GREEN FINANCE: ESG bond market on track to reach $1trn total issuance in 2023

As published on: investmentweek.co.uk, Thursday 7 September, 2023.

Green, social, sustainable, and sustainability-linked bond (GSSSB) issuance has continued to climb throughout 2023, with total issuance on track to reach between $900bn and $1trn by the end of the year.

Despite stagnating global bond issuance, the proportion of GSSSB continues to grow, with issuance forecast to grow between 5-17% on 2022, according to data from S&P Global Ratings.

In total, GSSSB issuance is expected to account for 14-16% of total bond issuance throughout the year, having captured 13% of issuance in the first half of the year.

Total cumulative issuance of GSSSB passed the $4trn mark in June 2023, less than one year after surpassing $3trn.

However, the S&P analysts acknowledge some headwinds to GSSSB issuance, such as rising interest rates, risk of recession in developed markets and rising anti-ESG sentiment in the US, which has seen some states push to prevent public finance issuers labelling their bonds as GSSSB.

Green bonds represented the majority of all GSSSB, totalling 59% of all bonds issued this year, with social bonds making up 18%, sustainability bonds 17% and sustainability-linked bonds 6%.

Meanwhile, Europe constituted the majority of GSSSB issuance for the first time in H1 2023, the S&P analysts noted, with Asia sitting at 20% and North America at 12%.

"Europe will remain the leading region for GSSSBs, while North American issuance may be hampered by lower supply and demand for the remainder of the year," S&P analysts said. "Emerging markets may see increased issuance in the coming year."

By issuance, sovereigns are pushing to achieve a record share of overall issuance, with the $80bn issuance from the in the first half of the year already surpassing the total issuance in 2022, partially due to record $13bn in issuance from the Middle East.

However, sovereigns still only made up 18% of issuers in the first half of 2023, with international public finance comprising 29% of issuance, followed by nonfinancial corporates (28%) and financial services (22%).

Meanwhile, Bank of America data revealed that throughout the first seven months of the year, ESG bond funds recorded inflows of $21bn, close to the $22bn of inflows recorded throughout all of 2022.

In July alone, the assets under management of global ESG bond funds surged by $42bn, the highest monthly AUM increase since 2020. The BofA data also found that by the end of June 2023, 12.2% of global bond funds were classified as ESG funds.


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