Sales of green, social and sustainability (GSS) bonds in Europe could total €1.6 trillion by 2026, accounting for almost half of all new bond issuance in the region, according to a new report by PwC Luxembourg.
The report provides an in-depth overview of fixed income’s sustainability progress in Europe via interviews with 100 investors and 100 issuers.
Under its baseline assessment, European GSS bond issuance will reach €1.4 trillion in 2026 and €1.6 trillion in a high-growth scenario, up from almost €500 billion in 2021.
“Sustainability – and particularly environmental – considerations have moved from being a nice to have option to becoming crucial…reflecting new regulatory requirements and changing societal expectations – particularly in Europe,” PwC said.
Breaking down the different segments, PwC expects new issuance of green bonds to reach at least €691.2 billion in four years’ time, while social bonds will comprise €317.1 billion and sustainability bonds at €391.8 billion.
Around 60% of respondents though said they were concerned about liquidity due to the still relatively limited supply of GSS bonds and many investors’ willingness to hold them until maturity.
However, the report noted that with issuance, both public and private, likely to grow, liquidity constraints are expected to fall “significantly” over coming years.
Around 39% voiced their worries over the uncertainty of how money raised by GSS bond sales would be used although the report pointed to regulatory efforts and voluntary guidelines among attempts to mitigate “greenwashing”.
The study also found the public sector will continue to be the main issuer of GSS bonds, with supply forecast to reach €712 billion by 2026, up from €266 billion last year.
Corporate issuance, particularly from the non-financial sector, would gain traction, increasing nearly three times to €687.7 billion in 2026.
“Ever since the European Investment Bank issued the first green bond in 2007, followed quickly by the World Bank, GSS bonds have grown up from a niche market dominated by international financial institutions into a mainstream asset class,” said Andrew McDowell, partner, Strategy& Luxembourg at PWC.
He added, “With investors showing no limits to their appetite for GSS bonds, and with more and more public and private issuers seeing the reputational and funding advantages of accessing the GSS market, it is plausible that GSS bonds could account for almost half of total European bond issuance by 2025.”
Olivier Carré, financial services market leader and sustainability sponsor at PwC Luxembourg said, “The political and regulatory shift in the EU triggers a seismic shift re-directing capital flows towards sustainable economic activities.
This changes the strategic relevance of the GSS bonds instrument. In particular for CFOs of companies in transition towards more sustainable activities or with a mixed business book the issuance of GSS bonds can help financing such transition and qualify as eligible investment for investors subject to SFDR (Sustainable Finance Disclosure Regulation and EU Taxonomy.”
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