S&P expects global issuance of sustainable debt, including green bonds, to balloon to over US$400bn this year, up from over US$350bn in 2019, amid further innovations and growth for the asset class.
Below are highlights from the S&P report released on Thursday
- While green bonds remain the instrument of choice, other securities within the sustainable debt class are also emerging, including social, sustainability and sustainability-linked bonds.
- Strong credit conditions are likely to support the issuance of green bonds, volumes of which are expected to hit close to US$300bn in 2020, up from last year's record of US$238bn.
- However, that is still just 3.5% of total global debt issuance and the growth in the asset class is still insufficient to fill the financing gap of investments required to transition to a low carbon and climate resilient economy.
- Growth in green bonds rebounded in 2019 after a lull the prior year, partly reflecting the surge in broader fixed-income issuance, which was up 17% in 2019 after declining 6% in 2018.
- This year global bond issuance is expected to grow 3.8%, helped by regulatory and political factors in Europe and a rise in financing from the private sector.
- Global debt growth was a coattail for boosting sustainable debt volumes.
- For example, Europe represented nearly half of green-labeled issuance in 2019, underscoring the continent's political push on green and sustainable financing.
- On the other hand, green issuance from Chinese banks fell to around US$15bn last year, down from US$20bn the year before as trade tensions with the US took their toll.
- European banks took up the baton and for the first time ever issued more such debt than Chinese banks.
- Green issuance from the private sector - both banks and companies - represented 45% of the asset class's total volume last year, up from just 1% in 2013.
- The greater diversification of green issuance is reflected in a dropped of AAA rated deals, which fell to just 13% of total green issuance in 2019, mirroring the decline in such deals from development banks.
- Even so, investment-grade names continue to dominate the sector, providing some support to the asset class in the event of a downturn in credit conditions.
- Yet proceeds from such deals will largely remain focused on energy transition after 80% of proceeds last year were allocated to renewable energy, energy efficiency buildings and cleaner transportation. As a result utilities remain the primary sector for green issuance among corporates.
- This goes against reports that highlight the need for all sectors of the economy to undergo climate change mitigation
- That said, the asset class has seen new developments. This includes senior nonpreferred green notes from Spanish and Swedish banks, which allow them to meet both regulatory and green requirements in one shot.
- S&P also expects more insurance companies to sell sustainable and green bonds as they catch up with banks on this front.