Global issuance of sustainable debt is on track to surpass $1 trillion this year with green bonds dominating while emerging markets have some catching up do to, the Institute of International Finance (IIF) said in a report.
With corporations and financial institutions under growing pressure from investors to up their environment, social and governance (ESG) game, the issuance of bonds to raise money for climate-related or social projects, or linked to sustainability targets, is an increasingly popular option.
Sustainable debt sales more than doubled year-on-year in the first half of 2021 to over $680 billion, closing in on the $700 billion issued during the whole of last year.
“With Net Zero commitments in the spotlight, an acceleration in low-carbon energy investment and technological innovation has been supporting ESG securities issuance, along with strong investor appetite,” said IIF economist Khadija Mahmood.
The latest issuance bonanza will see the total market size grow to well above $3 trillion during this year, the IIF found.
Green bonds, which are used to finance climate-related or environmental projects, made up the lion’s share of all new issuance, at 35%, led by Germany, China and France.
While sovereigns, financial institutions and utilities dominate issuance, firms from elsewhere in the energy sphere as well as materials and consumer discretionary sector increasingly joined the fray.
Other types of debt falling into the sustainable category also recorded stellar issuance in the first half of the year.
Issuance of social bonds, which raise funds for projects with positive social outcomes, more than tripled year on year to $140 billion, boosted in part by the European Union’s introduction of the Sustainable Finance Disclosure Regulation (SFDR) which imposes mandatory ESG disclosure obligations.
Sales of sustainability-linked bonds, where an issuer pledges to reach specific ESG targets or face, for example, higher coupon payments – rose nearly four times to $160 billion.
Sustainability bond issuance, which can raise funds for a mix of projects, surged to $90 billion in the first six months of 2021, with the dollar replacing the euro as the main funding currency.
Meanwhile issuers from developing countries had some catching up to do.
“Emerging markets still represent less than 15% of the sustainable debt universe,” said Mahmood.
China, Chile, Turkey and Mexico are the biggest issuers currently.
