Sustainable debt's flying start
This article was jointly written by Jonathan Gardiner, Sustainable Indices Product Manager at Bloomberg & Joshua Kendall, Head of Sustainable Fixed Income at Bloomberg.
Sustainable bond issuance is off to a strong start after a challenging 2022 caused by rising rates and market volatility limiting issuers’ interest. Corporate and Government new bond issuance YTD is already up 23.1% YoY, bolstered by a surge in a sovereign issuance.
Total green, social and sustainability bond issuance in 2023 is approximately $195.7bn, with government issuance accounting for more than 50%, at $107.4bn. France, Ireland, Slovenia and Germany were amongst the list of countries to have issued sustainable bonds in 2023. Israel and India made their inaugural foray into the green bond market, issuing in January.
Sustainable debt issuance has traditionally been dominated by developed nations, however, the green bond programmes from emerging markets represent a growing opportunity for countries with energy mixes heavily dependent on fossil fuels. Whilst these frameworks make funding commitments towards renewable energy infrastructure, in the case of India it also included compressed natural gas, which is a fossil fuel. As a result, India was excluded from the above Bloomberg League Table, and not awarded the “green” designation on the Bloomberg terminal.
Issuance of sustainable debt has been buoyed by stronger bond returns as well as falling borrowing costs in the high-grade markets, with numerous entities tapping the sustainable debt market for the first time. January issuance was the busiest month since January 2022, with over $105bn in issuance, with February issuance volumes also edging above $90.5bn. The rebound highlights the resilience in the sustainable market with consistent investor demands.
Bloomberg’s Global Aggregate Green, Social and Sustainability (GSS) bond indices provide investors with an objective and robust measure of the global market for fixed income securities issued to fund projects with direct environmental and/or social benefits. In comparison to the Global Aggregate Index (and accounting for sector neutrality) the GSS index has underperformed the Global Agg since 2022. However, much of this underperformance can be attributed to the performance of Euro-denominated bonds which account for more than 60% of the member constituents.
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