Global issuance of sustainable bonds – including green, social, sustainability, and sustainability-linked bonds – will surpass $1.5 trillion in 2022, according to research from S&P Global Ratings.
The rating agency found that while sustainable bonds still comprise a relatively small part of global bond issuance, it is increasing rapidly – hitting 11% of global issuance in 2021 from less than 5% three years earlier.
It believes that this year it will account for roughly 17% of total 2022 issuance as public and private sector issuers continue to tackle their climate commitments.
The fastest growing segment will be the sustainability-linked bond market. “As the issuer pool diversifies across sectors, geographies, entity sizes, and credit quality, new issuers will have more financial incentives to advance their sustainability goals and agendas,” said S&P Global .
It adds that since proceeds are typically not ring-fenced for specific environmental or social projects, sustainability-linked instruments have proven more flexible and accessible than use of proceeds instruments for a variety of issuers.
This includes issuers in the retail, consumer products, and business and consumer services sectors, as well as those in hard-to-abate sectors such as oil and gas, chemicals, aviation and shipping.
Green bond issuance is also expected to maintain its dominant position with record issuance volumes in 2022 thanks to the U.N. COP26 summit,
In particular, sovereign bond issuance to finance green projects, including sustainable infrastructure and renewable energy, will likely further accelerate.
Sustained growth of the other categories of instruments, including social and sustainability bonds, is also forecast to continue to diversify into new projects in support of the (SDG) agenda.
The research notes that the European Union will continue to be a significant driver of green bond issuances in 2022.
It started its five-year €240 billion green bond program last October as part of its €800 billion Next Generation EU recovery fund. The €12 billion green bond was more than 11 times oversubscribed, making it the largest green bond ever issued and the largest si gle order book to date
US-based issuers will also continue to play a leading role. President Biden has made his commitment to renewable energies and infrastructure clear through his Bipartisan Infrastructure Law and proposed Build Back Better Framework. Combined, these two initiatives represent over $500 billion investment in green projects.
In November 2021, the US also announced it would support the Climate Investment Funds’ new financing mechanism, which aims to narrow the clean infrastructure gap in developing economies by issuing green bonds and then disbursing them through multilateral development banks across low- and middle-income countries.
“As diversification and innovation in sustainable bond structure grows, ensuring greater integrity and credibility across the market will be key. Efforts to further establish and encourage the uptake of clear standards, regulations, and disclosure requirements will be critical,” said S&P Global.
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