Sustainable bond market: 2023 overview and outlook for 2024
The green transition is still on with sustainable bond issuance expected to reach c.EUR820bn -eq in 2024 according to Crédit Agricole CIB ESG Fixed Income Research, as integration of ESG components at product and issuer level is undoubtedly under way.
A challenging macro environment in 2023 that could still impact 2024
Even though a growing number of corporates are committing to a NetZero pathway, slowdown in economic growth, strong inflation and the erosion of purchasing power have created a more complex backdrop for sustainable investments. High interest rates, cost of components and supply chain disruptions have penalised green projects, renewable energy in particular.
In 2024, the environment should remain challenging for green investments amid still high interest rates.
Against this macro backdrop, differentiating corporates' strategies reflected through divergent capital allocation priorities in the most exposed sectors should be again at play and be further reflected in companies' valuation as well as funding costs.
Moreover, potential geopolitical tensions with China could further complicate the equation as (cheap) imports of green technologies are important to accelerate the EU green transition which requires an effort from now to 2030 not comparable with past trends.
Resilient sustainable bond market in 2023
According to Crédit Agricole CIB ESG Fixed Income Research, global sustainable bond issuance ended the year in the region of 2022 level slightly under EUR800bn debt with green bonds remaining the favourite product in green finance. Indeed, green bonds accounted for more than 60% of ESG-labelled issues in 2023, recording a slight increase compared to 2022.
Key drivers of 2024 sustainable bond supply are overall positive
Sustainable bond issuance should continue to be supported by climate policies, demand from investors and ESG disclosure regulation.
We expect sustainable bond issuance to reach c.EUR820bn -eq, primarily driven by financials and supranationals. No big change is expected in terms of ESG product mix where green bonds should keep the lion's share (c.60% of the total) and SLBs should record a modest progression to 10% in 2024.
Taxonomy-alignment disclosures coming up for asset managers, banks increasing their sustainable investments as well as corporate reporting on eligibility to the other Taxonomy criteria could bring diversification in the green bond market.
“While macro themes (macro outlook, inflation, rates) have been driving the fixed income markets over 2023, ESG risk premium has remained broadly on the sidelines, even in the credit space, as reflected by a lower greenium. Looking ahead, we expect upcoming taxonomy-alignment disclosures to offer better transparency and comparability between issuers and, hence, trigger some valuation gaps. Elections, especially in the US and in Europe, as well as actions from central banks to remain compliant with Paris agreement could also act as potential catalysts.”
Damien de Saint Germain
Head of Credit Research & Strategy
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