Global sustainable bond issuance to reach US$950 billion in 2024: Moody’s

DESPITE a turbulent economic environment, sustainable bond issuance is expected to reach US$950 billion in 2024, little changed from the US$946 billion in 2023, according to Moody’s Investors Service.

The credit rating agency projects sustainable bonds’ share of the overall global issuance market in 2024 to remain similar to the 14 per cent peak in 2022 and 2023.

“We expect sustainable bond volumes to be roughly flat in 2024, with growth drivers linked to growing climate risks and new technologies counterbalanced by higher-for-longer interest rates and moderating economic growth in both advanced and emerging economies,” said Moody’s in a report on Wednesday (Jan 24).

In 2023, the global green, social, sustainability and sustainability-linked bond volumes totalled US$946 billion, up about 2 per cent from the US$925 billion in 2022.

Moody’s highlighted that rising investment in emerging green technologies and increasing focus on transition finance will spur green bond issuance, especially in emerging markets.

The sustainable bond issuance in Asia-Pacific (Apac) has been growing steadily. It nearly trebled to US$194 billion in 2021, before reaching record highs of US$219 billion in 2022 and US$234 billion in 2023, said the agency.

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“A growing focus on transition finance will be a hallmark of the region in 2024, underpinning continued strong issuance,” said Moody’s, noting that some jurisdictions in Apac have put sustainable finance policies in place or under development. These include Japan’s Basic Guidelines on Climate Transition Finance and the Monetary Authority of Singapore’s Singapore-Asia Taxonomy for Sustainable Finance.

Of the US$950 billion issuance estimated for 2024, Moody’s forecasts US$580 billion of green bonds, US$150 billion of social bonds, US$160 billion of sustainability bonds and US$60 billion of sustainability-linked bonds.

At the same time, it expects a waning appetite for sustainability-linked bonds amid rising market scrutiny.

“Continued investor focus on the robustness and achievement of sustainability performance targets and the materiality of financial adjustments have discouraged some would-be issuers from entering the market.”

It foresees the volume of sustainability-linked bonds to decline both in absolute terms and as a share of total sustainable bond issuance.

It also expects a gradual shift from voluntary to regulatory standards. While this can support the sustainable bond market over time, it can also potentially delay issuance in some markets. This is because issuers might pause their sustainable financing plans, pending regulatory guidance on sustainability reporting.

“In addition, the gradual and patchwork nature of reporting requirements is creating an increasingly complex ESG regulatory and political landscape.” Moody’s said this may complicate the sustainable bond plans of some issuers with global operations.

It added that while the financing of climate mitigation and adaptation efforts will remain important, growth in projects addressing other environmental-related priorities, such as natural capital, will continue this year.

“Although still in the early days, adoption of initiatives such as Taskforce on Nature-related Financial Disclosures and the continued strengthening of standards in carbon credit markets demonstrate growing awareness of the nexus between climate and nature-related risks.

“These initiatives will support the diversification of projects financed by sustainable bonds over time.”