The Covid-19 crisis put a temporary damper on the green bond market in 2020, but issuance is expected to rebound this year amid a growing focus on sustainability, Moody’s Investors Service says.
In a new report, the rating agency forecasts that global issuance of green, social and sustainability bonds by financial institutions and development banks will approach a record $300 billion (all figures in U.S. dollars) in 2021.
The forecast represents an increase of almost 30% from last year’s total of $225 billion.
“While issuance of green instruments cooled in 2020, Moody’s expects renewed momentum this year thanks to supportive governmental policies in major jurisdictions. A combination of strong investor demand, policy measures and standardisation of regulations will drive further growth,” Moody’s said.
Last year, issuance of social and sustainability bonds was strong in the wake of the Covid-19 crisis, but green bond activity slumped, Moody’s said.
This year, the rating agency expects growth in green bond issuance to resume.
“A growing regulatory focus on sustainability and ESG will encourage more financial institutions to issue sustainable bonds,” the report said.
“This reflects a recognition that climate change is a material risk that the financial sector is in a unique position to mitigate via its lending and capital distribution decisions.”
In a separate report, Moody’s said that new financial sector sustainability disclosure rules, which took effect in Europe on March 10, will benefit asset managers in the region.
The rules require asset managers and other financial firms to “disclose detailed information” about how their products and services account for ESG risks in an effort to improve transparency and comparability, and to combat “greenwashing,” Moody’s noted.
“The disclosures will support the development of sustainable investment strategies within the asset management sector, a credit positive for the European asset management industry, despite potential compliance costs and challenges,” the report said.
Longer term, Moody’s said that global asset managers that operate in Europe may adopt these practices across their entire product lineups.
“The industry-wide disclosure standards that emerge in Europe may become a benchmark for other regions.”