Sustainable bond issuance likely flat in 2022 amid headwinds: Moody’s ESG Solutions
Tan Nai Lun
THE volume of green, social, sustainability and sustainability-linked (GSSS) bonds issued globally will likely be flat in 2022, amid greater than anticipated headwinds from broader market conditions, Moody’s ESG Solutions said.
But the research team expects growth will resume when the market volatility abates, with the potential for long-term growth remaining strong, it said in a report on Wednesday (May 11).
The research team expects around US$1 trillion of issuance for the whole of 2022, with US$550 billion from green bonds, US$125 billion from social bonds, US$175 billion from sustainability bonds and US$150 billion from sustainability-linked bonds.
It originally forecasted US$1.35 trillion in sustainable bond issuance for 2022, but said it now “appears out of reach”.
GSSS bonds totalled US$203 billion in the first quarter of 2022, down 11 per cent from the fourth quarter of last year and down 28 per cent from Q1 2021, amid greater-than-expected market volatility driven largely by the Ukraine conflict.
In the quarter, sustainable bonds accounted for just under 10 per cent of global volumes, from 11.7 per cent for all of 2021.
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By the types of bonds, the volume of green bonds – the primary contributors to the GSSS bond market – declined in the first quarter of the year to US$104 billion, the lowest quarterly since Q4 2020. Sustainability-linked bond volumes were also down, but in-line with volumes in the past 3 quarters.
Meanwhile, social bond volumes rose and reversed a trend of 3 straight declining quarter, and sustainability bonds were up 33 per cent on quarter, although volumes for both bond types were still lower than their respective Q1 volumes last year.
However, the research team noted that Q1 2022’s volume remained roughly in line with the volumes achieved during the past 3 quarters.
In the long run, it still sees many growth drivers, such as the need for climate mitigation and adaptation financing, accelerated decarbonisation efforts to achieve net zero goals, growing regulatory attention and a continued focus on environmental and social objectives.
Following the Ukraine conflict, Europe is also putting more attention on renewable energy for more energy security, the research team said.
It also expects climate mitigation and adaptation financing will be “more urgent than ever”, after 2 recent reports by the Intergovernmental Panel on Climate Change highlighted the magnitude of physical climate risks.
The research team said growth will likely resume in the second half of 2022, boosted by significant appetite from issuers to meet ESG-related key performance indicators, especially among those in hard-to-abate sectors.
Additionally, it noted that sustainable debt markets are increasingly financing projects to promote gender equity, although it said there is much work to be done and ample room for market growth.
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