Global green bond market rallies towards Covid-19 recovery

The burgeoning global green bonds market endured a "muted" start to 2020 amid prevailing economic winds of the coronavirus crisis, but is now looks to be on the path towards recovery, with  Moody's expecting issuance to hit between $175bn and $225bn in total by the year's end.

Despite suffering a difficult start to the year as countries reeled from the devastating impacts of Covid-19, green bond issuance reached almost $49bn during the second quarter of 2020, a 26 per cent increase on the market's "muted" performance in previous quarter, according to Moody's.

"Unlike in the first quarter when volumes fell significantly in March, green bond volumes remained steady throughout the second quarter, ranging between $15 billion and $17 billion each month," it explained.

Before the pandemic struck, most analysts had been forecasting yet another record year in 2020. Moody's had forecast as recently as February that green bonds issuance would reach as much as $300bn in 2020, which would have beaten last year's total by around a third, but has been forced to revise down its estimates due to the pandemic.

Yet the market now looks to be on the path towards recovery. As many as 11 issuers brought forward green bonds of at least $1bn during the second quarter of 2020, led by a €2.6bn issuance from the French government and a $1.7bn green bond from New York's Metropolitan Transport Authority.

European issuers made up the lion's share - 59 per cent - of the market during the period, up from 48 per cent during the first quarter, Moody's said on Monday.

Even so, with global green bonds issuance having rapidly accelerated in recent years, 2020's second quarter performance still fell below quarterly levels in 2019 which averaged $65.5bn.

Asia-Pacific issuers continued to lag this year largely due to a significant decrease in Chinese green bond issuance, according to Moody's. It said Chinese issuers had brought forward just $4.4bn-worth of green bonds in the first half of 2020 - just five per cent of the global total - compared to the $31.4bn it issued throughout the whole of last year, which marked a 12 per cent global share.

But the credit ratings agency said it expected global green bond issuance to "continue to rebound gradually" in the second half of 2020, buoyed in part by a growing focus on environmental, social and governance (ESG) risks such as climate change in the wake of Covid-19.

Moreover, guidance documents for Green Loan Principles are expected to emerge in the remaining months of 2020, as are China's updated green bond guidelines, which Moody's said could help alignment between China the global market and further accelerate issuance next year.

The green bonds market was also partly overshadowed by record performance of social and sustainability bonds during the first half of 2020, which enjoyed enhanced interest as a result of heightened public health and social concerns in the wake of the pandemic.

In total, Moody's said sustainable bonds issuance - including green bonds, as well as social and sustainability bonds - totalled almost $100bn during the second quarter of 2020, marking a new quarterly record after surging 65 per cent from the first three months of 2020.

The credit ratings agency now forecasts total sustainable bond issuance in 2020 could reach between $325bn and $375bn.

"Combined social and sustainability bond volumes could now total $150bn for the year as coronavirus pandemic response efforts and heightened awareness of social issues related to healthcare and inequality continue to support issuance," said Matthew Kuchtyak, AVP-analyst at Moody's Investors Service. "We maintain our green bond issuance forecast, revised in May, of $175bn-$22bn for 2020."

The Net Zero Investment Hub is brought to you in partnership with Schroders, as part of its support for the world's first Net Zero Festival this autumn. All the content on the Hub is fully editorially independent unless otherwise stated.

You can find out more about the Net Zero Festival and reserve your place here.