16 February 2022

Sustainable Bonds Insights 2022 - Introduction

2021 was a landmark year for the green, social, sustainability and sustainability-linked (GSSS) bond market

The sustainable bond market has become accustomed to setting spectacular record-breaking annual issuance totals in recent years. Nonetheless, even in that context, the eagerly anticipated $1 trillion milestone for green, social, sustainability and sustainability-linked (GSSS) bond issuance achieved in 2021 was a special one.

Ahren LesterAccording to figures from Environmental Finance Data, total GSSS bond issuance reached $1.03 trillion in 2021 – more than 69% higher than the $606 billion in 2020, and more than triple the $326 billion issued in 2019.

The catalysts for this were numerous, but it is hard to ignore the increasingly ubiquitous nature of sustainable finance activity among a progressively diverse group of issuers.

Corporate issuers increasingly made their presence felt among sustainable bond issuers, with their share of the total market jumping to 37% from just 26% in 2020 after total issuance more than doubled. This was supported by a rapidly expanding list of blue chip and high yield issuers joining the fray.

Meanwhile, sovereign issuance more than doubled as a flurry of maiden issuances were delivered by the likes of European heavyweights UK, Italy, and Spain earlier in 2021 as well as Benin, Slovenia, Latvia, Peru and Colombia.

More growth is expected in 2022. According to forecasts collated by Environmental Finance, market experts predict total sustainable bond issuance to reach $1.5 trillion in 2022.

This is expected to be primarily driven by green bond issuance jumping 50% to $790 billion in 2022 from $534 billion in 2021. Sustainability-linked bond issuance, meanwhile, is forecast to more than double to $200 billion in 2022 after multiplying more than nine-times in 2021.

Of course, it will not be all plain sailing for 2022 sustainable bond issuance.

2021 started with the Covid-19 pandemic continuing to drive interest in "building back better" – a message well suited to sustainable bonds – and came to a close shortly after the UN COP26 climate summit raised the pressure on global actors to turn warm words on financing climate transition into affirmative action.

In 2022, however, the year has started with accelerating inflation and rising interest rates in numerous countries – including the key economies of Europe and US which together represented three-fifths of total sustainable bond issuance in 2021.

How will sustainable bond issuers and investors respond to this changing environment? It is not yet clear, but it is a fine reminder of just how young the sustainable bond market still is.

Green bonds – the oldest of the sustainable bond labels – have only existed since 2007, with the Green Bond Principles not emerging until 2014. The social, sustainability and sustainability-linked bond labels, meanwhile, have histories that stretch back little more than five years at best. The market is, therefore, a child of the post-financial crisis world where interest rate trends have predominantly been marked by a downward trajectory rather than a sustained upward trajectory that faces the market in 2022 and beyond.

Nonetheless, environmental and social factors have become core considerations in financing strategies in recent years across an increasingly broad range of issuers – and this trend is likely to fortify rather than falter in 2022 and beyond.

The fact remains that finance is one of the most powerful tools to deliver economy-wide environmental and social impact, and the sustainable bond market looks set to continue to innovate and burnish its credentials as a pace-setter in this respect. Whatever 2022 brings, issuers and investors alike must appreciate the potential of sustainable bonds to achieve their environmental and social goals – if they do, this new trillion dollar market should continue to strengthen and scale for years to come.

Green Bonds