Just over one-third of all sustainable bonds ever issued were sold in 2021, according to the Climate Bonds Initiative’s (CBI) flagship global state of the market report. In the 12 months to January, 5,999 green, social sustainable, sustainability-linked and transition bonds worth $1.1 trillion were brought to the market.
Green bonds remained the major driver of market volumes, with $523 billion raised during the year from 839 issuers across 58 countries and 33 currencies, a 75 percent increase on 2020 volumes. Sustainability, sustainability-linked and transition bonds also saw an increase in both issuance volume and numbers, with sustainability-linked bonds enjoying a 941 percent volume increase on the previous year. Social bonds, however, slumped 13 percent as government-related issuers and the EU wound down pandemic-related borrowing programmes.
Europe continued to dominate green issuance, accounting for half of green bond volumes, while the US slipped to third place behind APAC. Only 21 percent of sustainable debt by volume came from emerging markets issuers, with just three green bonds in Africa and declining issuance in the Latin America and Caribbean regions.
Transition bonds appeared sporadically throughout the year, with $4.4 billion of issuance from 10 issuers. The EBRD and Inter-American Development Bank accounted for one-fifth of volumes. While the format has yet to take off, the CBI predicts that issuance in Japan will grow rapidly due to the publication of climate transition finance guidelines by the government in May last year.
The CBI also reiterated its prediction that green bond issuance alone would break through the $1 trillion mark this year. The start of the year saw similarly optimistic predictions from NN Investment Partners, Crédit Agricole and ING, all of which tipped issuance to top €1.3 trillion in 2022.
However, a recent report from Refinitiv found that sustainable finance issuance in the first quarter of 2022 was 19 percent lower than last year, marking the first ever year-on-year decline in the market. While non-sustainable bond markets have also been affected by global uncertainty and fears of rising inflation, sustainable debt issuance dropped as a proportion of overall debt capital markets activity during the quarter, falling from 11 percent last year to 9 percent.
Krista Tukiainen, the CBI’s head of market intelligence, said it stood by its prediction despite a slow start to the year. Existing and upcoming sovereign debt issuance, as well as return visits to the market by household name corporates, point to a “mainstreaming” of sustainable bonds, she said. Canada, the EU, Denmark and France have already issued this year, while the UK has announced plans for €10 billion of green gilts.
“We also have prior evidence in our pricing research of green bonds holding their own well throughout market turmoil (at the time due to the pandemic), and are confident that the mounting pressures on investors and asset owners to substantiate their own net-zero commitments will see any credible green bond issued be snapped up quickly. This, in turn, should provide enough confidence for issuers to continue to come to market,” she continued.