Sustainable debt enjoyed a bumper year in 2020, despite the challenges presented by the Covid-19 pandemic, increasing by 29% from the previous year to $732.1 billion.
Sustainable debt is defined as bonds and loans raised with environmental and social purposes in mind. There was spectacular growth in social and sustainability bonds, with a late surge in issuance of green bonds further boosting growth, according to new figures from research company BloombergNEF (BNEF).
Social bonds, which are issued to raise money for measures to improve employment, public health and education outcomes, jumped sevenfold to $147.7 billion.
Sustainability bonds also saw strong growth, with issuance 81% higher than over the previous 12 months at $68.7 billion while the biggest segment of the market, green bonds, hit a new record of $305.3 billion, 13% up on 2019. However, green loans and lending linked to sustainability targets both fell by 15%, reflecting the global economic slowdown caused by the pandemic.
“Covid-19-related disruption affected issuance of some sustainable debt instruments in 2020, but spurred others,” said Mallory Rutigliano, a sustainable finance analyst at BloombergNEF. “Overall growth of almost 30% in the market showed that sustainability continues to rise up on the agenda for investors, businesses and governments. This relatively new market is now being seen as a tool that global economies can use to build back greener and socially fairer.”
The explosion in social bond issuance was the big story of the year for the sustainable debt sector, fuelled by investor appetite for products that addressed the impacts of the coronavirus pandemic and the subsequent recession, which caused widespread unemployment and highlighted a number of other social issues, including the problems of the gig economy and the challenges many people face in accessing healthcare.
The vast majority of issuance of these bonds came from government agencies and supranational bodies, borrowing money for healthcare and other relief measures. Last year saw the largest single social bonds issued ever, from entities such as the European Union, Unedic, and African Development Bank.
Green bonds, raised to support environmental activities such as the installation of renewable energy capacity, energy efficiency measures and electric vehicle charging infrastructure, also saw an impressive uplift, particularly towards the end of the year. Until August, offerings were down compared to the prior year, but a massive $62 billion of issuance in September set the scene for a strong fourth quarter that allowed green bonds not only to set a new annual record, but took cumulative green bond issuance since 2007 to more than $1 trillion.
“Growing demand from investors and stakeholders will encourage the sustainable debt market to innovate and push new types of instruments,” said Maia Godemer, sustainable finance analyst at BNEF. “There is still a need for stronger scrutiny of the sustainable credentials of these products, and more transparency will be required from issuers. However, the backing of central banks like the ECB and of regulators around the world suggests that we will see further, robust growth.”
Figure 1: Global sustainable debt annual issuance, 2013-2020
Source: BloombergNEF, Bloomberg L.P.