Volumes of green, social, sustainability and sustainability-related (GSSS) bond issuances are expected to rebound in 2023, driven by increasing pressure on companies to follow through on their decarbonization commitments, support for greater green spending policies and greater participation from government issuers, according to a new report from Moody’s.
The agency expects the GSSS bond market to grow by 10% in 2023 to issue $950 billion, after declining by 18% in 2022 to $862 billion, from $1.05 trillion in 2021.
Despite the decline in 2022, the sustainable bond market has significantly outperformed the global bond market, which has seen issuance volume drop by 27%.
GSSS bonds accounted for a record 13% share of global bond issuances in the year, and Moody’s expects the outperformance to continue, with a projected share of 15% in 2023.
The report highlights the underlying drivers and constraints expected to affect the sustainable bond market in 2023, with growth to be driven by factors including an increase in corporate issuers looking to fund their net-zero ambitions, particularly in carbon-intensive sectors facing increasing pressure from investors to implement phase-out plans. carbon.
A more supportive policy environment, such as the recently passed inflationary law in the United States and Europe’s REPowerEU plan, is also expected to help drive financing for increased clean energy investment.
In addition, Moody’s expects public sector issuers, including both sovereign and quasi-sovereign, to expand sustainable bond issuance, particularly in emerging markets.
Increased caution of exporters
Moody’s expects many of the factors that caused issuance slowdowns in 2022 to continue to weigh on the market, including a challenging macroeconomic environment and higher rates, as well as greater focus on greenwashing risks, leading to increased caution by potential issuers. , which was disproportionately affected. Sustainability Linked Bond (SLB) market.
SLB issuance volumes were particularly weak in the second half of the year, as issuers faced close scrutiny on the credibility and strength of their associated sustainability goals, as well as sector exposure to high-yield issues.
By bond type, green bond issuance decreased 13% in 2022 to $482 billion, social bonds decreased 22% to $163 billion, sustainability bond volumes decreased 24%, and sustainability-related bond issuance decreased 23% for the full year.
The agency expects growth in each type of bond in 2023, as does social bonds, which are expected to continue to be affected by funding declines related to the pandemic.
Companies in sectors with increased inherent exposure to carbon transition risks will face increasing pressure this year to follow through on credible execution plans.
Enhanced policy support for green capital spending in many countries, such as the Inflation Reduction Act (IRA) in the United States, will also drive clean energy investment.
As more issuers aim to fund their net-zero ambitions and shift their business strategies to adapt to increased policy and market risks, sustainable bond issuance from companies in sectors highly vulnerable to carbon transition is likely to pick up this year.”
