Cash & Liquidity ManagementInvestment & FundingCapital MarketsGreen bond issuance soars as sustainable debt tops $1trn in 2021

Green bond issuance soars as sustainable debt tops $1trn in 2021

Corporate appetite for green bonds continues to rise rapidly, with the outlook for the sustainable debt market overall looking increasingly promising

Annual issuance of green bonds, an increasingly popular instrument among corporates, topped $500bn in 2021 for the first time, with growth in volume on track to hit $1trn this year, according to a study by certification body Climate Bonds Initiative.

The report also revealed that overall issuance of sustainable debt, which includes green bonds, sustainability-linked bonds, and social bonds, rose nearly 60% to $1.1trn in 2021 – a record performance that Climate Bonds Initiative believes shows the sector is beginning to gain serious traction.

“The trillion dollars issued across sustainable markets in 2021 suggests that capital is beginning to shift at scale – but more is needed,” says Sean Kidney, CEO of Climate Bonds Initiative. “This year we hope to see a trillion raised in green bonds alone, rising to $5trn by 2025.”

There was strong growth in green bond issuance from both financial and non-financial corporates, with these two issuer types together representing 44% of cumulative green bond volume to date.

Among financial corporates, China Development Bank was responsible for the largest single deal during the year, valued at $6bn, while a $2.5bn green bond issued by Ford Motor Company was the largest issued by a non-financial institution.  A third of total green bond issuance over 2021 came from China (17%) and Germany (16%).

Green bond scorecard
Source: Climate Bonds Initiative

Non-financial green bond issuers were the strongest supporters of energy and transport projects, while buildings programmes received most support from financial corporates. As Global Treasurer reported recently, corporate treasurers are increasingly keen on green bonds as means of helping their firms meet their low-carbon ambitions.

Sustainability-linked bonds (SLBs) – flexible instruments whose structure can vary depending on whether the issuer achieves predefined KPIs or targets – was the fastest growing theme over 2021, notching up $118.8bn in volume, up 940% on 2020.

Climate Bond Initiative’s analysis also includes consideration of “transition bonds”, a relatively new creation aimed at organisations in “hard to abate” sectors such as steel, cement and chemicals. Twelve such bonds came from nine issuers in 2021, amounting to a volume of $4.4bn. The transition bond market as a whole grew more than 33% year-on-year to a cumulative $9.6bn.

Trillions more needed

Krista Tukiainen, head of research and reporting at Climate Bonds Initiative, says that the challenges the environment represents “necessitates a fast and sharp shift in capital allocations to slash the emissions the current economic model is built upon”.

“The climate cannot cope with the financial sector shirking responsibility any longer – climate considerations must become the norm in every investment decision,” she adds. “The decade ahead is critical. Though the challenge ahead is steep, hope lies in the trillions of sustainable finance that have been raised in labelled bond markets so far.”

Julie Becker, CEO of the Luxembourg Stock Exchange, one of the report’s sponsors, says capital markets have a crucial role in supporting the transition to a more sustainable economy through a wide range of innovative instruments.

The record 2021 global sustainable debt issuance volume was reflected on the Luxembourg Green Exchange, saysBecker, which became host to the largest green bond ever issued, a €12bn inaugural green bond issued by the European Commission.

Becker notes that Luxembourg also experienced a steep increase in sustainability-linked bond issuance over 2021, a trend that she expects will continue over the current year.

“Beyond reorienting capital flows towards sustainable development projects, the priority is now to make sure the funding reaches the regions of the world where it is needed the most,” she adds.

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