Credit ratings, research, and risk analysis provider Moody’s Investor Services has projected that global issuance of sustainable bonds – consisting of green, social and sustainability bonds – will hit a record of $650 billion in 2021, a 32 percent increase over the $491 billion issued in 2020.
By category, Moody’s anticipated green bonds will continue to dominate sustainable bond volumes, with forecast issuance of $375 billion, up 39 percent year-on-year, resuming its impressive growth rate after a COVID-19 impact flattened its growth in 2020.
In line with the new forecast, Matthew Kuchtyak, the Assistant Vice President and Analyst at Moody’s Investor Services said that:
“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.”
According to Moody’s forecast, sustainable bonds may represent 8-10 percent of total global bond issuance in 2021, after accounting for 5.5 percent of total issuance in 2020.
The report notes that, growth in social and sustainability bond issuance will slow down, however, as coronavirus pandemic-related financing begin to level off. Moody’s expects social bonds to grow by 6 percent in 2021, after experiencing a seven-fold growth in 2020. Sustainability bonds, whose funds are used to finance a combination of eligible green and social projects, will grow by 58 percent after doubling in 2020.
Moreover, the report highlights some of the key factors and trends driving the sustainable bond market. These include the increasing use of Sustainability-linked bonds which have strong growth potential, as they allow issuers to maintain the flexibility of general corporate purposes borrowing while potentially still appealing to sustainability-minded investors. The sustainability-linked bonds have attributes such as interest payments tied to an issuer’s achievement of specific sustainability targets.
Accordingly, companies will seek to finance their carbon transition plans with the use of both proceeds and sustainability-linked bonds as relevant standards advance, although the definition of credible transition targets across a wide range of sectors remain a hurdle to rapid market growth.
On the whole, Moody’s expects that governmental policy will further support sustainable debt market growth and development in the year ahead, as governments around the world heighten their focus on climate change and link economic recovery plans with sustainable development goals.
Also, the report indicates that Europe will continue to lead the way with the EU Green Deal and development of a sustainable finance structure, as the new Biden administration pursues policies linking economic and environmental objectives that will provide a boon for sustainable finance and investment in the US.
Moody’s also forecasts emerging markets’ sustainable debt volumes to resume growing. This is in light of China’s 14th Five-Year Plan and commitment to carbon neutrality by 2060. Another 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.
