Sustainable Bonds to Hit $5T This Year, Says Study

The market for bonds and loans linked to sustainability and social impacts is expected to exceed $5 trillion this year, according to new research.

A report from the Institute of International Finance forecast environmental, social and governance linked debt to hit $1.7 trillion in 2023 and exceed $2 trillion next year.

A record $1.5 trillion was raised in 2021, according to the IIF, while last year’s total of $1.3 trillion was affected by rising interest rates.

In the US, $199 billion worth of ESG-linked debt was issued in 2022. This was down from the $230 billion issued in 2021.

However, this is not expected to be a long-term negative influence on the ESG debt markets, the institute stated, as banks and other debt investors continue to drive for sustainability-linked securities.

“As commercial banks continue to advance in implementing net-zero commitments and natural capital financing gains traction, we foresee a strong expansion in ESG loan markets this year,” added authors Khadija Mahmood, IIF economist, and Emre Tiftik, director of sustainability research.

Loans and bonds linked to nature-based projects and funding are expected to surge in popularity in the wake of the COP 15 conference on biodiversity, held at the end of last year.

Despite last year’s slowdown, the IIF reported that issuance of ESG debt in emerging markets hit a new record of $260 billion, with countries such as China leading the way. Already in 2023, India and Brazil have indicated their intentions to launch green bonds.

The Climate Bonds Initiative reported in November that the green bond market had reached $2 trillion in size, while the wider market including green, social, sustainability, sustainability-linked and transition bonds reached $3.5 trillion. This refers to all bonds issued to date, but does not include loans.