Global sustainable finance bond issuances have surged to nearly $1 trillion as of November 2024, marking one of the sector’s busiest years since its inception in 2007. At $990 billion, the volume reflects a broad upward trend, with significant contributions from green, social, sustainability, and sustainability-linked (GSSSL) bonds.
The growth of sustainable finance bonds aligns with a favorable bond issuance environment, where investors have seized opportunities amid higher base rates and expectations of a softer economic landing, despite ongoing geopolitical uncertainties. Issuers, benefiting from tight credit spreads, have been active in capital markets, fueling the rise in GSSSL bond activity.
Sovereigns Lead in Green Bond Issuances
Green bonds remain the dominant force in sustainable finance, accounting for more than half of global GSSSL issuance in 2024. Government issuers, including supranational organizations, represent nearly half of all sustainable finance bond activity, according to Bloomberg data.
Key contributors to green bond issuances include the European Union (EU), Germany, and France, with the EU remaining the largest issuer by value. However, as the global community approaches 2030 and 2050 climate targets, green bond issuances are somewhat constrained. The challenge lies in the absence of clear and standardized regulations, with the EU’s Green Bond Principles 2021 providing only voluntary guidelines for transparency and disclosure.
To address these gaps, the EU introduced the European Green Bond Standard (EGBS) in December 2023, which seeks to define the parameters of what constitutes a “green” bond and set strict safeguard requirements for issuers. The EGBS aims to reduce discrepancies, minimize costs for investors, and combat greenwashing, ultimately fostering greater market confidence. As the framework becomes fully effective in December 2024, issuers are expected to adapt gradually, with the anticipation that it will strengthen investor trust and lead to higher green bond volumes.
According to the European Commission, the EU’s green transition will require an additional investment of €620 billion ($876 billion) annually until 2030, placing further pressure on companies and governments to adopt more sustainable practices.
Sustainability Bonds on the Rise
Sustainability bonds, the second-largest category within GSSSL, experienced a record month in October 2024, with issuances totaling $24.5 billion—nearly double the $12.3 billion from the same period in 2023. Development banks, including the World Bank, were major contributors to this surge, accounting for 73% of the issuance. Corporations also played a significant role by expanding the number of eligible sustainability projects within their frameworks.
Despite the growth, sustainability bonds face challenges, particularly around concerns of greenwashing and the unclear use of bond proceeds. Issuers often disclose how the funds are spent only in annual sustainability or impact reports, leaving some investors uncertain about the actual environmental or social impact of the bonds.
Record-Breaking Social Bonds
Social bonds had a notable year in 2024, with global issuances peaking in April at $14.3 billion, surpassing the previous record of $12.2 billion in April 2022. Major issuers included French unemployment agency Unedic and the government of Colombia.
One of the standout social bond issuances came from Citigroup, which raised $3 billion in November 2024. The funds were allocated to initiatives that align with Citi’s social finance framework, including providing financial services to underserved communities and expanding affordable housing opportunities. This issuance forms part of Citi’s broader social finance commitment, which includes a landmark $2.5 billion social bond in 2024 aimed at financing affordable housing in the U.S.
Deutsche Bank also entered the social bond market for the first time in July 2024, raising €500 million for projects aimed at providing affordable housing for disadvantaged populations.
In South Korea, social bond issuances accounted for 66% of GSSSL bonds, with institutions such as Korea Housing Finance Corporation supporting the government’s policy to improve access to home loans for low- and middle-income households.
Challenges and Decline in Sustainability-Linked Bonds (SLBs)
Sustainability-linked bonds (SLBs), however, have faced persistent challenges, with issuance set to decline for the third consecutive year. Concerns about the incentive structure, the credibility of sustainability performance indicators (SPIs), and greenwashing have weighed heavily on the market. A report from the Climate Bonds Initiative highlighted that over 80% of SLBs issued between 2018 and 2023 did not align with global climate goals. Furthermore, an analysis by Bloomberg New Energy Finance noted that 16% of SLBs issued in 2024 had a call option that allowed companies to redeem them before the sustainability targets were evaluated, up from 9% in 2023.
Despite these challenges, there were some bright spots for SLBs. In June 2024, Italian utility Enel issued a $2 billion SLB, driving total issuance by companies and governments to $6.6 billion, the highest monthly volume since September 2023. Investor demand for the Enel deal was robust, with nearly $11 billion in orders, spurred by Enel’s track record as the first and largest SLB issuer, as well as its ambitious sustainability goals. However, the company’s earlier failure to meet emissions targets had led to higher coupon payments, drawing attention to the complexities of linking financial returns to sustainability performance.
Despite these concerns, Enel’s issuance reflected investor optimism that SLBs, if properly structured, can still attract significant interest. But the overall performance of SLBs raises questions about the true environmental impact of these instruments, particularly when companies benefit financially from failing to meet their sustainability targets.
Conclusion
The global sustainable finance bond market has demonstrated impressive growth in 2024, with issuances nearing the $1 trillion mark. While green bonds remain the dominant force, sustainability and social bonds are also making significant strides, particularly in development-focused issuances. However, the decline in sustainability-linked bonds reflects ongoing concerns about their effectiveness and potential for greenwashing. With regulatory frameworks like the European Green Bond Standard on the horizon, the market is poised for further growth, though challenges remain in ensuring the integrity and impact of these financial instruments.
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