More than one in every six dollars of bond funding raised by corporates came via ESG format in the first half of 2022, as ESG bonds claimed their highest share yet of international corporate new issues in the first six months, Refinitiv data show.
The first half's US$114.6bn of ESG bond sales represented 17.6% of the US$535.1bn overall corporate new issues in the period, as green, social, sustainable and sustainability-linked sales held up significantly better than conventional counterparts. The new peak followed gains last year.
In the second half of 2021 green, social, sustainable and sustainability-linked instruments had climbed to 14.4% of overall corporate bond activity – US$124.6bn out of US$741bn – up from 11.3% of first-half 2021's total (US$132.9bn out of US$1.047trn) and far above the previous high of 7.3% in the second half of 2020.
The new high share came despite ESG corporate new issue volume falling in the first six months of this year, as conventional corporate sales declined more in volatile market conditions.
ESG corporate new issues fell 14% against their first-half 2021 total and 8% against the second-half number. This compares to larger non-ESG declines of 49% on the year and 28% versus the previous six months.
Green grip
Green bonds consolidated their dominant position in corporate ESG new issues, moving up to 59% in the first six months of this year on volume of US$67.8bn. This was a small year-on-year decline of 4%, which ranked as the best relative performance of any ESG bond format.
A huge €3.85bn four-trancher for the Dutch utility TenneT in maturities out to 2042 led the period’s sales.
Other use-of-proceeds formats fell sharply. Having accounted for over a fifth (21%) of corporate ESG bond sales a year earlier, social and sustainable instruments were just 15% of first-half volume, according to Refinitiv.
Each declined by some 40% in the half. The decline in sustainable bonds, whose proceeds can be used for environmental and social projects, is especially striking. The instrument lost nearly US$10bn of sales year-on-year, suggesting that the newer sustainability-linked bond format is increasingly usurping sustainable bonds by supporting issuers with insufficient green projects to underpin pure green offerings.
Although SLBs further advanced their share of corporate ESG new issues in the half, rising to an unprecedented 27% on volume of US$30.7bn, the product saw notably weaker sales in the second quarter than the first. That reflects the period’s volatility against a complex macro and geopolitical backdrop.
“All-in rates are significantly wider. That clearly has an impact on many of the high-yield issuers that we were seeing in previous quarters,” said Pietro Stimamiglio of the climate & ESG capital markets team at NatWest Markets.
SLBs’ longer maturities, with many incorporating 2030 targets, were also not best suited to a quarter when investors sought more defensive, shorter-dated exposure.
Even so, the product continues to offer significant potential. “We still feel that we are in an expansionary phase in the SLB market,” Stimamiglio said, citing indications from issuers and the International Capital Market Association’s recent move to bolster SLBs’ integrity with a new KPI registry and Q&A.