Global sustainable bond market raises $442 billion in the first six months of this year with sustainability-linked bonds seeing sharpest growth
- A total of 835 green bonds have been issued globally since the start of the year*, following a record year in 2021
- Sustainability-linked bond (SLB) issuance has seen the most rapid growth, with a ten-fold increase to $110bn raised last year, and a stronger start to the first six months of 2022 (H1) when compared to H1 2021
- European companies responsible for more than half of all SLB issuance throughout 2021 and H1 2022, with Europe becoming the largest sustainable bond market globally
- Momentum continues to build as companies ‘walk the talk’ on their climate and net zero pledges
A total of 835 green bonds have been issued globally since the start of this year raising $245bn, according to analysis by global law firm Linklaters**. This follows a record year for green bonds in 2021, which more than doubled to $572bn from the year prior as economies began to recover from Covid-19.
China has continued its dominance of the global green bonds market in H1 2022 with 206 green bonds issued so far, raising a total of $59bn and cornering a quarter of the market. Leading Europe is Germany with $29bn raised by green bonds issued in H1 2022, followed by France ($18bn), and the Netherlands ($11bn).
The rise of sustainability-linked bonds
While green bonds remain the dominant sustainable bond category, SLBs, which go beyond the traditional use of proceeds model and link ESG performance to financial performance through KPIs and science-based targets, have seen the most rapid growth, increasing ten-fold from $11bn in 2020 to $110bn in 2021.
Whilst a newer trend following the first ever issuance in 2019, SLBs make an attractive choice as companies become subject to growing reporting and due-diligence obligations on a wide range of ESG issues with pressure from stakeholders and investors to act.
Growth of the SLB market has continued into 2022, with $26bn raised globally in Q1 and $27bn in Q2, surpassing the H1 total for 2021 at $42bn. Europe dominates the market with more than half of all SLBs issued in 2021 and H1 2022 done so by European companies (52%), with the continent also becoming the largest sustainable bond market in the world.
Financing a net zero/low-carbon transition
While governments, utilities and financial services remained the dominant sectors responsible for green bond issuance throughout 2021 and H1 2022, with a combined total of 77%, sustainability-linked bonds are seeing issuance across a more diverse range of sectors.
Alongside the financial services and utilities sectors, which are responsible for a combined total of 30% of all SLB issuance in 2021 and H1 2022, the industrials, materials, and consumer sectors have a sizeable share of the market with a combined total of almost 50% of all SLB issuance, suggesting that companies in a wider range of sectors are using the instrument to help finance their net zero or low-carbon transitions.
Amrita Ahluwalia, managing associate at Linklaters, commented:
“Despite a slightly slower start to the year for green and social bonds compared to this time in 2021, the sustainable bond market is still going from strength-to-strength as investors continue to align their investment strategies to a more sustainable future.
“Climate is still very much at the top of the agenda as the pressure mounts on corporates and the financial sector alike to ‘walk the talk’ on their climate pledges, while a matrix of developments within Europe, such as the Green Taxonomy, SFDR, progressive rules on disclosures for corporates and the “Fit for 55” package, is giving great confidence to investment.
“While the appetite for ESG financial products shows no signs of abating, concerns about potential greenwashing continues to heighten, highlighting the importance of trust in the market for green products. The sustainable bond market is one area that remains under increased scrutiny around the mis-selling of “green” investment, with the proposal of the EU Green Bond Standard in Europe, and similar being considered in other jurisdictions, holding players in the market to account.”
Linklaters has been at the forefront of the SLB market since they were introduced, advising on issues by LafargeHolcim (the first of its kind in the building materials industry), Schneider Electric (on its inaugural issue of sustainability-linked convertible bonds, the first ever sustainability-linked deal in the equity-linked market), Suzano (the first bond of its kind to be aligned with the ICMA’s sustainability-linked principles published in June 2020), Novartis (the first sustainability-linked bond to incorporate social rather than environmental targets and the first offering of sustainability-linked bonds in the healthcare sector) and ENEL (the first sustainability-linked bond in Europe).
Linklaters’ green, social and sustainability bond practice and experience spans its European, North American and Asian offices and draws on the support of the firm’s market-leading corporate, environment and climate change, energy and financial regulation practices.
*Dating 1 January until 30 June 2022.
**Analysis based on data sourced from Bloomberg.