Volume of ESG bond issuances declines 13% to US$215b in Q3 2022: Moody’s report

THE volume of environmental, social and governance (ESG) bonds issued across the globe in the third quarter of 2022 totalled US$215 billion, a 13 per cent decline from a year ago. 

Compared to the previous quarter, it was down 10 per cent, according to a report by ratings agency Moody’s out on Thursday (Nov 3). 

Over the first nine months of 2022, US$679 billion of ESG bonds – which include green, social, sustainability and sustainability-linked bonds (SLB)  – were issued, which is 17 per cent lower than the US$817 billion issued over the same period last year. 

However, it is higher than the total amount issued for the whole of 2020 at US$612 billion. 

The decline in sustainable bond volumes has largely been driven by a more challenging macroeconomic and geopolitical environment, said the report. Global bond volumes declined 27 per cent year-on-year through the first nine months of 2022, according to data from Dealogic. 

“Given the weaker overall environment for debt issuance, we expect full-year 2022 volumes to fall short of our previous forecast of US$1 trillion, and we are now expecting around US$900 billion of global sustainable bond issuance for the full year,” read the report. 

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Declining volumes from corporates have been the principal contributor to the overall drop in issuance this year, it added. 

However, issuance volumes of such bonds has been stronger than the overall market, indicating a degree of resilience among ESG-labelled bonds. 

With ESG bond issuances declining at a lower rate than the broader market, its share of total global bond issuance has gone up from 15 per cent in the first nine months of last year to a record 16 per cent over the same period this year. 

“The fundamental drivers of long-term growth in sustainable bonds – such as the need for climate mitigation and adaptation financing, accelerated decarbonisation efforts to achieve net-zero goals, growing regulatory attention on sustainability and a continued focus on the interconnectedness of environmental and social objectives – remain intact, and we expect issuance growth to resume when market conditions become more favorable,” read the report. 

European issuers continued to dominate, making up 47 per cent of ESG bond supply in Q3. Asia-Pacific came in second at 21 per cent, while North America accounted for 17 per cent. Supranational issuers represent 13 per cent of global issuance. 

Comparing regional issuance volumes over the first nine months of the year, those from Europe fell 18 per cent over the same period last year. North American also experienced a decline of 11 per cent. 

However, the Asia-Pacific region saw a 15 per cent increase, with US$159 billion of ESG bonds issued in the first nine months of the year.

Green bonds continued to form the largest share of the ESG bond market at 55 per cent, with US$119 billion issued in Q3. However, this was a 13 per cent decline from the same period last year. Compared to the second quarter, it fell 18 per cent. 

Sustainability bonds made up the second-largest share at 21 per cent, with US$47 billion issued, sliding 12 per cent from a year ago. However, this was a 34 per cent increase from the previous quarter. 

Social bond issuances in Q3 increased by 19 per cent year-on-year to US$41 billion. It accounted for about 19 per cent of total ESG bond supply. It was a modest 5 per cent increase from the second quarter, but still significantly lower than the pandemic-fuelled volumes seen at the end of 2020 and early 2021. 

SLBs formed the smallest share, with just under 4 per cent of the total pie. SLB issuances totalled US$8 billion in the quarter, plunging by more than 60 per cent from a year ago. 

On a quarterly basis, it fell 59 per cent, which is the steepest quarterly drop since the inception of the SLB market.

Moody’s said this reflected a difficult debt issuance environment and growing market scrutiny on the credibility and robustness of issuers’ SLB targets. Another challenge has been the significant decline in high-yield issuance this year, as high-yield issuers have been more likely to consider SLBs in the early days of this market segment.