Issuance volumes of green, social, sustainability, and sustainability-linked bonds (GSSSB) are expected to grow modestly to around $1 trillion, with macroeconomic pressures offset by increased transparency, emerging market growth and demand for environmental and energy transition projects, according to a new report released by S&P Global Ratings.
In addition to volume growth, S&P also anticipates an expansion in bond types, with a more prominent presence for transition and blue bonds, even as green bonds continue to dominate.
Overall, S&P anticipates the growth trajectory for GSSSB volumes to more closely mirror the broader conventional bond market as the sustainable bond market matures, following several years of outsized growth, with GSSSB’s share of issuance volumes growing from 5% in 2019 to 13% in 2023. For 2024, the report forecasts GSSSB issuance volumes of $0.95 trillion to $1.05 trillion, growing slightly from $0.98 trillion in 2023, reaching as high as a 14% share at the high point.
By bond type, S&P expects green bonds to continue to dominate the market on increasing demand for environmental projects globally, following 10% growth and an expansion of its share of GSSSB issuance to 59% from 56% in 2023.
Going forward, S&P expects new bond labels to take hold, most notably forecasting a strong year for transition bonds, which can provide access to the sustainable finance market for issuers in sectors that may not qualify for green bond labels, but require financing for initiatives to reach climate and environmental goals. While the transition bond market has only reached a cumulative $15 billion issuance since 2019, and defined transition bond principles have yet to emerge, the report notes major recent drivers for the market, including the recent launch by the Monetary Authority of Singapore (MAS) of a transition taxonomy, and Japan’s plans to issue $130 billion of transition bonds over the next decade, starting with an $11 billion inaugural issuance in February 2024. S&P also anticipates stronger issuance of blue bonds, or those targeting sustainable use of maritime resources, as more data and policies emerge promoting a sustainable blue economy.
By issuer type, the report notes the substantial growth in sovereign issuance in 2023, increasing by over 50% to a record $160 billion, as more issuers – 35 in 2023 compared to 24 in 2022 – joined the market, and seven issuers topped $10 billion, including the UK at $23 billion, Germany at $19 billion, and Italy at $15 billion. S&P expects another potential record year for sovereign GSSSB issuance as new issuers continue to tap the market, and major issuers such as Japan, Germany and France have already committed to significant volumes. Non-financial corporates, on the other hand, which have historically accounted for the largest share of GSSSB issuance saw declines in 2023, with the 2024 forecast largely dependent on the direction of interest rates, according to the S&P report.
By region, the report anticipates Europe, which claimed a 45% share of GSSSB issuance volumes in 2023, to continue to maintain its leading position, but also expects emerging markets issuers to gain prominence, continuing a trend from 2023, in which EM issuers issued bonds in local currencies on strong anticipated demand from domestic investors, and as new participants gained access to the GSSSB market. The report also anticipates that GSSSB issuance could grow by 10% in Asia Pacific, after a 7.6% increase to $235 billion in 2023, with public sector issuers increasingly participating in the market, Japan scaling up transition bond issuance, and affordable housing initiatives fueling social issuance.
North America, on the other hand, which experienced a second consecutive year of declines in GSSSB issuance in 2023 on macro and political pressures, is anticipated to continue to face a continuation of these headwinds, offset by drivers including the impact of the Inflation Reduction Act on supporting decarbonization technologies, increased investor attention on decarbonizing hard-to-abate sectors, and growth from U.S. municipal issuers.
In the report, S&P said:
“We anticipate that 2024’s growth will be only moderate compared with 2023, and that we will not yet see GSSSB issuance reach the peaks of 2021. Since we expect penetration of GSSSBs in overall bond issuance to consolidate further and potentially inch higher, we think overall financing conditions will be the main driver of variability around our $1 trillion issuance forecast for 2024… As GSSSB markets continue to mature, 2024 may be a year of broadening regional reach and instrument types as opposed to strong overall growth.”
