After peaking in 2021, global sustainable finance issuance volumes declined in 2022 and 2023 due to policy disruptions and increased scrutiny over green credibility. However, 2024 shows promise, with the first half of the year seeing $800 billion in sustainable debt issuance, nearly matching the first half of 2023. This stability suggests a potential increase in annual volumes for 2024.
"}},{"alignedImage":{"position":"bottom","extension":"png","original":"https://assets.ing.com/m/571ee81095abeca1/original/Total_SF_issuance_2.png","transformBaseUrl":"https://assets.ing.com/transform/c6fa5756-ea72-48ab-b4aa-77954222ca10/Total_SF_issuance_2"},"componentType":"paragraph","richBody":{"value":""},"title":"Global sustainable finance issuance"},{"componentType":"paragraph","richBody":{"value":"Data is until 30 June 2024. Source: Bloomberg New Energy Finance, ING Research
"}},{"componentType":"sectionTitle","title":"EMEA still dominates sustainable debt issuance"},{"componentType":"paragraph","richBody":{"value":"EMEA, led by Europe, remains the largest region in terms of sustainable finance issuance with a strong rebound in volumes in the first half of 2024. The EU’s more comprehensive and advanced ESG regulation ecosystem helps. Despite political shifts, we don’t expect the EU’s green agenda to change fundamentally.
In the Americas, the market has shown resilience, bolstered by the Inflation Reduction Act, which has spurred over $200 billion in clean energy investments. However, potential political changes could impact the market's trajectory.
APAC (Asia-Pacific) is emerging as a robust market, with significant investments in clean energy and the adoption of International Sustainability Standards Board’s reporting standards (ISSB’s) by many countries. Challenges remain in implementing green debt principles in high-emission sectors, without compromising these principles. China, for instance, updated its Green Bond Principles in 2022 to require 100% of the use of proceeds on green projects to align with the International Capital Market Association (ICMA). But state-owned companies are still exempt and only need to allocate 50% of the use of proceeds to green projects.
"}},{"alignedImage":{"position":"bottom","extension":"png","original":"https://assets.ing.com/m/63445a09c24fbc8/original/SF_issuance_by_region_1H24.png","transformBaseUrl":"https://assets.ing.com/transform/ec297f42-5bca-4d2d-8c43-b5919b045962/SF_issuance_by_region_1H24"},"componentType":"paragraph","richBody":{"value":""},"title":"Sustainable finance issuance by region"},{"componentType":"paragraph","richBody":{"value":"Data is until 30 June 2024. Source: Bloomberg New Energy Finance, ING Research
"}},{"componentType":"sectionTitle","title":"Green bonds hold strong, surge in transition bond issuance"},{"componentType":"paragraph","richBody":{"value":"Green bonds have seen a resurgence, with significant issuances from governments and corporates. The first half of 2024 recorded the second-highest issuance volume for any half-year period, driven mostly by large issuances from entities like the governments of Italy and France. However, the share of corporates increased from 25% in 2023 to 32% in the first half of 2024. With relatively more advanced green bond frameworks, green bonds continue to be the growth engine for the global sustainable finance market.
"},"title":"Green bonds"},{"componentType":"paragraph","richBody":{"value":"These bonds, which allows companies to finance decarbonization activities that are not traditionally ‘green’ in hard-to-abate sectors, have gained popularity. The issuance volume in the first half of 2024 was almost eight times higher than in the second half of 2023. Japan dominates the market, largely enabled by the country’s Climate Transition Bond Framework.
Outside of Japan, it appears to be challenging to issue transition bonds due to a lack of clear definitions. What could be helpful to this trend is the ICMA's newly published Green Enabling Projects Guidance, which defines activities that are crucial to developing a green project but do not themselves have a direct positive impact on the environment.
"},"title":"Transition bonds"},{"componentType":"paragraph","richBody":{"value":"SLBs and SLLs have lost some popularity because of the continuing scepticism over how they can effectively demonstrate credibility. A recent report by the Climate Bonds Initiative (CBI) shows that issuers tend to fall short of detailing data reporting statements and keeping data consistent. And 34% of the total issued amount by the sampled issuers is linked to sustainability KPIs that are currently off track.
Also, the structure of SLBs needs some innovation. Coupon step-ups – meaning issuers pay penalties in interest if their sustainability KPIs are missed – are the most common structure of SLBs. Such a penalty-dominated scheme, as opposed to a more incentive-based scheme where issuers are awarded for achieving their KPIs, may have discouraged SLB issuance.
These challenges show that the SLB market needs more detailed guidance – and that is where the market is heading. Recent guidelines from the International Capital Market Association (ICMA) aim to enhance disclosure and KPI selection, encouraging more principles-aligned issuance.
"},"title":"Sustainability-linked bonds (SLBs) and loans (SLLs)"},{"componentType":"sectionTitle","title":"The public sector continues to be the driver of growth"},{"componentType":"paragraph","richBody":{"value":"Government agencies, municipalities, sovereigns, and supranational entities have been key drivers of growth in the sustainable finance market. Their share in total market issuance grew from 29% in the second half of 2022 to 44% in the first half of 2024. This growth reflects increased governmental action to manage sustainability risks and enhance climate resilience.
"}},{"alignedImage":{"position":"bottom","extension":"png","original":"https://assets.ing.com/m/5908ae0cf80829b5/original/SF_issuance_by_entity_2.png","transformBaseUrl":"https://assets.ing.com/transform/200115b0-7fd4-406f-8c45-fc48c0c87fd2/SF_issuance_by_entity_2"},"componentType":"paragraph","richBody":{"value":""},"title":"Contribution of issuance to the global sustainable finance market by entity and type"},{"componentType":"paragraph","richBody":{"value":"Data is until 30 June 2024. Source: Bloomberg New Energy Finance, ING Research
"}},{"componentType":"paragraph","richBody":{"value":"Corporate contributions to sustainable finance issuance have declined, affected by higher interest rates and policy uncertainties. However, there is growing interest in green issuance, supported by new guidelines from the ICMA. Most sectors, including industrials and utilities, recorded issuance growth in the first half of 2024.
"}},{"componentType":"sectionTitle","title":"Credible issuance more important than ever"},{"componentType":"paragraph","richBody":{"value":"The sustainable finance market increasingly values quality over quantity. Issuers with ambitious climate goals, interim targets, and detailed reporting are favored. The percentage of issuance volumes under impact reporting schemes has grown significantly, with EMEA and APAC leading the way.
"}},{"alignedImage":{"position":"bottom","extension":"png","original":"https://assets.ing.com/m/679c662ffae7d403/original/SF_reporting_percentage.png","transformBaseUrl":"https://assets.ing.com/transform/e945a942-8ba2-455b-b9e4-23f39f8153cd/SF_reporting_percentage"},"componentType":"paragraph","richBody":{"value":""},"title":"Percentage of issuance volumes with impact reporting schemes by region"},{"componentType":"paragraph","richBody":{"value":"Data is until 30 June 2024. Source: Bloomberg New Energy Finance, ING ResearchMandating sustainability data disclosure is crucial for further quality improvement, with many jurisdictions adopting international reporting standards. Although these mandates differ in disclosure comprehensiveness, strictness, and timeline, they share considerable similarities. Therefore, investors and other stakeholders can expect enhanced sustainability data transparency, comparability, and reliability at the global level in the long term.
"}},{"componentType":"sectionTitle","title":"Conclusion"},{"componentType":"paragraph","richBody":{"value":"The global sustainable finance market is changing for the better. Although issuance is no longer at its peak, it can still be kept at a decent level going forward, given that continuing corporate commitment to sustainability and net-zero emissions needs sustainable debt as a financing tool.
And issuance volume is no longer the only metric the market looks at. Investors and other stakeholders will increasingly search for issuance where material impact can be demonstrated every step of the way. To showcase credibility, issuers are better off adhering to sustainable finance principles not only at a high level but also in detailed operation and reporting. Standard-setting bodies would also benefit from setting more specific guidance on existing or new types of products.
"}}]},"hasMacro":false,"id":"e798d5d5-b05c-4985-9499-a22a87811079","localeString":"en-GB","mainHeaderZone":{"backLink":{"textLink":{"text":"Sustainability is everyone's business","url":"/en/business/sustainable-business"}},"componentType":"editorialHeader","coreHeader":{"body":"The global sustainable finance market is witnessing significant developments in 2024, with green bonds gaining momentum and KPI-linked debt showing innovation and quality improvements. Despite challenges, the market is poised for decent issuance levels, driven by corporate sustainability targets and increased green capital expenditure.","title":"Global sustainable finance market: changing for the better"},"date":"2024-08-20","readingTime":0},"publishDate":"2024-09-19T12:00:46.199+02:00"}}