European ESG issuance declines in second quarter

Bonds and loans issued with environmental, social and governance (ESG) labels in Europe declined by 20.7% year on year in the second quarter of 2022, according to research from the Association for Financial Markets in Europe, citing data from Dealogic.

Total European ESG issuance reached €176bn in the second quarter, down from €221bn compared with the same period in 2021. However, issuance in the second quarter was 16.5% higher than the first quarter of 2022, where supply reached €150bn.

The decline in ESG issuance in the second quarter was driven by a steep fall in the volume of sustainable-linked loan supply, which dropped from €97bn to €54bn in the second quarter of 2022 year on year. Meanwhile, ESG-labelled bond issuance rose year on year from €109bn to €116bn, driven mainly by issuance in the green bond market.

Green bond issuance rose by 47.9% year on year and 92.5% quarter on quarter, with issuance driven by the sovereign and supranational sector, following tap issues by the EU and the French and German sovereigns.

Social bond issuance, on the other hand, decreased by 51.3% year on year and 30.6% quarter on quarter, following the sharp slowdown in issuance by the EU. Sustainable bond issuance also dropped by 37.5% year on year, but rose by 23.4% quarter on quarter. The sustainability-linked bond market saw volumes decline by 47% year on year and 59.3% quarter on quarter.

Issuance in the bond markets has fallen amid heightened market volatility through inflation stress and the risk of recession, as well as rising interest rates.