Annual global sales of bonds dedicated to the environment and society are on course to fall for the first time ever in what was expected to be another record year, according to data compiled by Bloomberg.
The research showed that sales of new green, social, sustainability and sustainability-linked bonds around the world are down about 30% to about $635 billion.
The research noted that with a five-year average of just $16.5 billion for December sales, and US corporate markets already winding down ahead of new inflation data and a Federal Reserve rate decision next week, the market is unlikely to make up the difference.
Breaking it down, green bonds, the largest category of sustainable debt by amount issued, are down 23% this year at $360 billion, also on course for the first decline ever.
The research also noted that the price benefit that green bond issuers have enjoyed for years — the so-called greenium — has vanished, and borrowers now have to offer a higher interest rate on average than when traditional debt, according to Maia Godemer, a London-based sustainable finance analyst at BloombergNEF.
There has been a great deal of debate and discussion about ESG investing during the current volatile backdrop but sustainability-linked bonds have particularly in the spotlight because of a marked slowdown in growth.
Market participants have noted that there are increasing concerns that these types of products as fears mount that such products could expose issuers to potential legal risks.
Issuance has also been patchy due to higher interest rates. Many firms also bolstered their financing last year, negating the need to come to the market this year.
However, data compiled by Bloomberg shows that global sustainable debt issuance rose in November to $122 billion, from around $101 billion the previous month.
This is due to a rally in global debt markets thanks to reports that US inflation cooled more than expected with the Fed indicating a possible slowdown of aggressive rate hikes, which in turn bouyed sentiment.
Issuance rose across all labels last month except for social and sustainability-linked bonds.
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