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Global Sustainable Bond Issuance: Growth Amid Quarterly Decline

The sustainable bonds market recorded $216 billion in issuance during the third quarter of 2024, marking a 9 percent increase compared to the same period last year. Despite this annual growth, the market contracted by 14 percent relative to the second quarter, indicating short-term volatility. Year-to-date figures show a total issuance volume of $769 billion, which is 3 percent lower than the first nine months of 2023.

Moody’s projects that the total sustainable bond issuance for 2024 will reach approximately $950 billion by year-end. This optimistic outlook is supported by strong issuance volumes in the first half of the year and sustained demand from issuers seeking to finance environmental and social projects through labeled bonds.

Dominance of Green Bonds and Shifts in Other Bond Types

Green bonds continue to dominate the sustainable bond market, accounting for $129 billion of the third-quarter issuance and representing 60 percent of the total sustainable bond volume during this period. Year-to-date, green bonds constitute 59 percent of all sustainable bond issuance. Despite an 18 percent decrease in green bond issuance from the previous quarter, Moody’s anticipates that the annual volume will surpass the forecasted $580 billion due to robust year-to-date performance.

Other categories include social bonds ($37 billion), sustainability bonds ($41 billion), sustainability-linked bonds ($6 billion), and transition bonds ($3 billion). While green bonds remain the most preferred instrument, these other bond types contribute to a diversified sustainable finance landscape.

Regional Variations: Europe’s Decline and Asia-Pacific’s Resilience

Europe, historically the leader in sustainable bond issuance, experienced a significant 38 percent decline in the third quarter, issuing around $80 billion. This drop represents the continent’s lowest market share since early 2020, although Europe still accounts for 37 percent of global sustainable bond volumes.

In contrast, the Asia-Pacific region showed resilience with $60 billion in sustainable bonds issued, increasing its global share to 28 percent—the highest since the third quarter of 2023. This growth signals a strengthening commitment to sustainable finance in Asia-Pacific markets.

North America’s sustainable bond market remained subdued, with $26 billion issued, marking the lowest quarterly volume since early 2020. Latin America and the Caribbean contributed $12 billion, while the Middle East and Africa combined for nearly $5 billion, representing 8 percent of the global total.

Sectoral Contributions and Market Dynamics

Nonfinancial companies led sustainable bond issuance in the third quarter with a 28 percent share, issuing $60 billion despite a 26 percent decline from the previous quarter. Financial institutions followed closely, contributing $48 billion and showing a 12 percent increase quarter-over-quarter. This sector accounted for 22 percent of the market.

Supranational issuers demonstrated notable growth, with issuance rising 51 percent quarter-over-quarter to $33 billion and an 80 percent increase year-over-year. Conversely, municipal issuance declined 17 percent to $13 billion, reaching its lowest level since early 2022. Sovereign and government agency issuance also fell by approximately 30 percent quarter-over-quarter.

Sustainable loan volumes experienced a sharper decline, dropping 34 percent year-to-date to $380 billion after two years of strong growth. The third quarter recorded $101 billion in sustainable loans, the lowest since early 2022. Sustainability-linked loans (SLLs) dominated this category with $283 billion year-to-date, while green loans accounted for $90 billion.

Challenges and Market Sentiment: Quality Concerns and Unlabeled Bonds

Moody’s highlights that the decline in sustainable loan volumes and some bond categories may be partly due to increased scrutiny over the quality of sustainable finance instruments and concerns about greenwashing. This heightened vigilance has led some issuers to avoid labeling bonds as sustainable to expedite transactions under favorable market conditions.

European borrowers continued to dominate the sustainability-linked loan market with a 42 percent share in the third quarter, despite a 22 percent decline to $30 billion—the lowest since 2021. North America and Asia-Pacific held 35 percent and 18 percent shares respectively, reflecting regional disparities in sustainable finance adoption.

Upcoming Climate and Biodiversity Conferences: Implications for Sustainable Finance

The recent Biodiversity COP16 held in Cali, Colombia, underscored the need to mobilize $200 billion annually for biodiversity-related projects, including debt-for-nature swaps for nations burdened by high debt. Currently, only a small portion of bond proceeds is directed toward nature-focused initiatives, but this is expected to increase as issuers prioritize biodiversity financing.

Looking ahead, the Climate Change COP29 scheduled for November in Baku, Azerbaijan, is set to introduce a new climate finance target to succeed the existing $100 billion goal. This new target aims to support developing countries in implementing climate action plans beyond 2025, potentially driving increased issuance of sustainable bonds and loans in emerging markets.

Emerging markets, which face heightened climate risks, may benefit from expanded sustainable bond issuance, especially with the Climate Bonds Initiative’s recent taxonomy expansion facilitating greater capital flow toward adaptation and resilience projects.

What this means

The sustainable bonds market in 2024 presents a complex picture of robust annual growth tempered by short-term volatility and regional disparities. Green bonds continue to lead the market, supported by strong issuer demand, even as scrutiny over instrument quality challenges some segments. Regional shifts highlight Asia-Pacific’s growing role, while Europe faces pressures that may reshape its market dominance. The forthcoming climate and biodiversity conferences are poised to influence sustainable finance significantly, potentially catalyzing increased funding for adaptation, resilience, and biodiversity initiatives. For investors and issuers alike, understanding these evolving dynamics is essential to navigating the sustainable finance landscape effectively.