Last year, $60bn of sustainability linked bonds (SLBs) were issued worldwide, a 37% decline on 2021. Issuance has fallen amid ‘greenwashing’ concerns. Interest rate increases, if a company does not meet its targets, are low. Unlike green bonds used to finance specific projects, SLBs have not benefited from greenium (a lower borrowing cost).

The law empowers local authorities to create preferred go-to and no-go areas for renewable projects, and to financially benefit from them. Energy company Neoen said the definition of go-to zones will take years to emerge and put many developments on hold. The law also introduces a “visual saturation” criteria, which will effect new wind farms.

Although central bank interest rates have been rising, Spanish banks have kept interest rates on term deposits on 0.4%. So when the word got out that 3% can be earned on 12-month treasury bills, demand soared. Online purchases reached €400 million in January, as much as the total for 2022, and pensioners queue in front of the Bank of Spain.

High materials costs and slow approvals for new wind power projects reduce profitability. Danish wind farm developer Orsted announced a €335 million impairment on a US offshore project due to “unprecedented cost inflation”. Supply-chain issues, inflation, competition from China and lower demand drove turbine makers to cut jobs last year.

For a few hours last week, British consumers were asked to turn the lights off. There was a financial incentive offered. Less reliable renewable sources and the switch to electric cars and home heating will make this even more common. Home owners might hand over some control of their power use to suppliers, allowing them to switch off things remotely.

Turbine failures are on the rise in Europe and North America. This effects turbines of all three largest manufacturers: General Electric, Vestas, and Siemens Gamesa. A recent report says production issues may be to blame for the mysterious increase in failures. This issue comes on top of uncertain supply chains and fluctuating material pricing.

Global sales of ethical debt are set to suffer their first drop this year. The market went from “greenium” to underperforming conventional debt. ESG deals that took weeks to structure in 2021, now take months, and money managers take longer to vet the bonds. Europe is expected to lead the sector, but the EU has failed to reach a deal to fight greenwashing.

This year’s devastating losses for bond holders may continue in 2023. Interest rates will rise further and the ECB will shrink its vast crisis-era debt holdings just as governments ramp up issuance. Germany’s 2-year note touched 2.50%, its highest since 2008. The spread between German and US 10-year yields has narrowed the most since March 2020.

The ECB plans to shrink its €5tn bond portfolio by about €300bn, while eurozone governments are expected to increase the amount of debt they issue from €1.1tn this year to about €1.3tn next year. Increased debt issuance, coupled with less bond buying from the central bank, could revive concerns over a repeat of the region’s 2012 sovereign debt crisis.

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.