BY Fraser Tennant
Driven by an expansion of the pool of financing options for investors, 2020 is likely to see the sustainable debt market surpass $400bn, according to a new report by S&P Global Ratings.
In ‘Led By Green Bonds, The Sustainable Debt Market Looks To Surge Ahead’ S&P notes that issuance in sustainable debt has doubled in 2019, with the primary driver being green bonds, which is expected to remain the main type of sustainable debt instrument in 2020.
"We also expect the sustainable debt market to continue to diversify and innovate, as investors look for alternative ways to contribute to sustainability objectives," said Noemie De La Gorce, ratings credit analyst at S&P Global Ratings. “Furthermore, the market shows few signs of abating. Strong market fundamentals along with persisting positive credit conditions in the private sector are likely to support further green issuance growth in the next year.”
The report’s key takeaways include: (i) green-labelled issuance is expected to reach close to $300bn in 2020, partly reflecting the surge in absolute global fixed-income issuance and private financing; (ii) other sustainability-labelled debt instruments have emerged, including social bonds, sustainability bonds and sustainability-linked loans, which increased to about 35 percent of the total sustainable debt market in 2019; (iii) the unique and unprecedented regulatory and political push for green and sustainable finance in Europe will help to consolidate the region’s leadership in green-labelled issuance; and (iv) the majority of green-labelled proceeds will remain allocated to the energy transition, which absorbed 80 percent of proceeds in 2019.
Looking ahead, the S&P report suggests that issuance in the labelled green bond market could grow close to $300bn in 2020, after achieving a record $238bn in 2019. "While it still represents a minor part of global issuance, this share is increasing – to about 3.5 percent from less than 1 percent five years ago,” added Ms De La Gorce. “We expect this growth to be a long-term phenomenon, with sovereign and regulatory interventions, particularly in Europe, acting as a catalyst for private issuance.”
That said, the report sounds a note of caution, stating that growth levels are insufficient to bridge the existing financing gap between available sustainable debt and the investments needed to transition to a low-carbon and climate-resilient economy, which the UN. estimates will be at least $60 trillion by 2050.
Report: Led By Green Bonds, The Sustainable Debt Market Looks To Surge Ahead