Issuance volumes of Green, Social, Sustainability and Sustainability-linked (GSSS) bonds pulled back sharply in Q3 2023, falling 26% year-over-year to $198 billion.
It slightly underperformed the global bond market’s 22% decline, after significantly outperforming the market in the first half of the year, according to a new report from Moody’s Investors Service.
Despite the slower Q3 performance, Moody’s November Credit Outlook maintained its full-year 2023 GSSS issuance forecast of $950 billion, representing 4% growth over the prior year, with the report highlighting an anticipated return to growth in the fourth quarter, driven in part by COP28-related initiatives.
GSSS’ share of global bond issuance year-to-date remains above levels during the prior year, with sustainable bonds representing 14% of the market over the first 9 months of the year, compared to 13% in the same period last year. Q3 GSSS share was 14%, slightly below last quarter’s 15% share.
A sharp decline in issuance by sovereign issuers drove a substantial portion of the drop in Q3 volumes, with sovereigns issuing only $23 billion in the quarter, down 62% from Q2’s $61 billion, and representing only 12% of global GSSS issuance in the quarter, compared with 23% in the prior quarter.
By bond type, green bonds accounted for most of the drop in GSSS issuance in Q3, falling 37% in the quarter to $100 billion, after a record-setting first half of the year. Despite the pullback, Moody’s maintained its full-year forecast for green bond issuance of $550 billion, up more than 10% over 2022.
In March 2019, the African Development Bank, rated Aaa/AAA/AAA/AAA), issued a 1 billion Norwegian krone (NOK) – US$89.8 billion 5-year Green Bond due March 2028.
The bond issuance marked the Bank’s first green bond issuance in the Norwegian krone market.
This was after a successful green bond issuance in US dollars (USD), Swedish krona (SEK), Australian dollar (AUD), since the Bank established its Green Bond framework in 2013, and three NOK social bonds issued in 2019 and 2021.
The funds raised through this transaction will be used to finance eligible green projects in accordance with the African Development Bank’s Green Bond Program for the purpose of supporting African countries’ transition to green growth.
AfDB also priced an inaugural GBP 300 million (no-grow) 2-year Global Benchmark transaction, in a Social Bond format, due August 2025 at 0.625%.
In terms of distribution by investor type, Central Banks and Official Institutions were the largest investor component, taking 50% of final allocations, supported by participation from Banks & Bank Treasuries (30%) and Fund Manager/Insurance/Pension Fund accounts (20%).
The transaction was well-placed amongst Asia (47%), the UK (45%) and EMEA ex. UK accounts (8%).
Social bond volumes fell 29% to $42 billion in Q3 after a strong Q2, while sustainability bonds declined by a more modest 13% to $37 billion.
One of the key factors driving Moody’s forecast for a stronger end to the year for the GSSS market is the COP28 climate change conference, which the report indicated could support sustainable debt issuance.
The conference will include the first global stocktake to assess progress under the Paris Agreement, and will also focus on priorities including the operationalization of the loss and damage fund established during COP27, the energy transition, and the transformation of food systems.
According to the report, these areas may support activity in areas including sovereign issuance, transition finance, emerging markets activity, and adaptation-focused sustainable bonds.
