Global green bond issuance reaches record high of $351bn in first six months of 2023 amid evolving regulatory landscape

• Global green bond issuance raised record capital from investors in the first six months of this year (H1), putting 2023 on track to be a record year

• Green finance momentum continues to build amid the evolving regulatory landscape

• Sustainability-linked bond (SLB) issuances have slowed as scrutiny of the product increases, with Q2 seeing the lowest value of SLB issuances since Q4 2020

A total of 1758 sustainable bond products were issued in the first six months of this year* raising $568bn, according to analysis by global law firm Linklaters**, with most sustainable bond categories other than SLBs seeing an increase against H1 2022.

A record start to the year for green bonds

Green bonds continued to dominate the sustainable bond market with 935 green bonds issued, raising $351bn and making H1 2023 a record six months in terms of the value of capital raised from investors. This also puts 2023 on course to be a record year for green bond issuances.

Green bond issuance by banks accounted for the majority of capital raised in H1 at $123bn and was much higher than previous years, as the global banking sector continues to finance an increasing number of green projects.

While Asia Pacific saw significant growth, Europe continues to be the largest green bond market with 448 green bonds issued so far this year, raising a total of $190bn.

The market growth comes against the backdrop of a continually evolving regulatory landscape in Europe, with the EU Green Bond Standard expected to be adopted in the autumn. As the green finance momentum continues, issuers will need expert legal advice to help them navigate the fast-moving regulatory shifts and ensure their products comply with applicable standards.

Slowdown of sustainability-linked bonds

In contrast, SLBs, which have seen rapid year-on-year growth since the first half of 2021, saw reduced issuance in H1 2023. SLBs go beyond the traditional use of proceeds model and link ESG performance to financial performance through KPIs and associated targets. The downtrend comes amid keen investor focus on the selection of KPIs and ambitiousness of targets, as well as the robustness of the terms of the product. A key focus remains on ensuring SLBs are structured carefully to avoid greenwashing concerns.

Amelia Rice, Capital Markets Managing Associate, commented:

“Despite the continued uncertainty posed by the macroeconomic backdrop, the first two quarters have been strong and consistent for sustainable bonds generally and green bonds in particular. It will be interesting to see whether the pace of issuance accelerates further throughout the course of this year as governments, financials and corporates look to finance a growing number of green projects.”

Ben Dulieu, Capital Markets Partner, commented:

“As the urgency of the climate transition intensifies, so too will scrutiny of sustainable finance products. Greenwashing is at the top of the agenda for regulators across the world and recent developments such as the political agreement on the EU’s Green Bond Standard will aim to bring increased transparency and confidence to the market.

“Issuers and underwriters will need expert advisers guiding them through the upcoming regulatory changes and to help them respond thoughtfully to the increased scrutiny on the robustness of sustainable bond products.”

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.