Sustainable investing

Sustainable bond issuance is expected to edge higher this year, likely topping the US$1 trillion mark, according to new research from Standard and Poor’s Financial Services LLC (S&P).

In a new report, the rating agency said that “despite global macroeconomic uncertainty in some key regions,” it’s forecasting the total value of new sustainable bond issues to rise from US$0.98 trillion in 2023 to an estimated US$1.05 trillion this year.

The growth in green, social, sustainability and sustainability-linked bond (GSSSB) issuance could be driven by several factors, S&P said, including “increased adoption of sustainable taxonomies and transparency initiatives, growth in issuance from emerging markets, and efforts to accelerate the energy transition.”

At the same time, various macro factors could weigh on the new issue market, it noted, “including uncertainty associated with high interest rates and the possibility of wider economic slowdown in key regions such as Europe and Asia-Pacific.”

Within the global sustainable bond market, green bonds will “continue their dominance,” the firm said, “buoyed by increased demand for environmental projects across all geographies.” It added that transition and blue bonds may also gain traction.

“Despite our forecasts for only moderate growth in 2024, we believe climate transition and blue bond labels will increase their prevalence in the GSSSB market,” the report said. “As the market matures, issuers and investors are looking to finance a wider range of projects that may not fit into conventional GSSSB categories.”

In particular, transition bonds may have a record year in 2024, it said.

“Transition bonds have the potential to provide access to the sustainable bond market for issuers in sectors that do not generally qualify for green bonds, but still want to reach climate and other environmental goals. To date, however, the market has not coalesced around a single definition for transition finance, nor have there been widely recognized transition bond principles to which issuers could align their frameworks or issuance,” it said. “This may have disincentivized issuers and investors alike.”

At the same time, “blue bonds” — which the report said are a subset of green bonds, focused on “the sustainable use of maritime resources” — may see increased issuance in the wake of recently issued global guidance on the use of bonds to finance the sustainable blue economy.

“We expect blue issuance will continue to rise as more data and policies that promote the sustainable blue economy become available,” it said.