Coronavirus shrinks green bonds, spurs social bonds
Moody’s has cut its forecast for global sustainable bond issuance this year as record social bond volume failed to offset a more dramatic slump in first-quarter green bond issuance due to the coronavirus crisis.
Sustainable bond issuance volumes, which includes green, social and sustainability bonds, underperformed conventional bond volumes and accounted for just 2.8% of global issuance, the ratings agency said.
That is the lowest percentage since the third quarter of 2018 as sustainable finance was eclipsed by a surge in borrowing by investment-grade companies raising additional liquidity to survive the coronavirus crisis.
Moody's said it now expects green bond volume to total US$175bn-$225bn this year, down from an original forecast of US$300bn, after first quarter volume nearly halved from a year earlier.
The US$2.8bn green bonds printed in March was the lowest monthly total since December 2015 and there were notable first-quarter declines in green bond issuance by North American and Asia-Pacific issuers. China issued only US$1.1bn of deals.
SOCIAL MOBILITY
Still, Moody’s maintained its forecast of US$100bn for social and sustainability bonds, which combine green and social bonds, as the market continues to focus on coronavirus response efforts. That would be a 52% increase over last year's issuance of US$66bn.
Sustainable bond issuance of US$59.3bn in the first quarter was 14% lower than a year earlier and 32% lower than the fourth quarter 2019. Green bond volumes fell 49% from the end of the year to US$33.9bn.
Emerging markets sustainable bond issuance of US$7.7bn in Q1 was the lowest level since early 2018, but Moody’s expects the slowdown to be temporary.
“We continue to see strong potential for sustainable bond growth throughout emerging markets economies over the long run given their susceptibility to ESG risks and huge investment needs to finance sustainable development,” Moody’s said.
Social bond issuance soared to US$12bn, more than double the previous quarterly record, while sustainability bonds saw a strong US$13.4bn as multilateral banks and SSA issuers used these instruments to finance Covid-19 response efforts.
“Greater emphasis on social finance and sustainable development will likely be one of the lasting outcomes of the coronavirus crisis,” said Matthew Kuchtyak, AVP-Analyst at Moody's.
Moody’s expects sustainable finance to continue to grow due to strong investor demand, heightened governmental focus on climate change and sustainable development, the gradual greening of the financial system, and increased issuer focus on highlighting sustainability plans to stakeholders.