Efforts to drive the transition to net zero will require a significant redirection of global investment flows towards green and sustainable financing, with fixed income set to play a key role.
In line with this, research by Standard Chartered forecasts GSSS bond issuance to increase 52% year-on-year to $1.7trn in 2022. If it achieves this, it will account for 18% of global bond issuance, up from roughly 11% in 2021 and 7% in 2020, according to a report from the bank, entitled ‘Sustainable debt market – Up, up and away’.
The strongest rate of growth in the GSSS category has been in sustainability-linked instruments.
“Sustainability-linked bond issuance ballooned to $109bn in 2021 from a low base of $11bn in 2020. This was mirrored in the loan market, where issuance of sustainability-linked loans rose to $428bn from $125bn in 2020,” said Simrin Sandhu, executive director, credit research at Standard Chartered.
Last year was a watershed for the sustainable debt market across Asia.
Supply from the region overall increased strongly, by 21%. China led growth in volumes as it deepened its policy focus on the carbon transition – after announcing in September 2020 that it would target carbon neutrality by 2060.
China’s $110bn of sustainable debt issuance in 2021 was a five-fold year-on-year increase.
Meanwhile, Hong Kong reported a four-fold growth in sustainable debt issuance in 2021, to $20.56bn, with Singapore’s sustainable debt issuance in 2021 growing three-fold year-on-year, to $30.09bn.
Strong transition trajectory
The momentum is likely to continue, although growth rates should moderate from current lofty levels.
For instance, Standard Chartered forecasts multi-fold growth of GSSS bond issuance to $4.2trn in 2025.
This would likely take the share of GSSS bond issuance to around one-third of the total for global bonds. More specifically, Standard Chartered expects stronger growth in sustainability-linked bonds compared with use-of-proceeds instruments over this period.
“Eventually, we think that all capital-raising entities will be required to report progress on sustainability and other aspects of ESG as a matter of course, similar to periodic financial reporting,” said the report.
According to another report by Standard Chartered, emerging markets need to invest an additional $94.8trn to transition to net zero by 2060.
Asia, for example, would need additional transition finance of $51trn, with China accounting for around $35trn of this.
Standard Chartered expects to play an important part of the market. “[We are] committed to helping our clients to transition, and plan to mobilise $300bn in green and transition finance between 2021 and 2030,” said Tracy Wong Harris, head of sustainable finance for the bank in Asia.