S&P Global reports that sustainable bonds will increase to between $950 billion to $1.05 trillion in 2024, also expecting greater diversity of bond types and more varied regional participation.
According to the S&P Global report, green, social sustainability, and sustainability-linked bonds (GSSSB) will represent between 12% and 14% of the overall market this year as they mirror similar growth to conventional bond issuance.
Green bonds, used to raise funds for projects with environmental benefits like renewable energy and sustainable agriculture, are expected to dominate the market this year. Issuance of green bonds expanded 10% year on year in 2023, reaching a total of $575 billion. Social and sustainability bond issuance is projected to remain about the same year-on-year. Sustainability-linked bond issuance declined for the second year in a row in 2023, which the company attributes to potential skepticism from investors over such bonds' efficacy and ambition to meet their initial sustainability goals.
S&P Global said increased adoption of sustainable taxonomies and sustainability initiatives, rising issuance from emerging markets, and the clean energy transition may underpin the growth of GSSSB issuance. At the same time, expansion may be restricted by high-interest rates and the possibility of economic slowdown in Europe and Asia-Pacific.
High-income countries have typically dominated GSSSB issuance, but S&P Global’s report said that in 2023, North American issuance declined for the second year in a row, while the Middle East and Latin America saw 149% and 56% growth, respectively.
Asia-Pacific also now accounts for 25% of overall GSSSB issuance, supported in part by India’s increased participation. The number of currencies in which GSSSBs have been issued has increased by 25% since 2021 as well, indicating that more economies are looking to take part in the growing GSSSB market and have identified sufficient demand to issue bonds designed for domestic investors.
As a wider range of investors and issuers take part in GSSSB investment, they are also reportedly looking to finance a wider range of projects, resulting in more variety in GSSSB bonds. The report estimates climate transition and blue bond labels, or those supporting ocean health, to gain prevalence this year.
Overall, S&P Global expects that growth of GSSSB bonds in 2024 will be only moderate compared to 2023 and will not reach the peak levels of issuance experienced in 2021.
