Sustainable Bond Issuance Reaches $216 Billion in Q3 2024

The global financial landscape is witnessing a significant shift towards sustainability, with the issuance of sustainable bonds experiencing a notable surge. According to a recent report by Moody’s, the third quarter of 2024 saw sustainable bond issuance reach an impressive $216 billion, reflecting a 9 percent increase compared to the same period last year. This growth is indicative of a broader trend where investors are increasingly prioritizing environmental and social projects, despite facing some challenges in the market.

In the first nine months of 2024, the total volume of sustainable bonds issued amounted to $769 billion. While this figure represents a 3 percent decline from the previous year, the overall outlook remains optimistic. Moody’s projects that total sustainable bond volumes could reach $950 billion by the end of 2024, driven by strong demand in the first half of the year and a continued appetite from issuers for funding projects that promote sustainability.

Breaking down the numbers, green bonds dominated the third-quarter issuance, accounting for $129 billion of the total. Social bonds followed with $37 billion, while sustainability bonds contributed $41 billion. Sustainability-linked bonds and transition bonds made up smaller portions, with $6 billion and $3 billion, respectively. Green bonds have consistently been the preferred choice for issuers, comprising 60 percent of the sustainable bond market in the third quarter.

Despite a decline in green bond issuance of 18 percent from the previous quarter, Moody’s remains confident that these bonds will exceed their annual forecast of $580 billion. The strength of year-to-date issuance and the ongoing preference for green labels among issuers are key factors contributing to this positive outlook.

Regionally, Europe continues to lead in sustainable bond issuance, although it faced a significant drop of 38 percent in the third quarter, totaling around $80 billion. This decline marks the lowest share for Europe since early 2020, even as it still accounts for 37 percent of global volumes. In contrast, the Asia-Pacific region showed resilience, with sustainable bond issuance reaching $60 billion, the highest share since the third quarter of 2023.

North America, however, has seen a subdued market, with only $26 billion in sustainable bond issuance, the lowest since the second quarter of 2020. Meanwhile, Latin America and the Caribbean contributed $12 billion, and the Middle East and Africa added nearly $5 billion to the global total.

Among various sectors, nonfinancial companies led the way in sustainable bond issuance, holding a 28 percent share, despite a 26 percent drop from the previous quarter. Financial institutions followed closely, contributing $48 billion, marking a 12 percent increase. Supranational issuers also experienced significant growth, with a 51 percent increase quarter-over-quarter.

On the other hand, sustainable loan volumes have seen a more pronounced decline, falling 34 percent year-to-date to $380 billion. This drop follows two years of strong growth, with the third-quarter volume of $101 billion being the lowest since early 2022. Sustainability-linked loans led the sector with $283 billion year-to-date, while green loans contributed $90 billion.

Moody’s highlighted that the decline in market share could be attributed to challenges faced by issuers amid increased scrutiny regarding the quality of instruments and concerns over greenwashing. Additionally, there may have been a rise in unlabeled bonds as issuers sought to execute transactions quickly when market conditions were favorable.

Looking ahead, the upcoming climate change COP29 in Baku, Azerbaijan, is expected to be a pivotal event, with discussions centered around establishing a new climate finance goal to replace the current $100 billion target. This new goal aims to support developing countries in their climate action plans beyond 2025.

As emerging markets face higher climate risks, there is potential for increased sustainable bond issuance in these regions. The expansion of the Climate Bonds Initiative’s taxonomy is likely to facilitate this growth, encouraging more issuers to participate in the sustainable finance movement.

The surge in sustainable bond issuance reflects a growing recognition of the importance of financing environmental and social projects. As the market continues to evolve, it is crucial for investors and issuers alike to navigate the challenges and opportunities that lie ahead, ensuring that sustainability remains at the forefront of financial decision-making.