Financing the green transition: sustainable bond issuance remains robust

• Sustainable bond issuance increased 8% in the first nine months of 2024 despite multiple headwinds, showing the market’s resilience.
• Green bond issuance surged, 2024 has seen the strongest first nine months for green bond issuance since records began in 2015

Despite battling against multiple headwinds, sustainable bond issuance weathered the turbulence showing the resilience of financing for the green transition.

Sustainable bond issuance totalled US$661.2 billion during the first three quarters of 2024, the strongest opening nine-month period for sustainable finance bonds since 2021. 

This was achieved in a period of political uncertainty and regulatory change with climate policy in flux during election cycles and regulatory action in areas such as greenwashing. 

Joining me at a discussion at the LSEG Green Economy Forum that took place in London earlier this year, Hannah Simons, Head of Sustainability at Lloyds Bank Corporate Markets, shared her views about the market. “A healthy sustainable bond market means more companies must clearly articulate how they will use the proceeds of bonds to deliver a real-world impact,” she said. 

Further evidence of how the green transition is gathering momentum can be seen by comparing green corporate bond issuance against carbon-intensive corporate issuance. Since 2021, the value of green corporate bonds has been more than that of carbon-intensive corporate bonds in nearly every calendar quarter until Q3 2024. By way of explanation, we define carbon-intensive bonds as those issued by companies with activities such as coal-fired power generation or oil and gas exploration.

The slowdown in Sustainability Linked Bonds (SLBs) follows widespread criticism after a broad range of companies issued these bonds rather than solely companies in ‘hard-to-abate’ industries like cement or steel with specific decarbonisation challenges. This rush into SLBs attracted controversy because the key performance indicators used were not material and the targets set for carbon reductions not sufficiently ambitious.

Even so, there’s a place for SLBs. “I still believe in the value of the sustainability-linked format,” explained Paul O’Connor, Head of EMEA Sustainable Finance at JP Morgan, who also spoke at the LSEG Green Economy Forum. “I think over time we’ll see a smaller number of higher quality sustainability-linked instruments coming to the market, which makes sense for everybody.”   

From a regional perspective, the EMEA region dominated sustainable bond issuance in the first nine months of 2024, accounting for 53%, with Asia Pacific and the Americas making up the balance. 

Agnes Gourc, Head of Sustainable Capital Markets at BNP Paribas noted at the Forum that in some parts of the market, especially in EMEA, sustainable bond issuance has already reached a high level. For instance, it accounts for about a quarter (26%) of EMEA investment grade corporate issuance. “One out of four is a good number,” she said. “Can investment grade corporate grow more? I would think so but of course the incremental rate of adoption may slow down given the already high number.”

What about the outlook going forward? There are welcome initiatives contributing the transparency of the market such as the recently introduced International Capital Markets Association guidance on what constitutes a green-enabling project, for instance a mine that supplies metals for electric vehicles. What’s more, the European Green Bond Standard will start to apply from the end of 2024, introducing a voluntary label for issuing green bonds.

But in a year of elections across the world, much depends on politics, not least in the United States. There’s also the prospect of the UK’s new Labour government introducing policies to accelerate the transition.

“Hopefully we’ll see the UK continue to take the lead in working out how to finance the green transition under its new government,” said O’Connor. “Ultimately what we’re doing doesn’t matter unless there’s policy support.”