Global green bond market faltered amid challenges of 2022, Climate Bonds Initiative confirms

The latest data from the initiative, published on Tuesday (31 January), confirmed that the volume of these bonds issued in 2022 fell year-on-year for the first time in a decade. A total of $863.4bn social, sustainability-linked and green bonds were issued in 2022, compared with a record $1trn in 2021.

This is attributed to a general decrease in bond issuances in most major markets amid what is now being called the ‘polycrisis’ or ‘permacrisis’, where macroeconomic trends have been compounded by geopolitical instability and supply chain disruption.

“Lenders were left reluctant to lock-in high-credit rates as the fixed-income landscape shifted, squeezing supply that historically has been outstripped by heavy investor demand,” the Climate Bonds Initiative said in a statement.

One good piece of news is that green, social and sustainability-linked bonds held their share of 5% of the global bond market in 2022, despite all the challenges.

As has been the case for several years now, green bonds accounted for the lion’s share of total issuance. Green bonds, used to raise funding to support environmentally sustainable initiatives, accounted for just over half of the $863.4bn issued in 2022 – $487.1bn.

The Climate Bonds Initiative is predicting a “stellar year” for green, social and sustainability-linked bond issuance in 2023, with green bonds likely to account for an even greater proportion. The organisation’s chief executive, Sean Kidney, has attributed this partly to the continued development of net-zero targets for mid-century, which now cover 91% of global GDP. Moreover, nations and regions are increasingly backing these targets with 2030 plans and, as such, need to scale green investment this decade.

“Half the world’s bond-issuing countries are now issuing green bonds to finance climate action; and strong 2030-focussed action is finally being taken by the US, the EU, India, China and Japan,” Kidney said.

However, he said that greater investment is needed this decade to prevent more macroeconomic volatility that makes bond issuance more challenging in the future. He warned that we are entering a new “age of volatility”, with the fallout of the pandemic and the ongoing war in Ukraine coming amid a time of extreme weather events that are more frequent and severe.

Last month,  the World Economic Forum (WEF) named natural disasters and extreme weather events the second-biggest global risk for the next two years, with only the rising cost of living outdoing this risk.

The WEF also ranked failed climate adaptation as the seventh-biggest risk for the near term and the second-biggest risk for the coming 10 years.