Author: Luca Manera, Investment Manager, Asteria IM
December 2022
Green Bond market keeps on growing
The ICE Global Green Bond index has continued to grow larger and bigger despite the challenging market conditions and performance of 2022. Bond investors have faced multiple headwinds at the same time from soaring inflation, fast-increasing interest rates and wider credit spreads, recording one of the worst total return years on record, yet green bond issuance has continued to grow to reach past the Euro 1trillion mark in face value.
Euro 1trillion: ICE Global Green Bond Index face value has continued to grow in 2022, despite a challenging market for bond investors
While the pace of growth of 39% YTD has been somewhat softer compared to the previous years, green bonds continue to be an important market for issuers, especially in Europe. In fact, the Euro-denominated green bond index now accounts for nearly 5% of the Euro aggregate index and its corporate counterpart is 11% of the Euro corporate index. On the other hand, the US market is a laggard, especially in the corporate segment which has suffered from challenging debt capital markets and a slow embrace of adopting green bonds, as these remain a fraction of the US corporate bond market.
Corporate green bonds are gaining market share, especially in Europe
Where is the growth coming from?
Financials and sovereign issuance have been the most active sectors, with a 47% growth YTD respectively. In addition, the index has seen an increase of 90 new issuers bringing the total to 520 and the number of bonds surpassing 1,420. Some noticeable new corporate issuers in 2022 include DNB Bank issuing over 4bn, General Motors issuing 2bn and the new Suez entity issuing over 4bn, in Euro terms.
While Euro issuance continues to dominate the market accounting for over 60%, other currencies have also kept up. CHF-denominated green bond issuance has increased by 44% to now account for 1% of the index, followed by CAD (+41%), GBP (+34%) and USD (+22%). Finally, from a rating cohort perspective growth has been similar across AAA, A and BBB rated bonds.
The growth in the green bond index has brought more diversification across currencies, sectors and ratings
Staying green and local…in Switzerland
As mentioned above, the CHF-denominated green bond market has accelerated in 2022, and now accounts for 1% of the index. This year has been pivotal for Swiss green bonds with the launch of the inaugural issue from the Swiss Confederation in October with a size of CHF766mn. In addition, staying even more local, Transports Publics Genevois (TPG) was the first ever Swiss green bond issued by a public transport company with a bond size of CHF100mn, the eligible use of proceeds will be allocated to (re)finance the growth of its zero-carbon transportation fleet.
Continued momentum in 2023
Given the growth of the market in 2022 green bond issuance will continue into 2023, despite possible near-term volatility. US issuers will likely remain laggards given the scrutiny and debate on sustainable investing/financing. Momentum will be driven by European issuers as they integrate regulatory reporting disclosures (Corporate Sustainability Reporting Directive) and continue to focus on assessing their capex and business activity alignment with the EU taxonomy, which in turn can back further green bond issuance.
Finally, despite the challenges faced across global bond markets and a fragile macro-economic outlook, green bonds continue to be a strong source of issuance globally, which in turn will further provide a growing amount of investment opportunities for bond investors, with a green impact.
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