Moody’s: Sustainable Bond Issuance to Top $1 Trillion in 2021

Moody’s ESG Solutions has forecasted a rise in its green, social, sustainability and sustainability-linked bonds issuance for the year to over $1 trillion.

Compared to last year, global sustainable bond issuance doubled the $402 billion, reaching $775 million at the end of Q3 2021. This boost is likely to be mostly driven by the EU SURE bonds program.

Sustainability-linked securities are an increasingly attractive form of sustainable finance instruments, with features like interest payments tied to an issuer’s achievement of a specific sustainability target.

For the full year, Moody’s estimates green bond issuance of more than $500 billion, social and sustainability bond volumes of $200 billion each, and sustainability-linked bonds to reach $100 billion.

Not only Moody’s, but now a great number of companies have been active in 2021 with green and sustainability bonds. Walmart priced the company’s first green bond, which was $2 billion and the largest to date by a US corporation. General Mills recently announced a sustainability-linked bond of $500 million. JPMorgan Chase & Co.  announced its second green bond issuance at $1.25 billion.

As growth in the market reaches record levels, there are concerns that standardization of issuance could obstruct their growth, despite growing efforts to tackle those issues.

Looking ahead, Moody’s said it believes the interest for sustainable debt markets will continue in the aftermath of the pandemic, which “has catapulted social financing to the forefront of sustainable debt markets, a trend that is likely to endure long after the effects of the pandemic subside.”

“Beyond pandemic-related financing, we also see opportunities for proceeds innovation and diversification in the areas of social justice and equality, which continue to rise up the agenda for investors, businesses and governments,” the report said.

The report also includes Moody’s ESG Solutions’ expectations for the major policy areas associated to the upcoming UN COP26 climate conference, and their impact on the sustainable finance markets. These include countries’ climate commitments to adjust with a 1.5 degree future, international cooperation on carbon pricing, scaling up climate finance for developing economies, and mobilizing capital to invest in climate resilience.

According to Moody’s ESG, meaningful growth in these areas would likely further intensify sustainable finance activity, especially for sovereign issuance, transition finance, emerging markets, and adaptation-focused green bonds.

Increasing investment in renewable energy and sustainable infrastructure could also drive the market, according to the report. Renewable energy is currently the largest use of green bonds, with 31% going toward those improvements. Green buildings, energy efficiency and clean transportation are the next highest uses. Moody’s ESG Solutions says just 3% of the bonds have gone toward adaptation projects and the lack of investment has delayed the progress in that area.

Matthew Kuchtyak, Vice President of ESG Outreach & Research at Moody’s ESG Solutions, said:

“Amplified market focus on accelerating climate action is driving record sustainable bond issuance in 2021 – and the successful delivery of COP26 objectives would stimulate sustainable debt markets even further heading into 2022 and beyond.”