Sustainable bond issuance to be flat in 2022 amid market headwinds
A new report from Moody's ESG solutions finds sustainable bond issuance will be flat in 2022 amid market headwinds.
Sustainable bond volumes moderated in the first quarter of 2022 as global market headwinds intensified. Global issuance of green, social, sustainability and sustainabilitylinked (GSSS) bonds totaled $203 billion in the first quarter of 2022, down 11% from the fourth quarter of last year, and down 28% from the first quarter of 2021. While the duration of Russia’s invasion of Ukraine is unknown at this time, the military conflict has impaired global economic growth prospects, stoked existing inflationary pressures and heightened the prospects for accelerated monetary policy tightening. While our baseline expectation is that sustainable bond issuance growth will resume when market volatility abates, broader market conditions will provide greater than anticipated headwinds for sustainable bond issuance this year. As a result, we now anticipate GSSS bond volumes will be roughly flat compared with last year’s total, with around $1 trillion of issuance for the whole of 2022. At an instrument level, we now forecast $550 billion of green bonds, $125 billion of social bonds, $175 billion of sustainability bonds and $150 billion of sustainability-linked bonds.
Long-term sustainable bond growth potential remains strong despite temporary market headwinds. We continue to see many drivers supporting growth in the sustainable debt markets despite weaker issuance in the first quarter and our expectations for suppressed issuance the remainder of the year. The need for climate mitigation and adaptation financing, accelerated decarbonization efforts to achieve net zero goals, growing regulatory attention on sustainability and a continued focus on the interconnectedness of environmental and social objectives will all support the sustainable debt markets over the long term. Indeed, several developments during the first quarter highlight that these trends remain significant. These include heightened European attention on shifting to renewable energy to enhance energy security following Russia’s invasion of Ukraine, and the publication of two new IPCC reports that highlight the magnitude of physical climate risks and the need for both climate mitigation and adaptation financing.
Sustainable debt markets are increasingly financing projects to promote gender equity. Global gender inequality comes at the expense of global GDP with estimated losses of $160 trillion in human capital wealth due to disparities in earnings between men and women. There is increasing demand from investors seeking to remedy these challenges to finance projects that provide services to help bridge the gender divide. Since 2016, proceeds from a cumulative $72 billion of GSSS bonds have been earmarked – in whole or in part – for the financing of projects tied to SDG5 for the achievement of gender equality and empowerment of all women and girls. Despite the steady increase in issuance tied to SDG5 in recent years, there is much work to be done and ample room for market growth. Of the sustainable debt issuances citing projects linked to SDGs since 2016, we estimate around 1% of proceeds have been allocated to SDG5, with a much larger share of issuance going to other sustainable development projects, such as for climate mitigation efforts