Having experienced several years of strong growth, the global green bond market is expected to face major hurdles this year as the world continues to grapple with the economic fallout from the Covid-19 pandemic.
According to Moody’s Investor Service global green bond market volumes are expected to be between US$175 billion and US$225 billion for 2020, compared with initial estimates of US$300 billion.
Overall sustainable bond issuance, which includes green and social bonds, took a hit in the first quarter of 2020 with US$59.3 billion raised, a 32% drop compared with Q4 2019. In March 2020, only US$2.8 billion worth of green bonds were issued into the market.
In terms of geographical spread, activity was muted from both North American- and Asia-Pacific-based green bond issuers. European issuers led the way for green bonds in Q1 2020, representing more than half of deals globally.
Despite the drop-off in green bond activity, there has been an uptick in social bonds compared with previous quarters, with the global market raising a quarterly record of US$11.9 billion for social projects. Moody’s believes this uptick in demand was driven by the focus on social projects related to the global response to the Covid-19 outbreak.
Since the emergence of Covid-19 on the global stage, several high-profile issuers, including the Republic of Indonesia and the New Development Bank, have issued bonds targeted at providing relief for those most effected by the virus.
“Greater emphasis on social finance and sustainable development will likely be one of the lasting outcomes of the coronavirus crisis,” predicts Matthew Kuchtyak, AVP-analyst at Moody’s.
While green bond market activity remains uncertain, there has been continued progress when it comes to the standardization of regulations on green bond qualifications. In Q1 2020, the European Union (EU) Technical Expert Group on Sustainable Finance published a series of updated documents on sustainable finance taxonomy and a proposed EU green bond standard that aims to guide potential issuers in the future.