The Emissions Climate Stays Negative: Covered Bonds Lose Appeal - Latest VDP Survey
Anticipated Positive Conditions for Pfandbrief Issuance
In a survey conducted by the mortgage bank association VDP in November, the overall emissions climate score showed a negative number, combining past, present, and future assessments (each over a six-month period). Investor sentiment towards covered bonds in the past has been extremely negative (-43, ranging from +100 to -100), according to the survey.
Covered bonds are projected to experience higher demand in the coming months, while a modest increase in mortgage lending, mainly refinanced through covered bonds, is anticipated. These are the key highlights of the latest VDP emissions climate analysis.
While the survey didn't provide insights into the causes of these trends, here are some background details on covered bonds and current market conditions:
- Covered Bonds: Common in European markets, covered bonds are fixed-income securities that financial institutions utilize to gather funds. Variables like interest rates and regulatory actions affecting their use as collateral can impact their demand[2][4].
- Market Trends: There's been a growing focus on ESG (Environmental, Social, and Governance) bonds that factor in climate concerns. For example, Berlin Hyp has reported a surge in ESG-related bond issuance, aiming to reach 44.1% ESG bonds by 2025[4].
- VDP: Although the relationship between the VDP survey, the emissions climate, and covered bonds demand isn't explicit, the VDP (Vereinigung deutscher Pfandbriefbanken) offers insights into the German Pfandbrief market, which encompasses covered bonds.
For more precise information about the VDP survey, its findings on the emissions climate, and covered bonds demand, it's advised to consult VDP's official publications or reports directly.
- The negative sentiment towards covered bonds in terms of emissions climate, as revealed by the VDP survey, could potentially be influenced by concerns in the environmental and climate-change-focused industry, such as the rise in demand for ESG (Environmental, Social, and Governance) bonds.
- As financial institutions increasingly turn their focus towards environmental science and climate-change, the emissions climate scores for covered bonds, which are often utilized in European markets, might face stern criticism due to their lack of focus on green initiatives.
- The negative emissions climate score for covered bonds, according to the latest VDP survey, may lead to a decrease in their overall appeal to investors in the finance industry who are increasingly attentive to the environmental impacts of their investments.
- The heightened attention on sustainability and ESG bonds in the industry might have a significant negative impact on the demand for covered bonds, as more financial institutions choose to invest in bonds that address climate-change concerns rather than traditional fixed-income securities like covered bonds.
- Banks and financial institutions may now prefer to invest in FSI (Finance for Sustainable Industries) or environmental-science-focused initiatives instead of covered bonds due to the negative emissions climate score and the increasing focus on ESG bonds, thereby potentially impacting the environmental impact of the financial industry.
