In a world ridden with economic uncertainties, there's a glimmer of hope—Green, Social, Sustainable, and Sustainability-Linked Bond (GSSSB) issuance is flourishing. If numbers aren't deceptive, we're eyeballing an allotment that will land somewhere between a staggering $900 billion and a straight-up trillion by the year's end.
Data from S&P Global Ratings dropped like a rock, underlining a compelling trend. You see, while the general bond market is, let's face it, meandering through stagnation, GSSSBs are belting it out of the park. They're on track to record an increment that ranges from a modest 5% to a whopping 17% YoY.
Zooming out a bit—this phenomenon isn't just a flash in the pan. GSSSBs are anticipated to make up 14-16% of the year's overall bond issues. Let that sink in; they had already enveloped 13% of the market in just the first six months of 2023.
Did I mention we cleared $4 trillion in cumulative issuance this past June? Just months after soaring past $3 trillion? Yup, the GSSSB arena is cooking with gas.
Yet, don't get too comfy; not everything is rosy. S&P aficionados are waving some red flags—surging interest rates, the looming recession shadow over developed economies, and a sudden uptick in anti-ESG sentiment stateside. Some U.S. states are outlawing public finance issuers from tagging their bonds as GSSSBs.
But let's dice up the GSSSB pie: Green bonds are the big kahunas, making up 59% of all 2023 issuances. Social and sustainability bonds are in there, too, contributing 18% and 17%, respectively. The underdogs? Sustainability-linked bonds, clocking in at 6%.
Suppose we whip out the global map; Europe's the belle of the ball. It led GSSSB issuance in H1 2023 for the first time, leaving Asia (20%) and North America (12%) to play catch-up. Looking ahead? Europe's not passing the torch anytime soon. North America? Don't hold your breath—both supply and demand are bottlenecked.
"Europe will remain the leading region for GSSSBs, while North American issuance may be hampered by lower supply and demand for the remainder of the year," S&P analysts said. "Emerging markets may see increased issuance in the coming year."
Sovereign bonds are making headlines, pulling a record share with a staggering $80 billion in H1 2023 alone. But let's not get ahead of ourselves; they still account for a mere 18% of total issuers. Corporates and financial services? It's still very much in the game.
A cherry on top? Bank of America's data threw in a curveball. ESG bond funds have pulled in $21 billion in inflows till July, nearly matching last year's total. The AUM in these ESG bond funds ballooned by $42 billion in July—record-breaking since 2020!
In conclusion, the enthusiasm around green bonds isn't unwarranted. Still, it's wise to watch the recent BCG report. It's like a gut punch, underscoring that even with this surge, we're staring down an $18 trillion investment void by 2030 if we're serious about climate goals.
So, here we are—on the precipice of hope and trepidation. The market may be complex, but GSSSBs are one bet that seems to hold its own, even if it's not an end-all solution.