11 December 2023

European sovereign sustainable bond issuance to 'stall or fall' in 2024

European sovereign sustainable bond issuance is forecast to “stall” or decrease in 2024 amid a series of political and financial headwinds, with the EU also expected to fall short of its own green bond issuance plans.

With record issuance in 2023 to date, ABN Amro rates strategist Sonia Renoult said that EU sovereign sustainable bond issuance expectations in 2024 “point to the downside” with expectations of lower supply “as the political will and fiscal capacity of most European governments tend to signal a stabilisation and even a decrease in green investments”.

According to Environmental Finance Data, EU sustainable sovereign bond issuance is already at a record $72 billion – surpassing the $55 billion raised in 2021, and previous annual record of $61 billion in 2020. 

Looking at the major EU member state issuers, ABN Amro expects that France and Belgium will increase sovereign sustainable bond issuance in 2024 compared with 2023 levels and Spain and Italy will see issuance levels remain stable. Germany and the Netherlands, however, are expected to see total issuance decline in 2024.

In the Netherlands, Renoult highlighted that the far-right PVV party under climate-sceptic Geert Wilders is likely to form a coalition which will see green investment “stagnate and even decrease” in the country. Meanwhile, Germany faces budget uncertainty and has been unable to make green investment an ‘off-budget’ cost.

Overall, Renoult added that 2023 marks the end of “fiscal stimulus” by European governments.

“The EU has put pressure on European countries to restore fiscal stability and reduce debt levels starting next year,” she said, adding: “As such, the political discussions have now turned to fiscal tightening.

“This signals lower government spending in the coming years and thus, [it is] likely to impact green investments in turn. Unless government spending for the climate is to be recorded as an ‘off-budget’ [spending] –as the German government attempted to do and failed – and exempt from the debt safeguards, we expect aggregated green bond supply to stall and potentially even decrease in the coming years.”

Renoult also expected that green bond issuance from supranational EU institutions will also be “lower than expected” in the future.

In 2021, the EU announced it expected to raise at least €250 billion ($269 billion) through green bonds by 2026 – equivalent to around €50 billion per year, on average – under its €800 billion Next Generation EU (NGEU) recovery fund.

To date, however, annual EU green bond issuance is far below the average annual funding target required to achieve the €250 billion. According to Environmental Finance Data, the EU has raised just €49 billion since it first started issuing in 2021 – including €12 billion each in 2021 and 2023 to date, and €24 billion in 2022.

“If the EU were to continue with the €800 billion envelope announced at its launch (which seems unlikely), this would mean that more green bonds will be printed between 2024 and 2026,” Renoult said. “However, this is not our view, given the EU disbursements delay and based on what EU member states currently requested from the recovery [and resilience] facility (RRF). Therefore, we expect EU green bond issuance to be lower than previously expected.”

As a result, Renoult forecasts that the EU will only raise €20 billion from green bonds in 2024.  

ABN Amro
Sonia Renoult