Published 3/21/18
Published 3/21/18
Reading Min.

Orith Azoulay, Global Head of Green & Sustainable Finance, and Louis Douady, Head of Environmental & Social Responsibility (ESR), provide an overview on the green and sustainable assets market.

Louis-Douady Orith-Azoulay EN

The European Commission’s Financing sustainable growth high-level conference, which opens on March 22 in Brussels, will be an opportunity to keep up the momentum established at the Climate Finance Day and at the One Planet Summit held in Paris back in December, and bring together the support and commitment from EU leaders and key private players for the Commission Action Plan on Sustainable finance.


Among the main priorities of the Action Plan are:

  • Establishing a common language for sustainable finance – or taxonomy – to define what is sustainable and identify areas where sustainable investment can make the biggest impact.
  • Creating EU labels for green financial products to allow investors to easily identify investments that comply with green or low-carbon criteria.


How and why has interest in sustainable investment grown so dramatically in recent years?

Orith Azoulay: To a large extent, the growth main driver for sustainable investment is increased interest from institutional investors and asset managers progressively recognizing sustainability issues (and especially climate issues) as both a matter of sound risk management (environmental liabilities, stranded assets, regulatory physical or technological risks) and a matter of commercial differentiation and sound investment strategies (first mover advantage, growth & innovation driven investment policies). Asset owners – particularly those in the public domain – are putting them under increasing pressure integrating ESG issues into their RFPs, considering them as a relevant item of their fiduciary duty and responding to their own increased regulatory and stakeholder’s pressures.

Finally, this push is also coming from the corporate world where fundamental changes are being made to business models in many sectors of the economy on the back of a fast-changing regulatory environment with major operational impacts, a need to integrate sustainability into cost and of risk management (hedging, resource management, stranded assets, energy costs) and managing fundamental evolutions with immediate direct topline effects (obsolescence of certain technologies & equipment; emergence of a low-carbon economy including both new players and new technologies ; changing consumer habits).

Louis Douady: What’s more, these developments are being driven at a regulatory level. The European Commission, for instance, recently announced that it intends to put forward a legislative proposal by the end of June making it clear that institutional investors and asset managers have a duty to consider sustainability when they make investments. In other words the asset managers fiduciary duty will now clearly encompass the ESG themes (Environment, Social and Governance).

What green and sustainable asset classes are available today? And tomorrow?

Orith Azoulay: At present, the main green and sustainable asset classes available are equities, bonds and term loans,mainly infrastructure and real estate. However, other classes are emerging. These include: structured equity and bond investment solutions (such as green repacking and equity-linked), securitisation (such as ABS and synthetic securitization) and revolving credit facilities integrating ESG factors in their margin grids.

Looking ahead to 2018, what do you forecast for the Green & Sustainable bond market?

Orith Azoulay: Overall, on the green, social, sustainable bond market, we should see greater levels of market involvement from a range of investors. The social bond market, although still young, is a segment to keep an eye on as it continues to benefit from increased global investor demand and is bridging perfectly with the UN Sustainable Development Goals framework that investors increasingly want to use. –.

Additionally, there is huge potential for covered bonds in the mortgage market. This is further supported by the European Mortgage Federation’s recent Energy Efficient Mortgages Initiative and the forthcoming pilot scheme to prove that energy efficiency and financial performance can be correlated.

We see great potential in the loan (asset linked term loans and corporate loans) and securitization markets as well.

How has the issuer base for green bonds changed? Can we expect to see new issuers tapping this market?

Orith Azoulay: Over the last year or so, we have seen an incremental extension in the issuers base from sovereigns, emerging markets and banks. That said, the market is still severely lacking corporates involvement, especially from US and UK corporates. Meanwhile, banks continue to complete inaugural bonds. While this is of course to be welcomed, it is worthwhile pointing out that the banking segment, as a whole, is not issuing on the scale it could. From Natixis’ perspective, our prediction for US$143 billion worth of issuance in 2017 was spot on. This year, we anticipate issuance worth US$204 billion, or a + 45% year-on-year increase.

Another surprising trend has been the emergence of green hybrids and green sukuks. What this indicates is that we are still very much in an emerging market with an experimental mindset,both from an issuer and instrument perspective. It is difficult at this point to see what the shape of the overall market will be, and which instruments will play the biggest role.

What challenges or constraints does the industry face? How is it overcoming them?

Louis Douady: The biggest challenge for the industry by far relates to the definition of what a green asset actually is – this extends to its various taxonomies. As such, building a common definition of what a green asset is and how the asset should be assessed is a core essential priority for all players. In a positive development for the industry, the European Commission recently unveiled a Sustainable Finance Action Plan aiming to clarify what can be labelled as “green investment” and more importantly has launched a process to produce a taxonomy to spell out specific criteria.

Alongside this, other players such as the European Investment Bank, the EU’s High Level Expert Group (HLEG) and the Climate Bond Initiative (CBI) are also working on similar projects. We therefore expect some common definition to emerge over the next few years.

How have guidelines and regulations around green, social and sustainable assets evolved? What’s next on this front?

Orith Azoulay: In terms of defining guidelines and standards, Natixis has – and will continue to have – an active role in the market’s development. The Natixis Green & Sustainable Assets Conference, for instance, had a whole session dedicated to this topic and included participants from the CBI, the EIB and the International Organization for Standardization (ISO). At a formal level, we will continue to engage with the CBI and with HLEG, which counts Philippe Zaouati, CEO of Natixis Investment Managers affiliate Mirova, among its experts. We’ve also devoted a great deal of resources to researching the topic and are currently putting together a list of recommended guidelines.

Louis Douady: What’s more, as we announced in December 2017, Natixis aims at introducing a “Green Incentive” mechanism geared to further align its financings with the objectives of the Paris Agreement by supporting green assets versus brown assets. Since then, we have launched an internal working group tasked with exploring how the mechanism can function in various sectors (power, real estate and mining and metals are currently being piloted) and aims to define what constitutes “green” and “brown” in these sectors by the end of June 2018.