Green bonds set to pass 2020 total before first half ends

4 min read
Americas, EMEA, Asia
Tessa Walsh

Global green bond issuance is poised to pass 2020’s full-year volume of US$247.5bn before the first half ends and is on track to set a new annual record, according to Refinitiv data, as the US and China compete for the title of most active market.

Volume of US$240bn for 2021 so far is already nearly three times higher than the same time last year when green bonds took a back seat to a wave of social bond issuance as the world responded to the Covid-19 pandemic.

Green bond volume has rebounded strongly in the first six months of 2021 as governments and companies continue to focus on a green recovery, and investor demand remains strong, supported by Europe’s new Sustainable Finance Disclosure Regulation that aims to redirect capital flows to sustainable finance.

The number of green bonds issued has more than doubled to 605 in 2021 so far, compared with 293 in H1 2020, and accounts for just under half (48.7%) of the US$486.3bn of ESG bonds issued this year, up from 44.2% a year earlier.

“We see an unprecedented momentum in global sustainable finance,” said Joerg Eigendorf, head of communications, social responsibility and sustainability at Deutsche Bank. “After a record year in 2020, we are on track to set a new record in 2021. Green financing continues to be the largest share.”

This acceleration is most pronounced in Europe, where US$142bn of green bonds has already been issued, nearly three times higher than the US$51.29bn at the same point last year – even before green bond issuance starts under the €800bn NextGenerationEU programme.

Around €250bn of green bonds will be issued in 2021–2026 under the NGEU programme, which is designed to manage Europe’s recovery through green and digital transition. A conventional €20bn bond was issued on June 15 and green issuance is expected to start in late summer or early autumn after a financing framework is completed.

The current level of issuance could require forecasts to be revised, as investor demand shows no sign of slowing despite the rise in volume, which is creating a more attractive green premium over conventional debt.

ESG specialist NN Investment Partners has already revised its green bond forecast after a busy first quarter. The firm said in March that green bond issuance could increase by 50% from last year to €400bn in 2021. That would put total outstanding green bonds at more than €1trn, and set the market on track to grow to €2trn by the end of 2023.

“Overall the trend is clear, the demand and supply of ESG financing are fundamentally changing and reaching unprecedented levels,” Eigendorf said. “I think it will go faster than we all think and that ESG will be the new normal.”

US vs China

While Europe continues to dominate regionally, the US and China are vying for market dominance as the most active market and are outpacing Germany and France as the end of the second quarter looms.

The US is marginally ahead of China with US$31.98bn of transactions and 51 deals giving a 13.3% market share, compared with China’s volume of US$31.81bn and 123 deals, which gives a 13.25% market share.

Germany is in third place with US$28.19bn with 43 deals and an 11.7% market share, followed by France with US$25.44bn and 23 deals, giving a 10.6% market share. France has dropped from first position at this point last year, when it had US$11.14bn of volume.

Year-to-date green bond volume in Asia of US$54.52bn is more than three times higher the US$14.85bn in 2020, and US$37.23bn of green bond issuance so far this year in the Americas is nearly three times higher than US$13.65bn last year.

Despite its ambition to be a green leader in the run up to the UN’s COP 26 climate conference in Glasgow in November, the UK is in 15th place with volume of US$4.78bn and 10 deals, down from ninth at the same time last year with volume of US$2.8bn.