Europe’s markets watchdog ESMA has proposed new standards for ESG labelling. Many funds have already been downgraded from Article 9, EU’s top ESG class, to Article 8, after the EU clarified its rules. But only 18% of Article 8 funds, which hold about $4 trillion of asset, meet the new standards and managers won't be able to label them sustainable.

EU ministers have backed a carve-out for banks and investment funds from a landmark regulation. The corporate sustainability due diligence directive requires companies with more than 500 employees or €150mn global turnover to identify and prevent activities such as child labour, worker exploitation or damage to natural ecosystems in their supply chains.

The European Investment Bank launched Project Venus and issued a €100 million digital bond. Central banks of France and Luxembourg provided a digital representation of the euro in a form of tokens. Société Générale and Goldman Sachs acted as on-chain custodians. The bond will be listed on the Luxembourg Stock Exchange.

It is a $2 billion unregulated global market. A major reseller of carbon offsets, EKI went from $10 M to $1 B valuation in a year. 95% of the offsets it sells are tied to wind and solar projects, which are profitable even without them. Many “offset-verifying” companies have stopped approving such offsets, but new companies that “verify” them sprung up.

UK’s DB schemes collectively have £1.5tn assets under management. They will invest more in liquid markets like bonds and gilts. Conversations with investors are around high inflation, more volatility and rising interest rates. Instead of thinking in terms of equities and fixed income, investors are thinking about “risk factors” that cut across asset classes.

HSBC announced plans to launch Orion, its DLT platform for issuing bonds. It enables the tokenisation of both the digital bond and the currency used for settlement, enabling atomic settlement or delivery versus payment (DvP). Tokenisation opens up opportunities for fixed-income issuance, including faster processing and improved operational performance.

The price investors pay to borrow cash overnight by pledging gilts is trading 43 basis points below the BOE’s rate. Low repo rates are due to pension funds hoarding cash and years of quantitative-easing have limited the pool of safe government securities freely available to trade. Demand for high-quality liquid assets still outstrips supply.

Issuances of green and other sustainable bonds have fallen in 2022. Year-to-date volumes of $679 billion were down 17%, outperforming the broader bond market, which declined by 27%. Challenging macroeconomic environment pressures global debt issuance. Corporate volumes account for the bulk of the decline this year with other sectors remaining stable.

Perpetual bonds are the ideal tool to resolve a financial crisis. Not having to repay the principal is a tremendous advantage. Now the interest rate would be high, but after a “non-call” period, bonds can be redeemed and replaced with bonds with a lower coupon. This would address a difficulty pension funds have faced — the illiquidity of long-term gilts.

Hybrids do not affect credit ratings and they offer higher yields to investors. They have been used by energy companies. EDF has €13bn in hybrids outstanding. When they mature, issuers can repay them and issue new ones, or roll them over. Rising interest rate make the latter more likely, but that will make investors less likely to buy hybrids in future.

The 10th edition of the Global Green Finance Index (GGFI) evaluates the green finance offering of 84 financial centres. The index is based on a number of existing indices in combination with a survey of senior industry figures from around the world. The GGFI was developed by the Long Finance initiative with support from the MAVA Foundation.

European pension funds should have access to a central bank-backed facility as a last resort to help them avoid the fire-sale of assets forced on UK pension managers by margin calls due to the falling gilt prices. European insurance companies and pension funds had to pay extra €50bn in margin over a 12-day period in March 2020 when markets panicked.