Sustainable Finance

In 2021, sustainable debt will surpass $1 trillion for the first time, with green growth reaching 75%, according to a new report.

Published on: 29 April 2022 06:30 PM
by KnowESG
Sustainable Debt gets a green growth of 75%
Sustainable Debt gets a green growth of 75%

GSS+ themed debt rose to almost USD1.1tn in 2021, marking a 57% increase upon 2020 volumes. Annual green bond issuance broke the half-trillion mark for the first time. Europe was the most prolific region, with cumulative issuance reaching USD758bn by year-end. Sustainability volumes reached a record USD200.2bn in 2021, a 23% increase on the USD162.5bn witnessed in 2020. Issuance in 2021 was slightly more subdued, with volumes reaching USD223bn - a 13% decline year-on-year.

Globally the cumulative USD 1 trillion milestone was reached in December 2020. Sean Kidney has called for green issuance to rise to USD5tn annually by 2025. Climate Bonds set to expand the Climate Bonds Standard, taxonomy work, policy toolkits and market data reporting in 2022.

2021 will be 57% higher than 2020.

GSS+ (Green, Social, Sustainability, Sustainability-Linked, and Transition) themed debt grew to about USD1.1 trillion in 2021, a 57 percent rise over 2020 volumes, according to Climate Bonds Market Intelligence. Our Sustainable Debt State of the Market Report for 2021 now includes a comprehensive assessment of soaring sustainable markets. The most comprehensive research of its kind, the flagship yearly report provides granular analysis throughout the sustainable debt thematic market, sectors, and geographies, as well as insights into taxonomy and sovereign green bonds.

A $2.8 trillion market

Since the market's start in 2007, Climate Bonds has recorded 16,697 GSS+ debt instruments with a cumulative volume of USD2.8 trillion by the end of 2021. Last year's record amount of USD1.1 trillion was accumulated over 5999 instruments, accounting for 35% of the total market volume of 2.8 trillion dollars.

With a 75% increase in 2021, green takes the lead.

Annual green bond issuance surpassed the half-trillion-dollar mark for the first time in 2021, totaling USD522.7 billion, up 75% from the previous year. During the year, 839 issuers were drawn to the green topic, and the average size of each green bonds climbed by more than 50% to USD250 million.

Europe was the most active area, with total issuance reaching USD758 billion by the end of the year; but, at the national level, the United States was the most active, with volumes increasing by 63 percent to USD81.9 billion in 2021 from USD50.3 billion in 2020.

The Sovereign GSS Bond Club's membership continued to grow. In new bonds or taps, eleven countries committed a total of USD72.8 billion. Italy, the United Kingdom, Serbia, Spain, and South Korea are the first countries to issue sovereign green bonds. Later in Q2, we'll have more to say on sovereign issuance.

By 2025, the annual green economy will be worth $5 trillion.

Because of the rapid increase in green issuance, it is expected that the first annual green trillion will be issued in 2022. A Climate Bonds poll, which included input from a variety of market actors such as issuers, investors, and asset managers, confirmed that the long-awaited market milestone will be reached in 2022.

To address the climate catastrophe, the next milestone for green financing is set at $5 trillion per year by 2025.

2021 at a Glance: Social Bonds

As the COVID-19 epidemic hit in early 2020, issuance of social bonds skyrocketed. Housing, gender equality, livelihoods and economic equality, healthcare, and education were among the good social effects funded with the revenues.

In 2021, issuance was slightly more muted, with volumes totaling USD223.2 billion, down 13% year on year. While the number of new instruments issued more than doubled (2555 in 2021, up from 1265 in 2020), the average size of each bond decreased by more than half (USD87m average in 2021 down from USD201.7m).

2021 in a Nutshell: Sustainability Bonds

The earnings of sustainability bonds will be used to fund projects that have both environmental and social benefits. Sustainability volumes hit a new high of USD200.2 billion in 2021, up 23% from USD162.5 billion in 2020.

When compared to 2020, Climate Bonds grabbed 287 issuer names in 2021, an increase of 184 percent. The average size of each instrument fell to USD188 million in 2020, down from USD310 million in 2020. The number of countries issuing in 2021 increased by 84% year on year to 46.

Transition Bonds are still budding, but SLBs are booming.

SLBs (Sustainability-Linked Bonds) made their mark on the international finance landscape in 2021, with 277 issuances totaling USD188.8 billion. This is a 941 percent increase over the previous year's sum of USD11.4 billion. With an average value of USD428.8 million, each instrument was relatively significant.

SLBs, unlike traditional green and social bonds, have no constraints on how the revenues can be used. Instead, issuers undertake to improve their environmental performance based on KPIs, and the fulfillment of these commitments is directly linked to the coupon given to investors.

The transition bond market is still young and growing, with 12 bonds coming from nine issuers in 2021, totaling USD4.4 billion.

The transition bond market rose by more than 33% year over year to a total of USD9.6 billion.

'Unprecedented times,'

The world is on the verge of a climate disaster. Science has conclusively proved the dangers to life on Earth, but the response has been excruciatingly slow so far.

Labeled debt markets provide a framework for accelerating investment to previously unimaginable levels.

Accelerating capital to climate solutions is both a risk mitigation strategy and a huge opportunity. The Inevitable Policy Response(link is external), a climate forecasting group, predicts an acceleration in government and policy action, which institutional investors should be aware of.

It was cause for excitement in 2015 when the green market reached a total value of USD100 million. Green bonds surpassed the yearly USD100 million milestone for the first time in November 2017(link is external) during COP 23.

Globally, the USD 1 trillion mark was reached in December 2020, a green investment total that has been in the works for more than a decade since the first green bond was issued in 2007.

While the first trillion or two in sustainable debt is clearly a positive start, if the international aim of 50% emissions reduction by 2030 is to be met, the degree of response in this decade must go much further each year.

Green issuance should increase to USD5 trillion per year by 2025, according to Sean Kidney. There's also plenty of room to grow into trillions of dollars in social and sustainability investments.

"We are living in unprecedented times, which necessitate unprecedented levels of activity."

Sean further claims that, as the climate catastrophe deepens, the financial sector can no longer avoid responsibility:

"Market actors are implicated as accessories to irreversible climate disaster if quick correction in the environmental merits of global finance is not achieved."

Expansion is scheduled for 2022.

For the time being, we at Climate Bonds want to meet the growing market by increasing our own activities this year. In 2022, we want to enhance the Climate Bonds Standard, taxonomy work, policy toolkits, and market data reporting, all of which will begin this year.

Beginning with the release of our Q1 Market Report, the launch of our new Social and Sustainability Database, and the deployment of new heavy industry certification criteria for cement, basic chemicals, and steel in the coming weeks.

Source: Climate Bond Initiative

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