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Alternative Market Briefing

ESG bond issuance set to skyrocket and hit $4.5tn annually by 2025

Friday, January 21, 2022

Laxman Pai, Opalesque Asia:

Global ESG-labelled bond issuance is "poised to explode" over the coming decade, with issuances potentially reaching $4.5trillion per year by 2025 alone, said a study.

According to research by Pictet Asset Management and the Institute of International Finance, in 2021, over USD 1.1 trillion of new sustainable bonds were successfully placed, taking the size of the ESG bond market to well above USD 2 trillion.

ESG bond issuance in emerging markets is set to increase from around $50bn per year in 2020 to $360bn a year by 2023, the study pointed out.

While most of that capital will be raised in the developed world, much of it can also be expected to come in the form of emerging market ESG bonds. It must do. For developing economies, private finance is crucial if they are to fulfill the UN Sustainable Development Goals (SDGs) by 2030.

"Green fixed income securities with specific use-of-proceeds requirements, sustainability-linked bonds with coupons tied to issuers' environmental credentials, and social bonds that fund educational programs are just some examples of the innovative structures vying to go mainstream. Investors have responded enthusiastically so far," it said.

An analysis of the ESG securities with the longest track record - green bonds - reveals other potential trade-offs. Green bonds have delivered similar returns to non-green debt, yet they trade a premium: their yields tend to be persistently lower t......................

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