Global issuance volumes for green, social, sustainability, and sustainability-linked bonds (GSSSB) are expected to fall 16% this year to $865 billion, according to a forecast in a new report by S&P Global Ratings, as credit conditions continue to pressure overall global bond issuances.

The new estimate would mark the first annual decline after several years of sharp growth, with yearly GSSSB issuance up 4x since 2018. Despite the decline, S&P noted several bright spots, with sustainability-linked bonds continuing to see strong growth, and the long-term trends remaining supportive of future growth.

The new forecast marks a sharp reduction from S&P’s February estimate of $1.5 trillion for 2022. As inflation and interest rates rose this year, H1 GSSSB issuance fell 20% year-over-year, although sustainable bonds’ share of the market remained steady at 12% of issuances. Global bond issuance, including GSSSB is expected to remain subdued, as low near-term refinancing needs, rising yields, and increasing recession odds continue to pressure the market.

Sustainability-linked bonds (SLBs) are the only GSSSB bond type to see growth this year, up 18% year-to-date.  S&P anticipates that SLBs will continue to be the fastest growing class, citing several supportive factors, including the instruments’ relative flexibility and accessibility by a wide range of issuers. According to the S&P report, SLBs, which typically tie funding costs to performance on sustainability goals, “have the potential to broaden the universe of issuers that can obtain sustainable financing,” as use of proceeds are not restricted to specific sustainability projects, unlike green, sustainability or social bonds, opening the door to more sectors and to smaller issuers.

By issuer type, Financial Services was the only sector to see issuance growth in H1 2022, up 11%. Nonfinancial corporates saw issuance decline 16%, although this represented outperformance compared to a 33% drop in the sector’s total bond issuance. The sharpest decline came in the International Public Finance sector, driven by a significant decrease in social bond volumes post-pandemic.

Long-term, S&P expects trends including investor demand, changing regulation and the alignment of financing needs with sustainability objectives to lead to absolute growth in GSSSB issuance volumes when the broader bond market rebounds, and to support the share of GSSSB in total bond issuance.

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