Covered Bonds at the dawn of a new sustainable world?

7 October 2021

This year’s edition of the European Covered Bond Council (ECBC) European Covered Bond Fact Book, the 16th edition, seeks to identify and assess the real drivers of developments in the covered bond space over the past 12 months, providing the market perspectives and opinions of more than 100 contributors in over 40 countries. They share with us their views on the key market and legislative developments that have occurred, the best practices that have emerged, and address issues which have come to the fore such as digitalisation and sustainability, including both the social and green dimensions.

In the context of the COVID-19 pandemic, which has influenced every aspect of life over the past 18 months, now more than ever the Fact Book represents the backbone of the ECBC’s activities. As the Industry’s think-tank, the ECBC looks to highlight not only the latest developments but also the core fundamentals that have made covered bonds the most traditional yet innovative asset class in the European financial landscape. This anti-cyclical, long-term financing instrument has become a pillar of financial stability and is the nexus between harmonised European financial innovation and the traditions that sit within national legal frameworks. The European Covered Bond Directive has crowned this evolution and, together with the ECBC-led Covered Bond Label, has become a qualitative benchmark for the identification of a keystone in the architecture of the Capital Markets Union.

This compendium of market developments encompasses the essence and collaborative spirit of the ECBC members’ work, which amalgamates different cultures, perspectives but more importantly legal and financial features in a common qualitative and quantitative perimeter. Over the years, this collaborative and constructive approach has become the true fil rouge of our Industry’s modus operandi, always being ready to adapt to challenges whilst preserving asset quality and ensuring investor protection. The Fact Book represents the collective effort of our community to produce a prime academic and statistical benchmark publication, whilst coordinating a discussion forum involving over 2,000 covered bond experts and aficionados around the globe. Over the years, this community has been able to foster a covered bond philosophy with clear macroprudential characteristics for investors, thereby ensuring capital market accessibility and financial stability for mortgage and housing markets. More importantly, beyond the financial aspect, for most jurisdictions the introduction of covered bonds has also resulted in the provision of more affordable mortgages, more funding choices for lenders and more long-term borrowing options for consumers when they make the biggest investment of their life.

At the time of writing, most European Union Member States are working on the revision of or are drafting their national legislation aimed at implementing the European Covered Bond Directive. Several countries have already passed an official act, whilst others are finalising their legislative process with a view to meeting the Directive’s transposition deadline of 8 July 2022. At the global level, the prospect of a third-party equivalence regime (due to be finalised by 2024) is boosting the interest in adopting covered bond legal frameworks and helping to make compliance with the qualitative standards foreseen in the Directive a clear point of reference for regulators and legislators.

The latest market trends indicate that, despite the broader economic and social duress caused by the COVID-19 pandemic, there has been an increase in the level of deposits held by customers and mortgage lending activity has generally increased in 2020, as both the number of outstanding residential loans and gross lending volume tended to increase across most European jurisdictions. Moreover, average house prices across the EU27 seem to be on a clear upward arc, indicating that supply and demand in the residential market are undergoing significant changes that could potentially have long-term effects for lenders and borrowers alike. Lastly, the monetary policy landscape, whether in Europe, the United States or elsewhere, is currently shrouded in some degree of uncertainty. Highly accommodative monetary policy conditions and a low interest environment have so far facilitated lending to the real economy and altered lenders’ funding strategies. However, this development is likely to change as central banks aim to define their own post-pandemic policies.

Capturing the key trends in and drivers of these radical changes therefore represents a major challenge for all market participants and policymakers. At this historic time of unprecedented levels of fiscal support and monetary aid, it is crucial to preserve market intelligence and know-how to ensure the continued functioning of a private capital market which will be a key strategic asset in helping societies to implement a successful exit strategy from the public pandemic support mechanisms.

The EMF-ECBC seeks to be part of the solution and from the onset of the pandemic activated the Industry’s best resources to monitor, analyse, discuss and guard against potentially negative impacts on mortgage, housing and funding markets in Europe. Over the past 18 months, the EMF-ECBC has sought to channel the Industry’s reflections, proposals and concerns regarding the impact of the pandemic to national, European, and global authorities. As a community, we are committed to provide support towards a transition economy, encouraging countries to move from a pandemic mind-set towards a more sustainable capital markets infrastructure, and supporting consumers and borrowers in turning the current challenges into opportunities.  Spaces have to adapt to different social uses, to new functions over time, without the need to constantly rebuild them.

We need to use our imagination, come up with visions and ideas of what the European private and public space will and should look like. This is clearly an opportunity to change not only finance and banking but urban planning, construction, manufacturing – to change the way we build, finance and live in cities and buildings. But it needs to be a comprehensive cultural project. This is a unique opportunity to bring attention, momentum to the European Green Deal.

We are entering a new age of banking, of constructing and operating buildings where digitalisation is changing everything. We talk about and start to see autonomous cars. What about autonomous houses with sophisticated sensors that can adapt to ambient temperature, humidity, to the presence of people, adapting spaces and minimising energy consumption? What about intelligent neighbourhoods or villages where communities share energy or other resources? This is an age where we need to combine high tech and no tech, artificial intelligence and nature.

We believe that a market green ecosystem with ESG covered bonds, Energy Efficient Mortgages, green European Secured Notes (ESNs) is paving the way for an Industry green road map. If Europe and the world really want to achieve net zero emissions, we need to reduce buildings’ emissions, transform the way we inhabit our homes and our cities, and rethink mega infrastructures, energy infrastructures and mobility infrastructures. The way we finance these activities can influence this shift.

Whilst we could close our eyes and wait for the world to go back to its pre-pandemic norms, in reality we cannot ignore the strength of the winds of change blowing through our lives, our societies and our economies. We have all witnessed radical shifts in our daily life and business activities, some have been negative and others positive, and there is now a broad acceptance that we are in the midst of a generational turning-point. Indeed, we all know that more changes must come as the full impacts and consequences of the pandemic continue to reverberate.

Whilst vaccination rates are reaching high levels in most European countries at the time of writing and mindsets move towards the attentive monitoring and analysis of the market implications of a post-pandemic environment, in other regions of the world the pandemic remains very present.

From an economic standpoint, as highlighted by the Basel Committee on Banking Supervision’s July 2021 report on Early lessons from the COVID-19 pandemic on the Basel reforms, the regulatory reforms introduced since the Global Financial Crisis (GFC) of 2008, namely the addition of higher quality capital and liquidity levels, have helped banks become more resilient and capable of absorbing the economic shocks caused by the coronavirus pandemic.

Likewise, thanks to the financial architecture implemented post-GFC, covered bonds have been positioned at heart of the Basel reforms where they are recognised as a crucial long-term macroprudential asset which helps to secure financial stability. Throughout the pandemic, banks continued to lend and were able to finance this via covered bonds, thereby providing for other critical services that will help pave the way out of the crisis and financially support countries in addressing the impacts of the pandemic.

More specifically, we have seen a broad range of unprecedented interventions from policymakers and Central Banks at global, European and national levels in terms of fiscal support and monetary policies. This has facilitated a coordinated global effort to contain any economic and financial spill-over from the pandemic. These actions have served as a sanitary cordon protecting the real economy from  violent shocks.

Mortgage and housing markets and the renovation of the building stock are at the heart of the recovery. Furthermore, they are seen as major priorities by policy makers in light of the significant macroeconomic leverage and financial stability they offer, with mortgages outstanding accounting for 46.1% of EU GDP. Moreover, at a microeconomic level, in every country mortgage and housing markets represent the direct link between consumer expectations and financial market best practices for investors, and issuer behaviour towards the required transition to a low/zero carbon economy.

Changing residential energy demands can play a key role in transitioning to a greener and more sustainable economy. Environmental psychology suggests that behavioural changes regarding energy use are affected by knowledge, awareness, motivation and social learning. Data on various behavioural drivers of change can explain energy use at the individual level. Consequently, an environmental, social and governance (ESG) revolution in the financial sector can help to stimulate a green mentality in consumers and stakeholders. In the same way, the building of a new ecosystem of energy efficient financial tools can have significant implications for macro energy demands at a regional and national level.

What does an ESG revolution imply for the financial sector? Well, we know that we can play a fundamental role in changing market best practices and in providing the real-life answer to this question. The answer could be simply that the banking sector is pivotal to helping fund the renovation wave through a systemic ESG approach, providing the cathartic boost for properties and the basics for accessing capital markets via green covered bonds and securitisations. We could say that every renovated home will pollute less, be less risky as an investment/asset, can increase the disposable income of borrowers and enhance the quality of our lives. All of this is feasible if we take the opportunity to build an ecosystem capable of delivering on citizens’ expectations. In parallel, we must develop a more efficient capital market infrastructure optimising the use of private capital and investments, thereby allowing public resources to be focused on those other social needs where only the State can act.

With a holistic approach looking at the entire value chain from the asset-side (the green property and loan) through to liabilities (green covered bonds or securitisations), we can build a green cathartic mechanism on the balance sheets of banks and in investors’ portfolios. Potentially, every mortgage loan can contain a seed that will germinate into part of the green recovery, motivating and helping consumers to improve the energy performance of their homes. This will trigger a cascade effect throughout the entire value chain, giving rise to a new, green ecosystem.

We have long witnessed a steady growth in the attention our members are giving to the issuance of ESG and green bonds, which are becoming increasingly important features of the European financial landscape. This is evidenced via the Covered Bond Label website, which now provides detailed transparency on green liabilities and cover assets. What started in 2017 as a simple self-certification[1] operation by labelled covered bond issuers to highlight (shown by a green leaf on the Covered Bond Label website) those of their bonds which are considered sustainable has now reached significant proportions: around 50 outstanding bonds in 10 jurisdictions[2] coming from 23 banks account for over EUR 30bn. of issuance. This volume equates to roughly 1% of the total number of covered bonds outstanding at the end of 2020, and to 1.5% in terms of new issuances during the same period. For 2021, the figures available on the Covered Bond Label website suggest that around 1.8% of new issuances are sustainable covered bonds. In particular it is interesting to see that the Nordics, together with South Korea, are especially keen on this type of product. This being said, a number of other core covered bond countries as well as newer players, like Poland, have now also started to issue sustainable covered bonds.

Alongside the Energy Efficient Mortgage Initiative (EEMI), the Energy Efficient Mortgage (EEM) Label is a new quality instrument allowing transparent identification of energy efficient mortgages for market stakeholders. The Label was launched in February 2021, with the support of the European Commission, and denotes a further effort that the EMF-ECBC is making towards the sustainable finance and real estate/building sectors, in compliance with the EU legal framework. Indeed, the Label allows easier access to energy efficiency financing, green bond markets, better tracking of EEM performance, provides greater transparency in relation to climate risks and portfolio resilience, and fights greenwashing. The Label enables lending institutions that are committed to continuous progress and improvement initiatives to disclose energy efficiency related data through the Label’s Harmonised Disclosure Template (HDT) at least every quarter, and thereby jumpstart the investment and mortgage market for energy efficiency finance.

Amongst other relevant datapoints necessary to assess the credit quality of a mortgage or, more in general, a loan portfolio, the HDT is also focusing on the collection of specific data in order to assess a loans’ ESG quality. Specifically, for the time being, data requirements on EPC, age structure of the relevant real estate, energy demand data, type of dwelling and the amount of new or existing real estate the portfolio represents is being considered. Several of these datapoints have only just started to be collected by financial institutions and often there is little temporal depth available. As such, the EEMI, working through the EEM Label, represents the first time a transnational effort has been made to produce comparable data through a harmonised template. Currently, this is available for 30 financial institutions from 13 different jurisdictions, covering 37 labelled Energy Efficient Mortgage products. Amongst these institutions, at the time of writing, some are already publishing initial ESG data and more are expected to follow suit shortly, with the bulk being expected to disclose some data by the end of the year.

Looking to the future for the covered bond world, we see a number of issues appearing on our (for now still) virtual desks: How can we secure support for the real economy and financial markets in this complex and dynamic environment? Are we on the edge of a potential economic worsening, with social downturn implications or will the recovery stabilise and lead us back to pre-pandemic market levels? What is the role of the covered bond asset class in the current and the medium-to-long-term scenarios? How can our community of issuers, investment banks, rating agencies, investors work together to be part of the solution in a post-pandemic environment?

As this Foreword looks to underscore, through the continuous fine-tuning of covered bond legislation, facilitation of market best practices, the fostering of market-led initiatives such as the Covered Bond Label, the Energy Efficient Mortgages Initiative and the Energy Efficient Mortgage Label, and – most importantly today – proactivity in the face of the COVID-19 pandemic, the covered bond community is constantly seeking to present solutions to the major challenges of our time.

Throughout the recent months of lockdown, the basic functions of our organisation have been challenged in ways that were unexpected, in particular the capacity of the ECBC to meet physically, to act together as a market forum. To address this challenge and the need to maintain communication between the key market stakeholders, the ECBC has sought to mobilise its global network and keep alive the international collaborative spirit we have forged over the past 17 years. Having secured the necessary virtual platforms for exchange which allowed our working groups, committees and task forces to continue their activities, the EMF-ECBC took the lead in guiding over 2,000 market participants towards a coordinated set of actions. These have covered the finding of market consensus for proactive new best practices and market solutions such as moratoria, enhanced disclosures, implementation of quality labels, promoting new asset classes and so on. We want to play a leading role in paving the way for the Recovery and Green Deal strategies, and help maximise the opportunities to build a better future for the next generations.

We all know that we are stronger together and we would like to thank all ECBC members for their ideas and stamina during what have been challenging times. Against this backdrop, we would particularly like to express our gratitude to the contributors to this year’s publication for their work in ensuring that, despite the exceptional circumstances of the past year, this 16th edition of the ECBC European Covered Bond Fact Book remains:


  • The leading source of covered bond market intelligence; and
  • The primary source for aggregate covered bond market data and statistics, and a comparative framework analysis.


Boudewijn Dierick, ECBC Chairman

Luca Bertalot, EMF-ECBC Secretary General


[1] Through said self-certification the issuer declares that the bonds presenting a green leaf on the covered bond label website is “…a covered bond that is fully compliant with the Covered Bond Label Convention, and also includes a formal commitment by the issuer to use an amount equivalent to the proceeds of that same covered bond to (re)finance loans in clearly defined environmental (green), social or a combination of environmental and social (sustainable) criteria. Covered Bond Labelled sustainable covered bond programs are based on their issuer’s sustainable bond framework which has been verified by an independent external assessment. The issuer strives, on a best-efforts basis, to replace eligible assets that have matured or are redeemed before the maturity of the bond by other eligible assets.

[Against this background, please note that the EMF-ECBC is currently working on market initiatives which will ultimately define European criteria for energy efficiency covered bonds and sustainability standards]


[2] Denmark, Finland, France, Germany, Italy, Norway, Poland, South Korea, Spain and Sweden