Global issuance of green, social, sustainability (GSS) and sustainability-linked bonds (SLBs) will hit a record $1.35trn (€1.2trn) in 2022, a 36% increase over the estimated $992bn issued in 2021, according to Moody’s ESG Solutions.

That would represent a moderation in issuance growth from the 64% behind last year’s volumes.

GSS bonds are types of labelled use-of-proceeds bonds, while SLBs are bonds with coupons linked to sustainability performance targets and, in contrast with use-of-proceed bonds, they raise money for general corporate purposes rather than for defined projects or categories of activity.

The Moody’s business unit said it expected growth rates in the overall GSS market to gradually decline as the market matured, and that its projections also reflected potential headwinds from monetary policy tightening.

The risk of global fragmentation in sustainable investment policies and practices and taxonomies, as well as growing scrutiny over the credentials of some sustainable debt instruments, could also weigh on “the continuation of unfettered market growth”.

“Still, GSS bonds will continue to rise as a share of global bond issuance, potentially reaching 15% of the total in 2022,” wrote Matthew Kutchtyak, vice-president, and Erika Bruce, associate analyst at Moody’s ESG Solutions.

According to them, the Moody’s unit is expecting the $1.35trn in 2022 to come primarily from green bonds ($775bn), followed by $225bn in sustainability bonds, $200bn of sustainability-linked bonds, and $150bn of social bonds.

Kutchtyak and Bruce also said they anticipated social bond issuance to decline by about 25% compared with 2021 as financings linked to the coronavirus pandemic largely retreat.

However, social issues will remain “top of mind” for many investors and market participants, they said.

Sustainability-linked bonds

SLBs had their breakout year last year, with issuance surging to $90bn from $9bn in 2020. Kutchtyak and Bruce said Moody’s ESG Solutions anticipates SLB issuance to more than double in 2022 to $200bn. This could involve issuers besides European corporates, which have dominated the market so far.

Investor scutiny of SLB targets and net-zero commitments would grow, they said, as issuers were increasingly embedding decarbonisation targets in their SLBs, and relatively few companies were actually demonstrating net zero-aligned targets today.

According to Kutchtyak’s and Bruce’s report, Moody’s ESG Solutions also considers that emerging market sustainable bond markets will contine to surge in 2022 given heightened ESG risk exposures and significant sustainable development needs in many emerging market countries.

Last year GSS and SLB issuance in emerging markets totalled $136bn, more than double the previous record of $51bn registered in 2020.

Annual issuance of GSS bonds and SLBs

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Source: Moody’s ESG Solutions and Environmental Finance Bond Database

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