Global ESG Bond Issuance Posts H1 Dip As Supranationals Cut Back

Global issuance of bonds focused on environmental or social projects fell in the first half of the year as supranational issuers scaled back activity and broad market sentiment was hit by war in Ukraine and rising interest rates.

Issuance of social, green or sustainability bonds, a blend of both, fell 23% to $428 billion in the opening six months of the year from the year earlier period, against a 13% fall to $4.7 trillion for the broader market, Refinitiv data showed.

GRAPHIC: Global issuance of sustainable bonds (in $ billions)

"We are reducing our forecasts for green, social and sustainability bond issuance in 2022 from $1.6 trillion to $1.0 trillion, and we maintain our forecast for $100 billion in sustainability-linked bonds on top of that," analysts at Bank of America said in a report.

"This is a pretty dramatic decrease compared to our previous expectation of $1.7tn total, driven by weaker than anticipated global macro conditions and lower issuance from government agencies and supranationals."

The biggest driver of the first-half fall was for social bonds, which look to raise money for projects with positive social outcomes such as improving health or providing affordable housing issuance, which posted a decline of 60% to $55 billion.

GRAPHIC: Global issuance of social bonds (in $ billions)

The fall was driven in large part by lower issuance from supranationals and government agencies, analysts at Bank of America said, as the EU SURE programme for COVID-19 relief came to an end and French government agencies reduced issuance.

GRAPHIC: Global issuance of green bonds (in $ billions)

Issuance of green bonds, however, where the proceeds are used for a specific environmentally friendly project such as renewable energy, only dropped 6.3% to $226.8 billion in the first half, Refinitiv data showed.

The market for sustainability bonds, meanwhile, saw issuance fall 26% to $74.4 billion.

European issuers accounted for 52% of the total issuance of sustainable finance bonds, followed by Asia-Pacific's 24% and the United States' 19%.

BofA Securities, HSBC and JPMorgan took the top-three spots for underwriting in the first half of 2022, Refinitiv data showed.

GRAPHIC: Sustainable bonds: book runner league table

Scott Mather, chief investment officer for U.S. Core and Sustainable Investments at leading fixed income asset manager PIMCO, said he was optimistic issuance would be strong in the second half of the year.

"We continue to see strong ESG-labelled and sustainability-linked bond issuance in the market. We expect this trend to continue."