Last month, Environment & Energy Leader reported the surge in sustainability bonds. In 2020, the sustainability bond market increased eightfold, according to data provider Refinitiv. In the first quarter of 2021, sustainability bonds reached a new high of $287 billion, more than doubling the previous year’s record-breaking figures, and Moody’s projected sustainability bonds could hit more than $650 billion by the end of the year, a 32% increase over 2020. Social and sustainability bond categories each surpassed $100 billion for the first time, as sovereigns, multi-laterals and banks financed relief efforts related to COVID-19’s economic disruption.
Now, new data suggests those figures may go even higher, with sustainability bonds likely reaching $1 trillion for the first time ever this year. New issuance of green, social, sustainability and sustainability-linked bonds from corporations and governments worldwide has already topped $575 billion so far this year, according to data compiled by Bloomberg.
Issuance of social bonds, which raise funds for projects with positive social outcomes, more than tripled year over year to $140 billion, boosted in part by the European Union’s introduction of the Sustainable Finance Disclosure Regulation (SFDR), which requires mandatory ESG disclosure obligations.
The issuance boom comes amid skepticism that ESG debt really holds borrowers to account and growing confusion about the proliferation of labels and structures. Investors are increasingly worried about greenwashing, where debt that’s not really ESG may be labeled as such.
Still, most bankers are optimistic that the growth trend will continue. With corporations and financial institutions under growing pressure from investors and other stakeholders to enhance ESG strategies, the issuance of sustainability bonds to raise money for projects is an increasingly popular option.
Key trends motivating the skyrocketing growth include greater flexibility with sustainability-linked bonds compared to stricter green bonds, and the recent efforts globally towards harmonization of sustainability and ESG reporting standards, according to Environmental Finance.