they just stay where you tighten the mortgage book or the order book, or what?

SPEAKER_01 7:44

Uh buy and hold first, because uh as I told you, there we have uh many article eight, article nine uh funds, and they are increasing in our books and uh less uh let's say interested uh when you tighten the spread, they don't leave the order. So uh they know remove the order. That's what we have experienced, especially for the UGB. We did an analysis on the single investors that dropped uh when we tightened the spread on normal bond, on uh green bond, and on UGB. And we see we saw that with UGB uh investors uh uh are less uh interested on the on the spread. Less sensitive. Less sensitive, yeah.

SPEAKER_00 8:40

Yeah. Um how does that compare you're not just a green issue, you're also a social bond issue. How did the experience of the EU green bonds differ from your your social bonds?

SPEAKER_01 8:53

Oh uh we we issued uh in social format a cover bond um refinancing uh a portfolio of mortgages with a guarantee from the government for the financing of house acquisit the acquisition of a first home to disadvantaged socially economically disadvantaged families, means with low income or very big families, or young people less than 36. Our experience was successful as well. Um investors start to be uh always more interested in the social bond more compared to before when they were more interested in the environmental topics. Now we see a lot of investors switching to social.

SPEAKER_00 9:55

So interesting. Yeah. Why why is that?

SPEAKER_01 9:59

Um what we think is that uh green assets uh uh have a limit. So uh sometimes they also invest in there are not enough maybe green bonds, and they put also social bonds in their uh green funds.

SPEAKER_00 10:17

Right.

SPEAKER_01 10:18

Yeah.

unknown 10:19

Yeah.

SPEAKER_00 10:20

Um part of the uh your other responsibilities, your your other job is that you're now responsible for the ECBC's ESG Bond Task Force, you're the moderator of the task force. Tell me what the top priority for that task force is for the next few months.

SPEAKER_01 10:35

Yeah. Um we are still uh thinking about a NEST goal, but this um in the first meetings and during these days here here in uh Stavanger, I understood that one priority uh can be um analysing DSG data. Um we decided to to review the HTT of the cover bombs.

SPEAKER_00 11:06

So harmonized transparency templates.

SPEAKER_01 11:10

And uh we are uh analysing uh which data can be removed or put ESG data on the on the template. I think that I saw that uh uh issuers are a little bit reluctant to to give to published data especially on ESG. They prefer not to give to the market. But and on the other side, I think that we don't have to add uh many data and uh put more work on the issue. But uh what I suggested is to arrange uh something like a round table with the main investors and see what they are interested, what in which data they are interested, and focus uh the revision of HTT on this data. Small quantity of data, but good.

SPEAKER_00 12:11

With that being a compulsory disclosure field on the on the template, or is it an optional one?

SPEAKER_01 12:16

Uh now I think it's optional and uh let's see. Let's see in our work if if the time is ready to to to put it compulsory.

SPEAKER_00 12:28

It does feel like quite a lot of work, and you need to know there's a benefit for doing that work for the issuers.

SPEAKER_01 12:34

Yeah, uh the investors, I think.

SPEAKER_00 12:37

But I guess your experience suggests yes.

SPEAKER_01 12:40

Yeah, yes, because in my experience um managing the framework and uh ESG issuances, I I saw that talking to investors, you better understand uh what uh what is useful for their decision. So I would like to introduce only um useful decision data, let's say, not extra burden on the on the issuers.

SPEAKER_00 13:07

Sounds like a good balance. Let me ask you one final question. You've had the successful EU um EU aligned green bond. When's the next one?

SPEAKER_01 13:15

Uh this year.

SPEAKER_00 13:16

This year for sure.

SPEAKER_01 13:17

This year for sure, yeah. And uh we will use uh again the UGB label.

SPEAKER_00 13:22

And hopefully we can talk about it in Seville at the next plenary.

SPEAKER_01 13:26

Maybe. Maybe. Hopefully, yes.

SPEAKER_00 13:29

Well, I look forward to that, and until then, thank you very much for speaking to us today.

SPEAKER_01 13:33

Thank you.