Green Bond Momentum Builds in H1 2023

Linklaters forecasts record year for green bonds, while SLB issuance suffers Q2 slowdown.  

Investor demand for green, social, sustainability, sustainability-linked and transition bonds (GSS+) has surged in H1 2023, with regulatory developments bringing greater transparency and confidence to the market. 

According to analysis by global law firm Linklaters, based on data from Bloomberg, GSS+ bonds raised US$568 billion in H1 2023, with 1,758 sustainable bond products being issued.  

This total was comprised of US$351 in green bonds, US$98.9 billion in sustainability bonds, US$78.2 billion in social bonds and US$39.3 billion in sustainability-linked bonds (SLBs). During the same period last year, the global sustainable bond market raised US$442 billion, with SLBs witnessing the sharpest growth. 

That momentum for has continued into the first six months of this year, with green bonds already nearly worth three quarters of 2022’s total volumes, with Linklaters projecting that this will contribute to a record year for green bonds.  

Amelia Rice, Capital Markets Managing Associate at Linklaters, told ESG Investor that high investor demand is one of the key factors driving the “continued popularity” of green bonds, and that issuers are “embracing” the asset class to “demonstrate their commitment to climate initiatives and the global footprint of the product”. 

“Investors with an ESG focus will be interested to know that the green finance momentum continues as more and more issuers are seeking to access this market and the global dominance continues,” she added. 

Green bond growth 

In January, the Climate Bonds Initiative said that it expected 2023 to be a “stellar” year for both green bond issuance and climate action, with the organisation forecasting a rise in resilience-related investments – which could grow to as much as US$5 trillion by 2025 – accompanied by a growth in government support for green finance.   

Rice noted that despite the “continued uncertainty posed by the macroeconomic backdrop” this year, the first two quarters have been “strong and consistent” for sustainable bonds generally and green bonds in particular.  

According to Linklaters, Europe continues to be the largest green bond market raising a total of US$190 billion from 448 green bonds issued so far this year, while the Asia Pacific (APAC) region also saw “significant growth”.

In H1 2023, APAC saw US$95.7 billion raised in green bonds, up from US$85.9 billion in the same period last year. 

Transparency brings confidence 

In March, the European Council and Parliament reached an agreement on a voluntary standard for EU green bonds, requiring issuers wishing to obtain the stamp of approval to ensure all proceeds are invested in economic activities which are aligned with the EU taxonomy, provided the sectors concerned are already covered by it.   

David Zahn, Head of Sustainable Fixed Income at Franklin Templeton Fixed Income, told ESG Investor that the EU Green Bond Standard provides “a platform to initiate discussions about what constitutes green and what doesn’t”.   

The EU Green Bond Standard is expected to be adopted this autumn. Issuers subject to the Corporate Sustainability Reporting Directive (CSRD) will also start reporting in 2025 which will make the EU Green Bond label more accessible to them, according to Linklaters.  

Rice also flagged the importance of the EU Listing Act, proposed by the European Commission in December last year, as it is expected to require the inclusion of certain ESG-related information in an issuer’s prospectus for debt securities advertised as taking into account ESG factors or pursuing ESG-related objectives. 

Ben Dulieu, Capital Markets Partner at Linklaters, said that the scrutiny of sustainable finance products will heighten as the “urgency of the climate transition intensifies”. 

“Greenwashing is at the top of the agenda for regulators across the world and recent developments such as the political agreement on the EU’s Green Bond Standard will aim to bring increased transparency and confidence to the market,” he added. 

SLBs stunted 

Linklaters found that SLB issuance had slowed during H1 2023, as scrutiny of the products increases leading to greenwashing concerns. In fact, Q2 this year saw the lowest value of SLB issuances since Q4 2020.  

“The downtrend comes amid keen investor focus on the selection of KPIs and ambitiousness of targets, as well as the robustness of the terms of the product”, Linklaters said, adding that a “key focus” remains on ensuring that SLBs are “structured carefully to avoid greenwashing concerns”. 

SLBs have previously been accused of acting as a “platform for greenwashing”, with the proceeds not ring-fenced for sustainable projects as is the case with green bonds.  

However, the flexibility afforded by SLBs have been welcomed in some regions, including Africa where they have surpassed social and sustainable bonds in popularity due, in part, to the commodity-dependent nature of many African economies.   

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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