Global sustainable bond issuance is expected to surpass US$1.5 trillion in the coming year according to S&P Global Ratings despite an expected decline in global bond issuance overall.
Sustainable bonds, which include green, social, sustainability and sustainability-linked bonds, will account for 17 per cent of global issuance in 2022, according to the firm’s forecasts, up from 11 per cent in 2021 and less than 5 per cent as of three years ago.
“Growth in these markets will be a result of significant investor demand, regulatory developments to help standardise the market, and issuers' desire to diversify their investor base and potentially obtain favourable pricing terms,” S&P Global Ratings said.
The firm previously forecast that global bond issuance would contract about 2 per cent in 2022, after rising 5.6 per cent last year.
Within the sustainable bond market, S&P Global Ratings has predicted sustainability-linked bonds will grow the fastest in the year ahead.
“Because 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,” the firm said.
“We believe there are still many issuers that have yet to tap the sustainability-linked bond market and expect continued innovation in transaction structures and diversity of key performance indicators and sustainability performance targets, providing substantial upside for further growth.”
S&P Global Ratings also said there were “major opportunities” for public sector issuers to enter the sustainability-linked bond market.
Meanwhile, green bonds are expected to reach record issuance volumes this year driven by emissions reduction commitments made by nations at the COP26 summit last year.
“We believe these commitments will drive future green bond issuance and help green bonds maintain their position as the dominant sustainable bond category,” said S&P Global Ratings.
“In particular, we think sovereign bond issuance to finance green projects, including sustainable infrastructure and renewable energy, will likely accelerate further.”
Growth is also tipped to continue for social and sustainability bonds which will diversify into new projects that support the UN’s Sustainable Development Goals for 2030 according to S&P Global Ratings.
“As diversification and innovation in sustainable bond structures grows, ensuring greater integrity and credibility across the market will be key,” the firm said.
“Efforts to further establish and encourage the uptake of clear standards, regulations and disclosure requirements will be critical.”
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
