A remarkable year 2022 for sustainable bonds

With less than a month to go until the end of the year, it is worth taking a brief look at developments in the green, social, sustainable and sustainability-linked bond market (SLBs). The year 2022 has been marked by increased volatility and interest rates and this has negatively impacted the volume of this type of bond issuance, which will close with a slight decrease compared to the record issuance figures (over one trillion US dollars) we saw last year (down around 18% globally as at the date of this publication).

However, it is worth noting that this slight setback is not supported by companies' unwillingness to issue sustainable bonds to finance the transformation of their businesses and innovation toward more efficient models that contribute to a greener and more inclusive future. Nor is it due to a lack of appetite among institutional investors, who continue to work toward a greater integration of sustainable criteria in their investment policies and a broadening of their range of products that support achieving sustainable objectives such as the fight against climate change. To the contrary, firm steps have continued to be taken during 2022 toward a more robust development of this type of financing, making progress in important issues such as transparency, an active dialogue between issuers and investors, the definition of sustainable investment frameworks for loans and bonds, the establishment of recommendations for the structuring of these products and the definition of metrics for their monitoring, etc.

What to expect in 2023...

• If we have to talk about global issuance volumes, the objective will be to equal the levels reached in 2021.
• Green bonds will continue to be the most popular alternative among issuers and investors.
• Progress will continue to be made towards a greater standardization of SLBs, which have been the focus of market attention this year as an instrument with a shorter history (scarcely two and a half years have passed since the publication of the recommendations for the structuring of this type of bond). They will play a very important role in different sectors of economic activity.
• The green bond labeling will facilitate market access, with stronger executions being seen.
• ESG bond offerings are expected to increase from a broader universe of issuers by industry, sector and credit type.
• There will be a continued increase in strategic dialogue between investors and issuers to better understand companies' sustainability strategies and how they impact their business models, thereby increasing the demand for sustainable bonds.
• Increased focus of the investment community to contribute to the financing of Net Zero through their portfolios.
• We expect an agreement to be reached on the EU green bond standard and will be monitoring its impact in Europe.

We will continue to talk about...

• “Greenium” or the economic benefit of a sustainable bond. The potential excess demand for green bonds in the right market conditions in the face of a continuing low supply of ESG bonds will revive discussions regarding the construction of the prices and their better performance in the secondary market. Will it be given in all cases and for any type of ESG bond?
• The impact of regulatory development in Europe as compared to other jurisdictions. Will it have a positive effect on increasing confidence?
• Concern about "greenwashing" which implies greater scrutiny and emphasis on investing in credible sustainable bonds. How does this affect innovation?
• The evolution of the legal content in the documentation for this type of bonds (what declarations and commitments will need to be contained in the documentation? ESG non-compliance events? and so on).
• On how to evolve from exclusion-focused ESG investment frameworks to inclusive ESG integration supported by data and active management.