22 February 2021
2020 was another record-breaking year for the green, social, sustainability and sustainability-linked (GSSS) bond market.
According to figures from the Environmental Finance Bond Database, total GSSS bond issuance crossed $600 billion in 2020 – nearly double the $326 billion issued in 2019. Growth in the GSSS bond market in 2020 accelerated on the 53% year-on-year growth reported in 2019 compared to the $214 billion issued in 2018.
The number of super-sized issuances also exploded. More than 50 bonds raising $2 billion or more were issued in 2020, up from just 15 such issues in 2019.
More growth is expected in 2021. A poll conducted by Environmental Finance indicated more than two-thirds of respondents expect between $600 billion and $700 billion to be raised during the year, with the majority of the remainder forecasting between $700 billion and $800 billion.
Yet, it was not the scale of the growth– impressive as it was – that strikes me the most about the sustainable bond market in 2020. For me, it was the growing diversification of sustainable bond issuance that fascinates. Rewind to 2018 and over 85% of total GSSS bond issuance was through green bonds, in 2019 this proportion only dipped modestly to four-fifths. 2020, however, saw the share of the market held by green bonds – despite continued growth – fall to just under half.
Social bonds, in particular, were the star performer of the year. Driven on by the demands created by the Covid-19 pandemic, social bond issuance jumped nine-fold to $165 billion – supporting projects to get individuals, businesses and economies back on their feet. Sustainability bond issuance also tripled to $140 billion in 2020.
Nonetheless, 2020 has also laid the groundwork for further diversification in the market for the year ahead. The publication of the Sustainability-Linked Bond Principles (SLBP) in June was followed by the Climate Transition Finance Handbook in December, providing support for sustainability-linked and transition bond issuance in the future.
By the end of 2020, eight sustainability-linked bonds aligned with the SLBP had been issued – raising just shy of $9 billion in total. The ground-breaking $750 million note from Brazilian paper firm Suzano in September was soon followed by a €1.85 billion ($2.2 billion) bond from Swiss pharma giant Novartis, €600 million note from luxury fashion house Chanel, and a JPY10 billion ($96 million) bond from Japanese real estate firm Hulic.
Our poll suggests some respondents expect sustainability-linked bond issuance to surge to as much as $30 billion in 2021, though more than two-thirds believe the instruments will raise between $20 billion to $25 billion.
For transition bonds, a marker has already been set in 2021 by the handbook-aligned $780 million dual-tranche Bank of China note in January. Like many of the 'transition' bonds issued before it, the Bank of China bond received a mixed welcome from the market. Nonetheless, the orderbook was strong and we can expect more transition bonds in 2021 as issuers and investors look to refine the instrument.
So, 2020 was certainly an interesting year for the market – but 2021 should prove to be even more so.
Momentum continues to build to take action on the climate emergency, meanwhile the pandemic and Black Lives Matter protests have focused attention on the social inequality rife in our communities. Governments, companies and consumers are increasingly growing both more empathetic about the challenges around us and more energised to do something about them.
Finance remains one of the most powerful tools to help effect this change, and the sustainable bond market looks set to continue to innovate and grow in order to help set the pace. There is no time to waste, certainly, but the potential of sustainable bonds is increasingly being grasped.