Sustainable bond issuance set an all-time record globally in 2021, surpassing $1 trillion for the first time ever, a 45% increase over 2020.
These types of sustainable finance bonds accounted for a record 10% of overall activity in the debt capital markets during 2021, up from 6.6% in 2020 according to Refinitiv deals intelligence.
Conventional financial performance metrics such as profitability and capacity to repay are driving the popularity of these instruments, but non-financial considerations such as social and climate impact are playing a big role, too.
Green bonds, which finance projects with environmental benefits, for example, have been growing exceptionally strongly. Last year's total issuance of $488.8 billion globally - nearly double the 2020 level - is an all-time record.
Numerically, more than 1,000 green bonds were issued for the first time ever in 2021, a 54% increase compared to full year 2020.
ASSET OWNERS DRIVE DEMAND
Corporates have led the way in issuing green bonds since they were first labelled as such in 2014. This supports the trend towards focusing on business sustainability, according to Moody’s Sustainable Bond Insights 2021 report.
In addition to managing their reputations for corporate social responsibility, companies must respond to asset owners and managers who are increasingly focused on the impact of ESG risks on their portfolios, said the report.
Dutch pension fund APG, which has over $708 billion in assets under management, is one of the world's largest investors in part of the bond market. By the end of 2019, the pension fund had invested over $10.7 billion in green, sustainable and social bonds. In 2021, they also invested in the first EU green bond, which is used to finance the economic recovery in the wake of the Covid-19 pandemic.
“Responsible investing is a way to improve the investment portfolio’s risk/return profile while contributing to a sustainable world for our clients and their participants,” Oscar Jansen, expert portfolio manager credits at APG told AsianInvestor.
As a long-term investor, Jansen says APG is committed to investing for its clients in green, social, and sustainable bonds that help the fund achieve its goals of contributing to the UN Sustainable Development Goals (SDGs).
“Having started in the Euro credit market when the market was still in its early stages, we have gradually expanded this globally when the green bond market started to grow. Initially within credit, where we expanded to the USD market, and when we saw the first sovereigns issuing green bonds we have become active there as well, both in developed and emerging markets,” said Jansen.
European issuers accounted for the largest regional market for sustainable finance bonds with 54% market share in 2021, compared to 22% from the Americas and 18% from Asia Pacific, according to Refinitiv.
“The European and US credit markets are still the most active followed by the European sovereign market, which has shown the largest growth. The tilt is still towards developed markets with Europe being the most important region," said Jansen.