Green bond market matures as issuance hits record high
Issuance of green, social and sustainable (GSS) bonds hit a record high last year, with 3,184 bonds issued bringing total GSS bond issuance to over €4trn (3.4trn).
Despite the uptick in issuance of GSS bonds, the value of them actually decreased by nine per cent in 2023, falling to $930bn, data from Mainstreet Partners revealed.
This is due to a 13 per cent decline in the number of debut issuers from 594 in 2022 to 517 in 2023, as the market begins to mature.
A shocking 20 per cent of all European bonds are now GSS bonds, as Europe continues to be the dominant market for such bonds. Two thirds of all GSS bonds issued worldwide are from Europe, with France being the largest cumulative GSS bond issuer.
However, the US actually benefitted from the highest allocation of GSS bond financing green projects.
In terms of labels, ‘green‘ remained the preferred name for GSS bonds last year at 56 per cent of those issued, followed by ‘sustainable’ at 19 per cent and ‘social’ at 16 per cent.
The data also revealed that bonds funds classified as Article 9, or ‘dark-green’ bond funds, under the EU’s sustainability regulations, fared much stronger for inflows, compared to Article 8 ‘light-green’ funds.
Pietro Sette, research director at Mainstreet Partners, suggested that the GSS bond market was reaching a “maturation phase” as issuance has reached record highs from entities that previously used the bonds as part of their fixed income portfolio.
“This indicates GSS bonds becoming a mainstream component of investor portfolios, both in retail and institutional,” he said.
“We believe GSS bonds are at a pivotal point where there is a real paradigm shift for fixed income investors’ risk management,” he said.
“Thanks to reported post-issuance data, bonds are not associated with just the risk from the issuer’s country anymore, but we can now pair that information with the risk spurred by the location of the projects financed,” he added.