Green, social, sustainability and sustainability-linked bonds (GSSSB) issuance volumes are expected to grow modestly to around $1 trillion, with macroeconomic pressures offset by increased transparency, growth in emerging markets and search for environmental and energy transition projects, according to a report. new report released by S&P Global Ratings.
In addition to volume growth, S&P also anticipates an expansion in bond types, with a more prominent presence for transitional and blue bonds, even as green bonds continue to dominate.
Overall, S&P anticipates that the growth trajectory of GSSSB volumes will more closely reflect the broader conventional bond market as the sustainable bond market matures, following several years of outsized growth, with GSSSB participation. in issuance volumes growing from 5% in 2019 to 13% in 2023. For 2024, the report predicts GSSSB issuance volumes of $0.95 billion to $1.05 billion, growing slightly from $0.98 billion of dollars in 2023, reaching a share of 14% at the highest point.
By bond type, S&P expects green bonds to continue to dominate the market due to growing demand for environmental projects globally, following 10% growth and an expansion of their share of GSSSB issuance from 56% to 59% in 2023.
Going forward, S&P expects new bond labels to take hold, particularly anticipating a strong year for transition bonds, which can provide sustainable financial market access to issuers in sectors that may not qualify for green bond labels but that require funding for initiatives to achieve climate and environmental goals. While the transition bond market has only reached a cumulative issuance of US$15 billion since 2019, and defined principles for transition bonds have not yet emerged, the report notes recent key drivers for the market, including the recent launch by Monetary Authority of Singapore (MAS) of a transition taxonomy and Japan's plans to issue $130 billion in transition bonds over the next decade, starting with an inaugural $11 billion issuance in February 2024. S&P also anticipates stronger issuance of blue bonds, or those aimed at the sustainable use of maritime resources, as more data and policies that promote a sustainable blue economy emerge.
By issuer type, the report notes substantial growth in sovereign issuance in 2023, increasing more than 50% to a record $160 billion, as more issuers – 35 in 2023 compared to 24 in 2022 – joined the market, and seven issuers exceeded US$10 billion. , including the United Kingdom with $23 billion, Germany with $19 billion and Italy with $15 billion. S&P expects another potential record year for sovereign GSSSB issuance as new issuers continue to enter the market and major issuers such as Japan, Germany and France have already committed significant volumes. Non-financial companies, on the other hand, which have historically accounted for the majority of GSSSB issuance, saw declines in 2023, with the forecast for 2024 largely dependent on the direction of interest rates, according to the S&P report.
By region, the report predicts that Europe, which claimed a 45% share of GSSSB issuance volumes in 2023, will continue to maintain its leadership position, but also expects emerging market issuers to gain prominence, continuing their a 2023 trend where emerging market issuers have issued bonds in local currencies due to strong anticipated demand from domestic investors and as new participants gain access to the GSSSB market. The report also predicts that GSSSB issuance could grow by 10% in Asia-Pacific, following a 7.6% increase to $235 billion in 2023, with public sector issuers increasingly participating in the market, Japan stepping up transition bond issuance and affordable housing initiatives fueling social initiatives. issue.
North America, on the other hand, which recorded a second consecutive year of declines in GSSSB emissions in 2023 due to macro and political pressures, is expected to continue to face a continuation of these headwinds, offset by factors including the impact of Inflation Reduction Act in support of decarbonization technologies, increased investor attention on decarbonization of hard-to-abate sectors, and growth of US municipal emitters.
In the report, S&P said:
“We anticipate that 2024 growth will only be moderate compared to 2023, and that we will not yet see GSSSB issuance reach the peaks of 2021. As we expect GSSSB penetration into overall bond issuance to further consolidate and potentially increases, we think that overall financing conditions will be the main driver of variability around our 2024 $1 trillion issuance forecast… As GSSSB markets continue to mature, 2024 could be a year of broadening scope regional and types of instruments, as opposed to strong global growth.”
