Moody’s ESG Solutions issued its quarterly Sustainable Finance update today, raising its forecast for sustainable bond issuance, including green, social, sustainability and sustainability-linked bonds for the year to over $1 trillion.

According to the report, global sustainable bond issuance grew 25% year-over-year in the third quarter of 2021 to $217 billion, though volumes declined from the record-breaking Q1 and Q2 quarters, which saw issuances of $285 billion and $273 billion, respectively. Year-to-date, sustainable bond issuance reached $775 million at the end of Q3 2021, nearly doubling the $402 billion in the year-ago period.

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By bond type, green bond issuance was $115 billion in the quarter, up 18% year over year, and $380 billion year-to-date, increasing 75%, following weaker COVID-19 impacted quarters in H1 2020. Q3 Social bond issuance was $29 billion, declining 7% compared to the prior year period, following several record quarters driven by the European Commission’s EU SURE bonds program. Year-to-date social bond issuance of $173 billion as already surpassed the full year 2020 volumes. Sustainability bond issuance increased 26% year-over-year to $52 billion for the quarter, and more than 61% year-to-date to $160 billion.

The fastest growing sector of the market remains the emerging sustainability-linked bond market, with  issuance year-to-date of $62 billion, eclipsing the $9 billion issued in all of 2020. Sustainability-linked securities are an increasingly popular form of sustainable finance instruments, with attributes including interest payments tied to an issuer’s achievement of specific sustainability targets.

For the full year, Moody’s forecasts green bond issuance of more than $500 billion, social and sustainability bond volumes of $200 billion each, and sustainability-linked bonds to reach $100 billion.

The report also includes Moody’s ESG Solutions’ expectations for the key policy areas likely to be focused on at the upcoming UN COP26 climate conference, and their likely impact on the sustainable finance markets. Key anticipated focus areas include ramping countries’ climate commitments to align with a 1.5 degree future, international cooperation on carbon pricing, scaling up climate finance for developing economies, and mobilizing capital to invest in climate resilience. According to Moody’s ESG, significant progress in these areas would likely further enhance sustainable finance activity, especially for sovereign issuance, transition finance, emerging markets, and adaptation-focused green bonds.

Matthew Kuchtyak, Vice President – ESG Outreach & Research at Moody’s ESG Solutions, said:

“Heightened market focus on accelerating climate action is driving record sustainable bond issuance in 2021 – and the successful delivery of COP26 objectives would galvanize sustainable debt markets even further heading into 2022 and beyond.”