Issuance volumes of green, social, sustainability and sustainability-linked (GSSS) bonds rebounded strongly in the first half of 2023, rising 7% year-over-year to $526 billion even as overall bond market issuance volumes fell 7% over the same period, with green bonds volumes hitting record levels, according to a new report from Moody’s Investors Service.
The report indicated a growing divergence in the sustainable finance market by region, with absolute issuance volume growth in most regions, but declines in North America. European issuers dominated GSSS bond issuance in the second quarter, representing half of global volumes and with GSSS bond volumes representing 20% share of bond issuance in the region. Market share rose as well to 12% in Asia Pacific, 29% in Middle East and Africa and 32% in Latin America and Caribbean. In North America, however, volumes fell to $25 billion in the quarter, the lowest since Q2 2020, with share declining to only 4% of the overall bond market in the region.
For the second quarter, GSSS bond issuance volumes of $258 billion were flat over the same period last year, recovering from a sharp decline in the second half of 2022, and significantly outperforming the broader market, with GSSS bonds rising to 15% share of global bond market issuance.
By bond type, green bonds continued to dominate, with issuance in the second quarter of $156 billion representing over 60% of volumes, and first half issuances of $312 billion exceeding the prior record of $295 billion set in H2 2021. Sovereigns led the green bond market in the quarter with issuance volumes of $49 billion, followed closely by nonfinancial companies at $48 billion, and financial institutions at $35 billion.
Social bonds rebounded 24% over the prior year to $51 billion in the quarter on the strength of a small number of large transactions from agency issuers, while sustainability bond issuances grew 2% year-over year to $40 billion, but declined on a quarterly basis after volumes in Q1 nearly doubled from the prior quarter.
Sustainability linked bonds continued their volatile performance, with Q2 volumes falling 50% quarter over quarter to $11 billion after a strong Q1 rebound. After rapid growth in 2021, SLB volumes were hit last year and continue to be pressured as issuers face scrutiny of the credibility and robustness of their linked sustainability targets, and due to the sector’s exposure to high-yield issuance.
Following the strong overall performance in the first half of 2023, Moody’s indicated that the GSSS bond market has the potential to eclipse its full year issuance forecast of $950 billion, which would represent 10% growth over the prior year. One of the key obstacles to the market’s growth noted by the report is a marked drop in first-time issuers, with debut issuances falling to an average of 29 per month in H1 2023 from 51 in 2022. While noting that a drop in first time issuers should be expected as the market matures, the report also highlighted heightened greenwashing scrutiny, an increasingly complex ESG regulatory and political landscape, and broader issuance conditions as factors that may be holding back new GSSS bond issuers.
Matt Kuchtyak, VP-Sustainable Finance at Moody’s Investors Service, said:
“We expect fairly robust GSSS bond volumes in the second half of the year, with the potential for issuance to eclipse our $950 billion forecast for all of 2023. However, growth in the second half of the year could be tempered by a drop in the number of first-time sustainable bond issuers, declining issuance in some markets such as the US, and the potential for higher borrowing costs and tighter lending to curtail global macroeconomic growth.”