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Men in Suits

Moody's reports that sustainable bonds have reached a record proportion of global bond issuance

Updated: Jan 9, 2023

According to a new analysis from Moody's Investors Service, issuances of green, social, sustainability, and sustainability-linked (GSSS) bonds declined in the third quarter of 2022, but remained more resilient than the larger bond market, reaching a record 16% market share in the quarter.

In the third quarter, GSSS volumes decreased 13% year-over-year to $215 billion, as a tough macroeconomic and geopolitical climate continued to exert pressure on global debt issuance. Year-to-date, GSSS volumes of $679 billion were down 17%, surpassing the market's 27% loss.

Moody's has cut its full-year outlook for global sustainable bond issuance from $1 trillion to approximately $900 billion due to continuing reductions.

In the third quarter of 2021, corporations issued $53 billion in sustainable bonds, down from a peak of $115 billion in the second quarter of 2021. According to Moody's research, the majority of this year's fall in GSSS issuance is attributable to corporate volumes, while other sectors have remained reasonably stable.

By bond type, green bonds maintained to hold the largest proportion of the sustainable bond market, with issuance of $119 billion in the third quarter accounting for more than half of total volumes, despite a 13% fall from the third quarter of the previous year. Moody's decreased its expectation for green bond issuance for the entire year to approximately $500 billion from $550 billion.

Social and sustainability bond volumes increased sequentially in the third quarter, climbing 5% and 34%, respectively, while social bond volumes remain significantly below levels during the pandemic and sustainability bond volumes remain poorer year-to-date, declining 24%.

Sustainability-linked bonds (SLBs), which have been the fastest-growing segment of the GSSS market over the past few quarters, dropped significantly in Q3, falling 59% from Q2 to $8 billion. In addition to broader market pressures, the Moody's report attributes the SLB pullback to "growing market scrutiny on the credibility and robustness of issuers' SLB targets" and the sector's exposure to high-yield issuance, "as high-yield issuers were more likely to consider SLBs in the early days of this market segment." Moody's expects that annual SLB volumes will total $75 billion.

Despite the drop in GSSS volumes, Moody's identified robust fundamental drivers for the market and forecasts an increase in issuance when broader debt market conditions recover. The Moody's report highlighted a number of policy and regulatory factors that it expects to influence the GSSS market, including recent reports published by the EU Platform on Sustainable Finance on the EU Taxonomy that will help issuers integrate the taxonomy into their sustainable bond frameworks, recent rules proposed by the UK's FCA including sustainable investment labels and disclosure requirements, the passage of the US Inflation Reduction Act, and the publication of the CRS Report.

Vice President of Sustainable Finance at Moody's Investors Service, Matt Kuchtyak, stated:

"While sustainable bond volumes declined 13% year-over-year in the third quarter, their percentage of overall global bond issuance reached a record 16%. Given the worse overall environment for debt issuance, we expect global sustainable bond volumes to total around $900 billion for the full year, but for growth to restart when market circumstances improve."

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