Credit ratings, research, and risk analysis provider Moody’s Investors Service released a new report today, outlining its outlook for the sustainable finance market, including a forecast for significant growth in the issuance of sustainable bonds. Moody’s predicts sustainable bond volumes, encompassing global issuance of green, social and sustainability bonds, to exceed $650 billion in 2021, representing year-over-year growth of 32% from the record $491 billion set in 2020.

By category, Moody’s anticipated green bonds will continue to dominate sustainable bond volumes, with forecast issuance of $375 billion, up 39% year-over-year, resuming its impressive growth rate after a COVID-19 impacted flat 2020. Green bond volumes suffered in early 2020 as the pandemic struck, with growth returning as the year progressed. Growth in social bonds is expected to moderate to mid-single digit levels, reaching $150 billion in 2021, after an explosive 2020 which saw seven-fold growth  in the category, as issuers began raising funds to respond to the COVID-19 pandemic and to finance recovery efforts. Sustainability bonds, whose funds are used to finance a combination of eligible green and social projects, are expected to be the fastest growing category, increasing 58% to $125 billion, after doubling in 2020.

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The report also highlights some of the key factors and trends driving the sustainable bond market. These include the increasing use of sustainability-linked bonds, which have attributes such as interest payments tied to an issuer’s achievement of specific sustainability targets. Moody’s expects government support for the sustainable bond market to be a significant factor, as governments look to finance their sustainable development initiatives from green infrastructure to COVID recovery, and particularly as the new Biden administration pursues policies linking economic and environmental objectives. Following a decline in issuance in 2020, mostly China-driven, Moody’s forecasts emerging markets sustainable volumes to resume growing. A key emerging trend identified by Moody’s is the development of transition finance, as heightened focus by governments and investors on climate change draws issuer attention towards financing their carbon transition plans and outlining their strategies.

Matthew Kuchtyak, Assistant Vice President – Analyst at Moody’s Investors Service, said:

“We forecast $375 billion of green bonds, $150 billion of social bonds and $125 billion of sustainability bonds in 2021. We expect green bond issuance to jump by 39% this year as the economy continues to rebound and issuers increasingly pursue debt financing for environmentally-friendly projects.”