Global sustainable debt issuance exceeded $680bn in H1 2021 – Report

Global sustainable debt issuance FX Devaluation left an imprint on total debt stock Brandspurng

Global sustainable debt issuance is on track to surpass $1 trillion in 2021 – up 30% from 2020’s totals. However, emerging markets still represent less than 15% of the sustainable debt universe, highlighting strong growth potential; China, Chile, Turkey, and Mexico are the top issuers.

Global sustainable debt issuance exceeded $680bn in H1 2021, more than twice the level of H1 2020–and is already close to the $700bn marks reached for the full year 2020. Yet another quarterly record in issuance activity ($350bn in Q2 2021) has brought cumulative sustainable debt issuance to some $2.6tn since the end-2015.

Chart 1: Exponential growth: sustainable debt issuance on track to surpass $1 trillion in 2021

sustainable debt issuance
Source: Bloomberg, BNEF, IIF

With Net-Zero commitments in the spotlight, an acceleration in low-carbon energy investment and technological innovation has been supporting ESG securities issuance, along with strong investor appetite: ESG bond funds attracted over $62bn in H1 2021, double the pace of 2020.

While most of this activity is still euro-denominated, global sustainable debt issuance is projected to top $1tn in 2021, which will bring the market size to well above $3tn. Mature market issuance continues to dominate: at present, emerging markets account for just 13% of the total market (see Table 1 for the size and breakdown by product and region).

The expansion of sustainable debt markets has been fastest in the U.S, Europe (especially France, Belgium, and Germany), and China. Within emerging markets, Chile, Turkey, and Mexico are the largest issuers after China, accounting for a quarter of total EM issuance in H1 2020.

Green bonds are now a $1+ trillion market:

The de- mand for green bond financing continues to rise exponentially—issuance hit $240bn in H1 2021. Over $115bn of green bonds was issued in Q2 2021, led by Germany, China, and France. The size of the green bond market has now sur- passed $1tn, with average daily secondary market trading reaching $2.7bn this year—up from $1.6bn in 2020.

While financial firms, utilities and sovereigns currently dominate green bonds issuance, the issuer base continues to broaden. Ex-financials, more firms from the energy, consumer discretionary, and materials sectors have been issuing green bonds in recent years (Chart 2).

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Chart 2: Green bond issuer base continues to broaden

sustainable debt issuance
Source: Bloomberg, IIF

Despite this rapid expansion, the green bond market is still relatively small—less than 1% of the global bond market—and not sufficiently diversified. Although liquidity in sustainable debt markets is im- proving, concerns over liquidity, volatility and credit risk persist (Chart 3).

Chart 3: Non-financial corporate green bonds tend to be slightly more costly to buy and sell

Global sustainable debt issuance exceeded $680bn in H1 2021 - Report - Brand Spur
Source: Bloomberg, IIF

Robust issuance across the board…

Sustainability bond issuance surged to $90bn in H1 2021, on the back of a new quarterly record—$54 bn in Q2 2021. Of note, the U.S. dollar replaced the euro as the most dominant currency of issuance.

Social bond issuance reached $140bn, more than 3 times higher than in H1 2020, boosted in part by increasing interest in Europe in the wake of the EU Sustainable Finance Disclosure Regulation (SFDR). At around $160bn, global sustainability-linked debt issuance (bonds and loans) was nearly four times higher than in H1 2020,