DBRS Morningstar: Madrid Continues to Pave The Way in Sustainable Funding for Spanish Sub-Sovereign Governments

DBRS Morningstar released a commentary looking at green, social and sustainability (GSS) bond issuances among Spanish sub-sovereign governments (SSGs).

The Coronavirus Disease (COVID-19) pandemic has accelerated the trend towards Environmental, Social, and Governance (ESG) investing, putting more emphasis on long-term sustainability risks. This increased focus on ESG themes from all market participants has been met in the credit market by a strong increase in GSS bond issuances globally in 2020. In Spain, the growth in GSS bond issuances was particularly significant among Spanish SSGs. Last year, the Autonomous Community of Madrid (A (low), Stable) continued to drive GSS bond issuances in the public sector, followed by the Autonomous Community of the Basque Country. Thanks to the two autonomous communities, GSS funding by Spanish SSGs reached a peak at EUR 3.4 billion in 2020.

According to the two regions, Madrid and the Basque Country's latest GSS issuances benefited from increased demand and a greater access to international investors compared with plain vanilla bonds issued in prior years. “The particular interest of specialised ESG investors which accounted for more than half of the investors' demand contributed to strong market appetite for those issuances”, says Mehdi Fadli, Vice President at DBRS Morningstar.

With more Spanish regions progressively returning to direct funding in the debt market, instead or in parallel to using funding through the Spanish Treasury, DBRS Morningstar expects GSS funding to continue to grow among Spanish SSGs, offering them, in light of the strong market appetite, access to a wide range of investors. “Thanks to their large set of responsibilities, Spanish SSGs, particularly autonomous communities, have the capacity to allocate an important part of their budgets to projects eligible to GSS funding, including social and green projects”, says Nicolas Fintzel, Senior Vice President at DBRS Morningstar. In 2019, Spanish regions had expenditure in healthcare, education, social and environment protection totalling EUR 131 billion, or two thirds of Spain's 17 regions' budgets.

Notes:
The commentary titled: “Madrid Continues to Pave The Way in Sustainable Funding for Spanish Sub-Sovereign Governments” is available at www.dbrsmorningstar.com.

For more information on the impact from coronavirus, visit www.dbrsmorningstar.com or contact us at [email protected].

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