2024 is set to be a bumper year for sustainable bonds, with record issuance volumes and variety increasing as social impact and capital backing for blue bonds increases and interest in ‘orange bonds’ increases. It is predicted.
With more sectors turning to green and social bonds to raise vital capital and market conditions continuing to favor bonds, fund managers are predicting a year of continued growth in sustainable debt. ing. ESG clarity I asked about the outlook for 2024.
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Stephen Liberatore said: “If the current market consensus that global inflation continues to ease proves prescient, interest rates will be lowered and 2024 will be the year for Green Social Sustainability (GSS). “This could be a record year for bond issuance.” (Pictured left), his head of ESG/Impact – Global Fixed Income at Nuveen.
“Barring a widespread recession, 2024 could present a great opportunity to exceed the approximately $925 million and $950 million in issuance in 2022 and 2023, According to the Bond Database, issuance could reach an all-time high of around $1.1 trillion, and could exceed that as early as 2021. ”
Fidelity International investment director Anna Victoria Quas said growing awareness and understanding of the role of green, social and sustainability bond markets would also contribute to growth.
“Governments, regulators and businesses around the world are recognizing the importance of sustainable finance and are implementing policies to encourage the issuance of these bonds. , creating a favorable environment for the expansion of impact bonds.”
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Nuveen’s Liberatore predicted green bonds would continue to lead the market, accounting for about 60% of issuance last year.
“This advantage is driven by the critical need to transition to low-carbon power generation and the widespread market acceptance of associated impact metrics,” he said.
The breadth and depth of social issues increases
But investors will also see more issuance of social bonds, adds Tammy Tan (pictured left), senior portfolio manager in Columbia Threadneedle’s fixed income team, which is expected to increase the issuance of social bonds across many social It added that it was much needed to address the issue.
“We have seen an increase in the prevalence and awareness of social issues,” she said.
“Encouragingly, the range of outcomes extends beyond access to infrastructure to housing, health care, education, employment and regional integration.
“While the social bond market has made significant progress over the past five years with a significant increase in the breadth and depth of issuance, there is still much work to do heading into 2024.
“As an industry, we have an important role to play in moving forward to inform and educate various issuers on how to raise capital in a more targeted and socially impactful way. Specifically, through education about how we can deliver more impactful capital by better targeting social outcomes and targeting more vulnerable populations.”
Empowering women with the bonds of orange
Liberatore agreed that after slowing down post-COVID-19, social bonds “will come back with even greater interest given the continued recognition of the global housing crisis,” adding that gender-perspective He also pointed to the emergence of “orange bonds” that invest in opportunities.
Last year, the world’s first orange bond was issued by an impact investment exchange. This is a $50 million, four-year, 6.5% Women’s Livelihood Bond5 backed by ANZ, Barclays and Standard Chartered. The issuer also called on companies to sign the Orange Bond Pledge, which aims to release $10 billion by 2040 to empower 100 million women around the world.
Columbia Threadneedle’s Tan also highlighted the Asian Development Bank’s 2022 social inclusion gender bond, which has since raised $2.9 billion, as an example of this growing trend.
“These bonds focus on programs, projects, investments and loans in gender equality and women’s empowerment,” she said. “The goals are to mainstream gender equality, develop gender targets across employment, increase economic participation, improve social protection and health programs, and support the prevention and response to gender-based violence. The program recognizes not only women’s vulnerability to climate change, but also the critical role they have to play in climate adaptation and resilience strategies to cope with disasters and climate-related shocks and stresses.”
Gender bonds, geography-specific bonds, health care bonds, and education bonds are being issued by a variety of issuers in the market.
“This continued innovation in fixed income markets is a positive indicator for further consideration of how financial products can create solutions to real-world problems.”
The important role of the ocean
Moving across the color spectrum from orange to blue, fund managers also noted a growing interest in bonds that support biodiversity, particularly the oceans.
Fidelity’s Mr. Kuas (pictured left) commented: There is growing recognition of the critical role of marine and freshwater ecosystems in maintaining biodiversity, regulating global climate patterns, and supporting long-term economic growth and resilience. The publication of blue bond guidance in September 2023 should encourage the issuance of labeled bonds focused on the blue economy.
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Nuveen’s Liberatore added that more and more environmental projects will also be financed through the expansion of natural debt swaps, which have primarily focused on marine projects, and how this could lead to further expansion of the blue bond space. He also mentioned whether it would lead to growth. The importance of ocean health to the world. ”
The sustainable bond market is clearly evolving, with more variations in sectors and different focus of impact, such as gender, oceans and housing.
But regional issuance is also increasing, Quas said.
“One area where label bond issuance could increase significantly is emerging markets,” she explained. “These markets are actively seeking ways to fill funding gaps related to climate change, biodiversity loss and social issues, and are attracting the attention of both investors and governments.
“We expect labeled bond issuance to increase as these markets prioritize sustainable development.”