Global issuance of green, social, sustainability, sustainability-linked and transition bonds has slowed. Labelled bonds, as they are known, are returning to levels last seen before the financial sector turned its attention to environmental, social and governance (ESG) issues during the Covid-19 pandemic.
Labelled bonds issuance totalled US$216 billion ($291.42 billion) in 3Q2024, falling 14% q-o-q. That said, Moody’s analysts still expect total labelled bond volumes to reach their forecast of US$950 billion for the full year, buoyed by “relatively robust” volumes in 1H2024 and “continued issuer appetite”.
During the quarter, there were US$129 billion of green bonds, US$37 billion of social bonds, US$41 billion of sustainability bonds, US$6 billion of sustainability-linked bonds (SLBs) and US$3 billion of transition bonds.
Despite higher overall bond issuance levels in 2024, labelled bonds have accounted for a lower share of global bond volumes this year, averaging 11% across 9M2024, which represents the lowest issuance share since 2020. Across quarters, 3Q2024 has seen the lowest issuance so far this year.
In particular, green bond volumes declined by 18% q-o-q to $129 billion, marking the second consecutive quarterly decline. That said, green bonds accounted for 60% of the global sustainable bond market in 3Q2024 and 59% of issuance through 9M2024.
See also: Glasgow Financial Alliance for Net Zero making changes after opt-outs
“Despite the decline in the third quarter, green bonds will likely eclipse our [full-year] forecast of US$580 billion given the strength of year-to-date issuance and continued issuer preference for the green label,” says Moody’s.
SLB scepticism
See also: Citigroup, Bank of America leaving global climate banking alliance
Moody’s data also shows that SLBs may have fallen out of favour among issuers. SLB issuance amounted to US$6 billion in 3Q2024, plunging 28% q-o-q.
SLB volume totalled US$25 billion in 9M2024, falling well below the US$53 billion issued over the same period last year.
SLBs are designed such that coupon penalty payments are due if pre-determined sustainability targets are not reached by the issuing firm at a certain date.
However, a July report by Bloomberg New Energy Finance (BNEF) says most SLBs are “riddled with exit clauses, toothless terms and conditions, vague timelines and opaque targets — all designed to protect issuers”.
Among the largest SLBs covering 50% of the market, the average interest rate step-up is only 25 basis points (bps) if the company misses its target, reads BNEF’s report. “Just 21 of the largest SLBs have a step-up of 40bps or more, indicating that, in isolation, the impact on these bonds is negatable.”
3Q2024 SLB issuance represented the smallest quarterly total since 4Q2020 and represented the fourth straight quarter of decline.
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
Full-year SLB volumes are “likely to be the lowest since 2020”, says Moody’s. “The market has continued to contract following a period of increased investor scrutiny of the ambition of sustainability performance targets and the materiality of financial adjustments.”
Instead, transition bonds are the new flavour of the month, holding steady q-o-q at a tiny US$3 billion.
Transition bonds are exclusively used to finance or refinance projects that support the issuer’s climate transition strategy.
They remain a “niche” segment of the sustainable bond market, accounting for just over 1% of global volumes, and remain heavily concentrated among Asia-Pacific issuers, says Moody’s.
Japan’s inaugural US$11 billion transition bond in February, for example, caused overall figures to spike; the 10-year transition bonds were issued to fund low-cost wind power generators and aeroplanes that use alternative fuels. The Japanese government issued another US$2 billion transition bond in 3Q2024.
‘Buzzing’ in Singapore
Labelled bond issuance in the Singapore dollar credit market grew from one issue for $500 million in 2019 by Manulife Financial Corp to just over $9.5 billion from 22 issuances in 2024, as of Nov 30.
As of March 31, Singapore’s public sector has issued a total of $12.5 billion of green bonds. Singapore has committed to issue up to $35 billion of such bonds by 2030.
From the private sector, 2024’s largest issuance came from ST Telemedia Global Data Centres, a Temasek-linked company, which issued a $500 million SLB on Jan 8.
OCBC Credit Research notes that Singapore plans to fund not only green activities but also transition activities.
The Monetary Authority of Singapore (MAS) launched in December 2023 the Singapore-Asia Taxonomy for Sustainable Finance, which sets out thresholds and criteria for defining green and transition activities. The latter refers to activities that do not meet green thresholds now but are on the path to net-zero or contributing to net-zero outcomes.
“To develop a more effective market for green investments, there are plans to update the Singapore Green Bond Framework to align with the Singapore-Asia Taxonomy,” notes OCBC.
Local taxonomies can guide issuers and investors as adaptation finance evolves in global capital markets, reads a Sustainable Fitch report.
At the COP29 climate summit in November, MAS joined the People’s Bank of China and the European Union Directorate-General for Financial Stability, Financial Services and Capital Markets Union (FISMA) to launch the Multi-Jurisdiction Common Ground Taxonomy (M-CGT).
The M-CGT builds on the EU-China Common Ground Taxonomy (CGT) to include the Singapore-Asia Taxonomy, serving as a reference document to allow stakeholders to assess what is considered green across the three jurisdictions.
While the M-CGT is not legally binding, green bonds that align with the criteria can be considered by cross-border investors, says OCBC. “The common standard can therefore help to improve investor confidence and reduce greenwashing concerns, in addition to boosting green capital flows.”
