At a glance
- 2023 saw emerging markets take an increasing share of ESG bond issuance as the energy transition accelerated in markets like Asia, the Middle East and Latin America
- Social bonds also saw sharp declines in both Europe and North America last year, while issuance in Asia-Pacific grew 43 per cent
- The Middle East and Latin America saw ESG bond issuance last year grow by 149 per cent and 56 per cent, respectively, making them the two fastest-growing regions in 2023
High-income economies like the US and Europe have traditionally dominated green, social, sustainability and sustainability-linked bond issuance, but last year saw emerging markets take an increasing share as the energy transition accelerated in markets like Asia, the Middle East and Latin America, according to S&P’s latest sustainability insights research.
In 2023, total GSSSB issuance volume was similar to that in 2022 ($930bn), but this year it could pass the $1tn mark (excluding structured finance issuance), and attain an overall bond market share of 14 per cent (excluding sovereign and structured financing issuance), says S&P. These bonds refer to projects or strategic decisions relating to companies’ environmental, social and governance factors. The S&P’s GSSSB data also includes sovereign issuances.
US contraction
“One of the things we’re watching overall is the increasing share of emerging markets in issuance,” says Patrice Cochelin, managing director and head of analytical governance, sustainable finance at S&P Global Ratings. “Part of the reason for that is because of the low share that the US is taking.”
Green bond issuance expanded 10 per cent year on year in 2023 to reach $575bn, according to S&P’s report, largely due to increased issuance from Europe and Asia-Pacific. The US market suffered another year of contraction, which many attribute to the growing ESG backlash there as investment firms come under pressure from right-wing politicians not to invest in anything labelled “green” or “sustainable” because they argue it goes against a manager’s fiduciary duty to make money for their clients.
JPMorgan’s and State Street’s asset management divisions, two of the world’s largest, recently quit the ClimateAction 100+ initiative, which challenges major polluters to reduce their carbon footprint.
Social bonds also saw sharp declines in both Europe and North America last year, while issuance in Asia-Pacific grew 43 per cent, making it the region with the highest proportion of social bonds in 2023 globally, says S&P, with the largest issuances coming out of Japan, Korea and Hong Kong and focused on delivering social outcomes such as affordable housing or transportation.
Although high-income countries were close to a five-year high in terms of their GSSSB share in 2023, S&P says the share of issuance coming from North America and Europe was at a five-year low, at only 57 per cent, which suggests that high-income countries in Asia-Pacific, Latin America, and the Middle East have increased their share of issuance. This could lay the groundwork, says S&P, for issuers in lower-income countries in these regions to access the GSSSB market.
“We’re watching to see if more low- and middle-income countries come to market this year because they have challenges accessing financing that they need to plug the climate financing gap,” says Cochelin.
Middle East and Latam boom
The Middle East and Latin America saw GSSSB issuance last year grow by 149 per cent and 56 per cent, respectively, making them the two fastest-growing regions in 2023, says S&P. Asia-Pacific now accounts for 25 per cent of GSSSB issuance, its highest ever proportion, says S&P; the record ratio was largely driven by new entrants such as India, which issued two tranches of its inaugural sovereign green bond in January and February last year. Proceeds from the issuance will be used to support renewable energy projects and the electrification of transport systems.
In the Middle East, where GSSSB bonds contribute less than 3 per cent of total issuance, Rawan Oueidat, director, corporate rating at S&P, says it is seeing a shift towards improved disclosures. “So, in the UAE, for example, you have mandatory ESG disclosure requirements for listed entities, whether it’s on the Abu Dhabi stock exchange, but also on the Dubai financial market,” she says. “And we're seeing a slow but gradual shift towards ESG disclosure guidelines, even though they’re voluntary, in other GCC countries as well.”
In Saudi Arabia, most of the issuances in 2023 were sovereign through the Public Investment Fund, says Oueidat, while the UAE sees mostly banks and large corporate issuances. She says there is a strong alignment in terms of trying to meet sustainability targets in the region, but the pace of growth in GSSSB issuance in the Middle East will be determined by the decarbonisation strategies of key players in the region.
