Green, Social and Sustainability bonds market 2022 outlook: It’s all coming together

Climate change is now a top priority in all stakeholders’ agendas. All forces are pushing in the same direction at an accelerated pace for the energy transition to become a key driver in the Fixed Income markets. 

The issuance of sustainable bonds – i.e. Green Bonds, Social Bonds, Sustainability Bonds and Sustainability-Linked Bonds – in 2021 has been stronger than most anticipated. Year-to-date sustainable bond issuance reached EUR 780bn as of mid November (excl. US Municipals and US Mortgages). This is almost a 90% increase compared to last year. This surge has been mostly supported by corporates, representing close to 60% of overall supply. 

Product diversification was the main enabler for growth in 2021 and helped numerous issuers to enter the sustainable bond market:

• Green bond issuance maintains its pace as half of the sustainable supply remains green;

• Sustainability-linked bonds (“SLB”) have allowed new issuers and sectors to enter the sustainable bond market. These SLBs, primarily issued by non-financial corporates, now account for c.10% of the year-to-date global sustainable supply, while they were still negligible last year;

• There has been a slowdown of social issuance compared to 2020 when social bonds saw a large growth in response to the pandemic crisis;
   
• Euro remains the main currency and represents half of sustainable bond issuance.
   

Our sustainable bond forecasts highlight that corporates, sovereigns and agencies will continue to signal that they are taking action to fight climate change through the development of a deep, liquid and diversified sustainable bond market and seeking financing for that purpose through such instruments.

The estimated sustainable bond supply will increase by c.50% in 2022, reaching EUR 1.2trn. Sustainability-linked bonds should support this growth and are expected to account for 20% of the upcoming sustainable bond supply. The share of EUR-denominated issuance is expected to reduce to c.45%, while USD-denominated issuance is likely to exceed 35% of the total sustainable supply. Green bonds are expected to remain the most common product issued accounting for c.52% of the total upcoming supply.

While it is today largely driven by Europe - thanks to EU climate and disclosure regulation - future political and regulatory evolution in other regions could foster even more the issuance of non-European issuers and in other currencies. 

The boom of sustainable bonds and greenium dynamics show investors’ appetite for green over conventional bonds - however investors are increasingly looking beyond bond contents to focus on issuers’ strategies and positioning - the recent development of sustainability-linked bonds also reveals this momentum.

According to Damien de Saint Germain, Head of Credit Research & Strategy at Crédit Agricole CIB: “Over time, we expect the climate and energy transition to become a key component of the issuers’ risk premium required by investors. From politicians, regulators, central banks, investors, corporates and rating agencies… all players are integrating climate change risks as well as objectives in their priorities, analytical frameworks and business models, accelerating the transmission of climate and energy transition issues to fixed income markets.”

With 6.5% market share at the end of 2020 (Bloomberg), Crédit Agricole CIB is one of the leaders of the Green, Social and Sustainability bonds market. Crédit Agricole CIB has a long-term commitment to promote green finance with a consistent organisation across the teams, from origination to distribution.