Sustainable issuance set to rise: Moody’s

While it’s not likely to set any new records, sustainable bond issuance is expected to rebound in the year ahead, says Moody’s Investors Service.

In a new report, the rating agency forecast that green, social, sustainability and sustainability-linked bond issuance will rise by 10% in 2023 to $950 billion (all numbers in U.S. dollars).

“The continued maturation and diversification of the global sustainable bond markets will support a modest rebound in issuance in 2023, even as rising interest rates and macroeconomic uncertainty keep broader bond volumes well short of record highs,” it said.

While issuance is expected to rise this year, it’s not likely to top the record $1.05 trillion that was recorded in 2021, Moody’s said.

“Challenging macroeconomic and market conditions and greater scrutiny over perceived greenwashing will temper the overall pace of recovery,” the report said.

“Prospective issuers of sustainable bonds may be reluctant to enter a market where increased scrutiny could expose them to reputational damage, potentially constraining growth in the market over the next year,” it said.

Greenwashing concerns are particularly relevant for sustainability-linked bonds, the report said, noting that issuance in the category dropped significantly in the second half of last year “as investors increasingly scrutinized the relevance, ambition and rigour of issuers’ targets and financial penalties.”

By product, Moody’s forecast foresees $550 billion of new green bonds, $150-billion worth of social bonds, $175 billion in sustainability bonds and $75 billion of sustainability-linked bonds.

“We expect growth to resume for each type of sustainable bond label except for social bonds, which will likely decline modestly from 2022 volumes now that pandemic-related financing has largely receded,” it said.

The implementation of corporate decarbonization commitments will accelerate transition-related issuance, Moody’s noted.

“Companies in sectors with heightened inherent exposure to carbon transition risk will face growing pressure this year to follow through with credible implementation plans,” it said.

“Strengthening policy support for green capital spending in many countries, such as the Inflation Reduction Act in the U.S., will also drive clean energy investments,” the report said. “As more issuers aim to finance their net-zero ambitions and transform their business strategies to adapt to rising policy and market risks, labelled sustainable bond issuance from companies in sectors highly exposed to carbon transition is likely to rise this year.”

Additionally, public sector issuers, especially in emerging markets, will continue to expand the sustainable bond market, Moody’s said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.