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Monte Carlo 2022

Sustainable Finance Sustains Momentum

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With investors incorporating ESG (Environmental, Social, and Governance) principles into their investment strategies, and many organizations looking to finance or refinance sustainability focused projects, sustainable bond volumes have grown – more than tripling since 2019.

And despite challenging financing conditions, in the first half of 2022 the latest Moody’s ESG Solutions Sustainable Finance quarterly market update shows that sustainable bond volumes fell less than the broader market. Issuance totalled US$225 billion in Q2 2022, representing 15 percent of total Q2 global issuance – the highest quarterly share on record. Second-quarter volumes were down 19 percent from Q2 2021, but up a modest 2 percent from Q1 2022.

Aggregate volumes totalled $447 billion in the first half of the year with the sustainable bond market showing continued resilience. If market conditions improve, 2022 could see US$1 trillion issuance.

Breaking down the four segments, green bonds represented US$136 billion of issuance during Q2, with US$34 billion of social bonds, US$35 billion of sustainability bonds, and US$20 billion of sustainability-linked bonds (SLBs).

Emerging market (EM) sustainable bonds achieved record high volumes in the second and third quarters of 2021, and Q1 2022 remained resilient with US$34 billion, but Q2 volumes eased to US$25 billion. For the first six months of 2022, EM issuance accounted for approximately 13 percent of global sustainable bonds, similar to the first half of 2021, but with sustainable development needs remaining high in these economies, we expect the market will rebound as issuance conditions turn more favourable.

This is a fast-developing market, and beyond the continued growth and diversification of sustainable bonds, new policy, regulatory and market-driven developments will have implications for volumes. Recent developments include classification of some nuclear and gas projects as eligible under the EU taxonomy, updates to the Common Ground Taxonomy, a U.S. Supreme Court ruling on greenhouse gas emissions regulation, and the European Central Bank tilting its corporate bond portfolio toward greener companies.

Supporting market maturation, the International Capital Market Association (ICMA) has updated its best practice documents to support SLB standardization and enhance market integrity. Refinements include updates for the SLB market – including an illustrative registry of over 300 key performance indicators (KPIs) and a supporting Q&A document to address significant market concerns around the credibility of the instrument.

Click here to read the full report.