Following a decade of unprecedented growth worldwide, debt capital markets continue to boom. Innovative investment vehicles emerge, structured finance and securitisation capabilities expand and new routes for funding the real economy develop. Driven by a regulatory wave and historic low interests, the industry has gone through transformative changes over the last few decades and is now playing a key role in the Capital Markets Union, the European Commission’s action plan for a more inclusive and resilient economy.
Supporting the push for sustainability
The transition to a sustainable global economy requires scaling up the financing of investments that provide environmental and social benefits. Debt capital markets can play an essential role in attracting private capital to finance these global needs. According to the Climate Bonds Initiative, in 2019 a global record of $257 billion of green bonds was issued worldwide, representing an increase of 51% from 2018.
To meet the needs from investors and issuers, a wide range of market-driven products have been designed to help finance sustainability strategies. Sustainability-Linked Bonds (SLBs) is the latest addition to the universe of sustainable debt instruments.
“Issuers have not exhausted all the solutions available to them. They seek quick access to liquidity at low costs, while investors aim for higher returns with lower risks. Investors may also search for exposure to certain asset types or focus on non-financial goals and want to see these aspects reflected in their products. Sustainability-linked bonds match this investor demand for ESG while also meeting the needs of issuers who clearly prefer a general corporate-purposes bond. Despite the success of green bonds that are now an integral part of Luxembourg’s strengths, we understand that there are not one size fits all products and constantly thrive to provide new solutions for each individual player,” highlights Lindner.
The transformative change the industry has gone through over the last few decades is set to accelerate with the advent of FinTech, Blockchain and AI, bringing a set of new opportunities.
“You are in a stringent regulatory environment that gives you a lot of rules, but you do want to see opportunities. We have seen so many crises over the last 20 years that it is actually nice to see that the market keeps going and that there is always a solution,” she concludes.
The article was published in the December issue of LEO – The Financial Centre’s Mag by Luxembourg for Finance and can be downloaded online and as PDF.