September the greatest ever month for labelled issuance as COP summit beckons
The approach to COP26 entails a reimagination of the future for stakeholders across all sectors and nations. This defining moment in climate history has given fresh impetus to sustainable debt markets with Q3 witnessing a new record annual figure for labelled debt, months before the year’s end.
- Combined labelled issuance of Green, Social, and Sustainability, Transition, and Sustainability-linked reached USD767.5bn in the first three quarters of 2021,
- September – largest issuing month ever, USD130.6bn of total labelled issuance
- Cumulative total labelled issuance stood at USD2.3tn at end Q3 2021; cumulative green at USD 1.2tn
- Green bonds reach USD354.2bn at end Q3 2021, surpassing 2020 total and now likely to reach half a trillion by year end
- Trillion in annual green bond issuance within reach for 2023
- Sustainability-linked bonds reach USD78.7bn this year; transition finance reaches USD5bn this year
Green bond issuance highlights: Trillion-per-year in green bonds within reach by 2023
Green debt issuance continued to grow in the third quarter of 2021, with volumes in the Climate Bonds Green Bond Database growing to USD108bn or by 15.8% compared with Q3 2020. It was also in this quarter that 2021 issuance surpassed last year’s total issuance of USD294.4bn, reaching the grand total of USD354.2bn YTD.
This leaves just under a third (29.1%) of the road till green issuance this year reaches our updated year-end forecast of USD500bn. The growth so far also brings cumulative green bond volume at end Q3 2021 to USD1.4tn, which is in line with our existing analysis suggesting that even with a modest growth rate the annual issuance of green bonds could cross USD1tn in 2023. Climate Bonds maintains its stretch goal of USD500bn of green issuance by the end of 2021, riding on the coattails of large sovereign issuances post-COP26.
Social and sustainability market stabilising post pandemic
Social & Sustainability bonds comprised just over a third (31.1%) of total labelled issuance in Q3 2021 (USD74.2bn), bringing cumulative S&S issuance to USD981.1bn. After a record breaking 2020 in which Q1 exceeded 2019 total issuance, Q3 2021 saw the market stabilise post-pandemic. This slowdown is in part due to the slowdown in the EU’s SURE social bond issuance to combat the immediate economic repercussions of the pandemic, which amounted to USD38.7bn in Q1 2021, USD17.3bn in Q2, and no new issuance in Q3.
Transition and SLB highlights Q3 2021
The transition bond segment remains nascent: only three transition bonds were issued in the third quarter this year (total USD930m), bringing the total this year to 14 issuances (USD5bn), and 31 issuances total (USD9.9bn). Not only did all of the bonds in this quarter came from debut issuers, they also all came from the shipping sector, which Climate Bonds recognises as an industry poised to utilise transition financing for rapid decarbonisation. This quarter’s newsletter includes analysis and our opinion on this quarter’s Transition issuance.
The SLB segment has seen rapid growth as more and more entities (especially corporates) look to access sustainable finance that is not necessarily limited to a specific pool of projects but can help them develop and define transition pathways. It is no surprise that this quarter continues the SLB segment’s massive expansion: SLB issuance in Q3 2021 represented USD37bn, or 16.8% of the sustainable debt universe, compared with just 6% in H1 2021. While this volume was built by just 44 issuers, in further contrast, for the same quarter in the previous year, this segment comprised of just USD3.4bn of debt.
The full report contains more steel, aviation, and real estate sector case studies of SLB issuance this quarter!
Spotlight: Sovereign Market Highlights: Labelled sovereign issuance continues to grow
The third quarter of the year saw the share of sovereign debt issuance more than double to USD23.7bn compared to Q2 this year (USD14.2bn). Thanks to two debut green issuances from Spain and the United Kingdom, as well as Germany’s fourth green issuance since launching their first in September last year. The quarter also saw Social and Sustainability issuance from Mexico, Benin, Uzbekistan, the Isle of Man, Chile, and Slovenia, which are analysed in our Emerging Markets coverage.
The Last Word
Our market intel now forecasts a massive half a trillion in green bonds by the end of the year, prompting us to expect the first annual trillion by 2023.
There is huge momentum behind green debt with the USD354.2bn at end Q3 2021 clearly surpassing the 2020 total of USD294.4bn. The quarter of course ended with a record-breaking September for sustainable debt as COP26 is set to begin, and we are hoping this will be a cornerstone for climate action positive ramifications for sustainable debt.
Our Policy Team have been identifying different ways to proliferate sustainable investment including through new approaches to central banking and carbon pricing. COP26 wish list will be calls for increased sovereign issuance, here is our latest briefing on this long boom.
Look out for our flagship end of year blog for a full analysis of 2021 and the direction of the market!
'Til next time!