Sustainable bond issuance surges 9%, market set to hit $950bn by year-end: Moody’s
RIYADH: Global issuance of sustainable bonds in the third quarter of 2024 reached $216 billion, marking a 9 percent annual increase, according to Moody’s.
The year-on-year increase in green, social, sustainability, and sustainability-linked bonds came despite a quarter-on-quarter drop, with the volume issued down 14 percent in the three months to the end of September compared to the preceding period.
For the first nine months of 2024, sustainable bond volumes reached $769 billion, marking a 3 percent decline compared to the same period last year.
Despite the quarterly dip, Moody’s expects total sustainable bond volumes to reach $950 billion in 2024 “buoyed by relatively robust volumes in the first half of the year and continued issuer appetite for funding environmental and social projects with labeled bonds.”
Of the $216 billion issued in the third quarter, green bonds made up the majority at $129 billion. In comparison, social bonds accounted for $37 billion, sustainability bonds for $41 billion, sustainability-linked bonds for $6 billion, and transition bonds for $3 billion.
Green bonds remained the preferred choice for most issuers, comprising 60 percent of the third-quarter sustainable bond market and accounting for 59 percent of issuance so far this year.
Although green bond issuance fell 18 percent from the previous quarter, Moody’s expected it will surpass its annual forecast: “Despite the decline in the third quarter, green bonds will likely eclipse our forecast of $580 billion given the strength of year-to-date issuance and continued issuer preference for the green label.”
Europe’s sustainable bond issuance faced notable pressure, dropping by 38 percent in the third quarter to around $80 billion, the largest regional decrease.
While the continent maintained its position as the leading region in sustainable bond issuance, accounting for 37 percent of global volumes, this marked its lowest share since early 2020.
The Asia-Pacific region showed resilience, with sustainable bond issuance totaling $60 billion, raising its global share to 28 percent — the region’s highest since the third quarter of 2023.
North America’s sustainable bond market, however, remained subdued, with volumes of just $26 billion, marking its lowest level since the second quarter of 2020.
Latin America and the Caribbean brought $12 billion to market, while the Middle East and Africa contributed nearly $5 billion, making up 8 percent of the total global sustainable bond.
Among sectors, nonfinancial companies led in sustainable bond issuance in the third quarter with a 28 percent share, or $60 billion, although this was a 26 percent drop from the previous quarter.
Financial institutions followed, contributing $48 billion to the market, marking a 12 percent increase from the prior quarter and representing the second-largest share at 22 percent.
Supranational issuers saw notable growth, issuing $33 billion, which represented a 51 percent increase quarter-over-quarter and an 80 percent rise year-over-year.
Municipal issuance, on the other hand, declined 17 percent to $13 billion, the lowest since early 2022.
Sovereign and government agency issuance also saw quarter-over-quarter declines of approximately 30 percent.
Sustainable loan volumes experienced a more pronounced decrease, falling 34 percent year-to-date to $380 billion, following two years of strong growth.
Sustainable loans averaged $127 billion per quarter over the first nine months, a notable drop from the quarterly averages of $201 billion in 2022 and $192 billion in 2023.
The third-quarter volume of $101 billion was the lowest recorded since the first quarter of 2022.
Sustainability-linked loans led the sector with $283 billion year-to-date, while green loans contributed $90 billion. In the third quarter alone, SLL volume stood at $71 billion, relatively flat from the previous quarter but down 35 percent year-over-year and 58 percent from the third quarter of 2022.
Green loan volumes in the third quarter reached $27 billion, representing a 13 percent decrease from the previous quarter and a 54 percent year-over-year decline.
Moody’s highlighted that “while the decline in market share could be driven in part by some of the challenges issuers have faced amid heightened scrutiny around the quality of instruments and perceived greenwashing risks, there may also have been a greater number of unlabeled bonds this year as issuers have sought to quickly execute transactions when market conditions were favorable.”
European borrowers continued to dominate SLL volumes in the third quarter, holding a 42 percent share, with North American borrowers at 35 percent and Asia-Pacific borrowers at 18 percent.
“European SLL volumes declined by 22 percent to $30 billion in the third quarter, their lowest quarterly tally since the third quarter of 2021,” the report said.
The analysis highlighted the role of recent biodiversity and climate COPs in spotlighting the importance of closing financing gaps in the sustainable debt market.
Biodiversity COP16 in Cali, Colombia, held at the beginning of November, emphasized mobilizing $200 billion annually for projects, including debt-for-nature swaps for high-debt nations. Though a small share of bond proceeds currently go to nature-related uses, Moody’s expected this to grow as more issuers fund biodiversity initiatives.
The upcoming climate change COP29 in Baku, Azerbaijan, due to be held from Nov. 11 to Nov. 22, is set to introduce a new finance target, replacing the current goal.
“Establishing a new climate finance goal to replace the current $100 billion target will likely be a major topic of discussion at COP29. The aim of this new quantified goal is to support developing countries in their climate action plans beyond 2025,” said Moody’s.
Emerging markets, which face higher climate risks, may see increased sustainable bond issuance, especially as the “Climate Bonds Initiative’s expansion of its taxonomy in September to facilitate greater channeling of capital to adaptation and resilience projects,” according to the report.
