A new record was set in 2019 for the volume of sustainable debt issued in any one year, with the total hitting $465 billion globally, up a remarkable 78% from $261.4 billion in 2018.
Last year also saw all-time, cumulative issuance of sustainable debt smash through the $1 trillion barrier, and reach $1.17 trillion by December 31, based on the latest figures of the comprehensive sustainable debt universe captured by research company BloombergNEF (BNEF). (Note: A narrower measure of sustainable debt, including only green bonds and loans that strictly follow formal standards (or “principles”), showed 42% growth in 2019 to $177 billion. See last paragraph of this article for more information.)
Sustainable debt covers a variety of instruments, from the well-established area of green bonds to the fast-emerging category of sustainability-linked loans. Green bonds, constituting more than half of the entire sustainable debt market in 2019, saw $271 billion issued – up from $182 billion in 2018. Green bonds are securities with proceeds used entirely for environmentally friendly projects, like renewable generation or marine habitat conservation.
Jonas Rooze, lead sustainability analyst at BNEF, commented: “Our data show sustainable finance continuing to power ahead on a global basis. The steep increase is fueled by end-investors’ concerns about the threat of climate change, and the desire of many big company, bank and government leaders to be seen as behaving responsibly.”
BNEF also saw an almost-threefold increase in the volume of sustainability bonds issued last year, to a record $46 billion. “This is the biggest jump for sustainability bonds ever, showing interest from borrowers and investors in securities that combine support for both social and environmental activities,” said Mallory Rutigliano, green and sustainable finance analyst at BNEF.
Some of the most spectacular growth of all is being seen in sustainability-linked loans, now the second most popular thematic debt type. This category, consisting of loans linked to the borrower’s performance on defined environmental, social or governance (ESG) criteria, enjoyed a 168% jump in volumes to $122 billion in 2019.
“We have observed substantial growth in loan volumes, but also innovative financing mechanisms. To take one example, we’ve seen a loan for a renewable energy project, with the amount of interest charged linked to the gender equality performance of the company owning it. Sustainability-linked loans allow for new flexibility in how the proceeds of the loans are used and this has whetted the appetites of a wide variety of borrowers,” said Rutigliano.
Figure 1: Global sustainable debt annual issuance, 2013-2019
A new sustainability-linked bond category was introduced in the last half of 2019. Enel, the Italian utility company, issued the four inaugural bonds in this category in September and October. The coupons on these securities are tied to Enel’s renewable energy generation goals. “This is another example of the creativity that has been a hallmark of the sustainability-themed debt market during its relatively short existence”, commented Rooze.
Innovation of this kind is not unusual in Europe, which has pioneered the field, and still makes up 53% of the global market for all sustainable debt. In 2019, the EMEA region issued $262 billion worth, with AMER and APAC vying for second place with $95 billion and $80 billion, respectively.
For yet another year, the mortgage financing organization Fannie Mae was the number one issuer of global sustainable debt, securitizing mortgages to the tune of $22.8 billion. Following this is the energy provider Royal Dutch Shell PLC, which issued a sustainability-linked loan for $10 billion (its first ever themed instrument of any kind) in December. The governments of the Netherlands and of France were notable sovereign issuers in 2019, together issuing $13.3 billion.
BNEF will publish an in-depth review of the sustainable finance market in its semi-annual Sustainable Finance Market Outlook, due out later this month.
The BloombergNEF sustainable debt universe consists of green bonds, green loans, social bonds, and sustainability bonds that follow the use-of-proceeds requirements set by the International Capital Market Association (ICMA) and Loan Market Association (LMA), as well as all sustainability-linked bonds and loans that follow the guidelines set by the LMA. BloombergNEF also breaks out a subset of this universe into core “principles-aligned” green bonds and loans that follow all ICMA and LMA recommendations, such as specific reporting or project selection criteria.
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