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Municipal Market Embraces ESG, Boosts Green-Labeled Debt

US municipal green-labeled debt will continue to grab a larger share of the municipal market this year, from 3.4% of total municipal issuance in 2020 to 4.1% in 2021, according to new research from S&P Global Ratings.

On average, sustainable debt’s share of total municipal market issuances increased 51% per year from 2014 through 2020.

While green bonds make up the majority of the municipal sustainable debt market, municipal issuers’ surging interest in touting their social and sustainability credentials has led to extraordinary growth in social and sustainability-labeled bonds over the past two years, according to the research. In 2020, social bond issuance rose to 26% of total sustainable debt issuance, up from a nearly insignificant amount issued in 2019. The pandemic and related consequences amplified the long-term growth.

“Given market trends, we anticipate near-term growth in all sustainable debt categories relative to the municipal market, and we anticipate social and sustainability bonds combined will increase their share of the pie,” the report states.

For the total sustainable debt market, S&P Global Ratings believes it is possible that issuance could surpass $30 billion for 2021.

Though the municipal sustainable debt market is beginning to diversify, it remains mostly concentrated, with the top 10 issuers accounting for 65% of green labeled debt issued in 2020. These include:

—New York MTA
—Los Angeles County Metropolitan Transportation Authority
—Power Authority of the State of New York
—Florida Development Finance Corporation
—San Francisco Bay Area Rapid Transit District
—Illinois Finance Authority
—San Francisco Public Utilities
—San Diego County Water Authority
—Los Angeles County Public Works
—Hastings Campus Housing Finance Authority

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