1st Quarter Green Bond Review: Maturity Begins to Emerge in the Environmental and Sustainable Bond Market
In the first quarter of 2022, the Green and Sustainable (G&S) bonds market demonstrated a rapid evolution, with a shift in focus from classic green bonds to a broader range of sustainable financial instruments.
The Green Bonds Review report for Q1 2022, recently made available, provides insights into these developments. According to the report, the proportion of classic green bonds in the G&S market dropped to 32%, while social bonds, sustainability bonds, and sustainability-linked bonds gained prominence.
Sustainability bonds, which were scarcely existent three years ago, have almost tripled in the first three months of 2022 compared to the same period in 2021. These bonds, designed to fund projects with positive social impacts, now represent 17% of the total G&S market, up from 14% in Q1 2021.
Sustainability-linked bonds, a type of general-purpose bond with coupons linked to specific sustainability Key Performance Indicators (KPIs), continue to grow strongly in the G&S market. Their volume has increased significantly, reflecting the growing interest in sustainable finance.
Pricing in the G&S bond market in Q1 2022 was influenced by supply-and-demand dynamics. Bid-offer spreads for G&S bonds and green bonds have widened, with these bonds underperforming standard bonds. This trend can be attributed to the growth in volume of issuances by European governments, which contributed to the overall market.
Despite these challenges, the total value of outstanding G&S bonds increased by 10% over Q1 2022, reaching almost 1.9 trillion euros at the end of March. The G&S bond market continues to diversify in terms of formats, with social bonds, sustainability bonds, and sustainability-linked bonds becoming more prevalent.
Looking ahead, major European markets like Germany are expected to remain active in the G&S bonds market. Sovereign issuers in the eurozone, including Austria, Netherlands, Belgium, and France, are expected to tap into the G&S bonds market in the quarters ahead.
The greenium, or premium investors pay for a G&S bond versus a comparable conventional bond, has continued to erode for G&S bonds issued by sovereign entities in Q1 2022. However, A-rated corporate debt G&S formats continue to command a pricing premium in primary markets, with this trend becoming more pronounced in Q1 2022.
For those interested, a Green Bonds Review by CIB was held on June 28, which can be watched. The G&S bond market continues to evolve rapidly, with new formats and types of bonds being introduced and gaining popularity. Stay tuned for more updates on this dynamic market.
Read also:
- Celebrated Title: Cheesemakers Blessed Upon
- Construction and renovation projects in Cham county granted €24.8 million focus on energy efficiency
- Threat looms over an ancient rock art site in Australia as the government prolongs the existence of a giant gas facility nearby
- Weekly proceedings in the Federal Diet (Bundestag)
