Scarce data and EU supply to hamper CEE sustainable finance growth

Scarcity of good quality data is hampering the growth of sustainable finance in the CEE region, despite the movement’s growing momentum,  according to senior figures in this fast-growing sector.

Yerlan Syzdykov, global head of emerging markets at Amundi, said that the buyside struggled with the paucity of data available, particularly in emerging markets. “Often, we’re relying on inferences or modelling, rather than hard numbers from companies,” he said.

But that could change over the next few years thanks to the EU’s border carbon tax plan, which is expected to launch in 2023. “It will mean higher taxation on companies with higher carbon footprints, that is going to push companies to disclose and decrease their carbon footprints.”

While appetite for green bonds from the region is still growing, sovereign supply may be crimped over the next few years by the European Union’s Next Generation EU programme — an €800bn borrowing programme designed to kickstart Europe’s recovery from the Covid-19 pandemic. The EU’s borrowing will comprise around one third green bonds, making it the largest green bond issuer in the world.

This is likely to slow down sovereign green bond issuance, particularly in the CEE region, according to Zoltan Kurali, head of the Hungarian national debt office. “I suspect the EU will take over a significant proportion of net green spending in the region,” he said. “Finding incremental government spending over and above that — the basis of green bond issuance for the sovereign — will be difficult, especially for countries with smaller economies.”

Marjan Divjak, director general of Slovenia’s treasury, which issued its debut sustainability bond last week, said that the scope for sustainability bond issuance is reduced but that he still believes Slovenia will become a regular issuer in the format.

With the green bond sector crowded, social bonds may prove a more fertile ground. Kurali believes that social bonds will come into more focus over the next few years, but that showing the benefits of social spending compared to what a government already does will prove a challenge. “The UN Sustainable Development Goals are a great help in this respect, but we need more conversation between issuers and investors on how we should measure social impact.”

Both Kurali and Divjak expressed an interest in sustainability-linked bonds, and are exploring their feasibility. Kurali said that, as with green bonds, quality of data was a major stumbling block. “If the goals linked to the bond’s coupon are commonly used and everyone agrees on a unified reporting framework, then it works, but that’s not always the case. I hope to see this data become more routinely reported for corporates and for sovereigns. We don’t want to see scrambling for data and a nightmare of reconciling various sources.”