US$811 of impact bonds have been issued globally in 2023, which was 2% lower than the previous year. Issuance started strong in 1H but dropped significantly in 2H, reaching its lowest level since 2020. The percentage of impact bond that had an SPO also dropped slightly from 88% to 86%.

China remained the top issuing country of impact bonds in dollar terms in 2023, launching US$96 billion during the year. It was followed by France, US and Germany which issued US$75 billion, US$68 billion and US$66 billion respectively. The top four issuing countries have all issued less compared to the previous year.

Supranational entities remain a significant issuer globally contributing US$95 billion of impact bonds over the year.

NB: Figures for issuance in the United States of America include Municipal Bond issuance

Issuance of green bonds has decreased slightly by 2% to US$503 billion. It represented 62% of all impact bonds launched during 2023. Sustainability bonds also had a similar issuance level to the previous year, edging down 1% to US$162 billion. The percentage of green bonds having a second party opinion has improved slightly from 94% in 2022 to 96% in 2023.

Issuance of social bonds dropped 5% to US$140 billion in 2023 while that of transition bonds fell 26% to US$3 billion.

The Blue bond was the only bond type that saw positive growth, with issuance rising 38% year on year. The percentage of issuance with an SPO remained low compared to other bond types, but the ratio has improved from 46% to 59% in the past year with increasingly more guidelines drawn by industry bodies.

Entities in Asia Pacific contributed 56% of global issuance while European issuance represented 41%. In Asia Pacific, Japanese and Chinese issuers started launching the bond type in 2021 and 2022 respectively. Issuance reached its peak of US$3.7 billion in 2022 in the region as Japanese companies actively raise funds to decarbonize their businesses under strong policy drive and regulatory guidance. In 2023, regulators in Singapore and Hong Kong have begun to publish regulatory guidance aim at enhancing the credibility of transition finance. Nonetheless, the issuance amount receded to US$1.7 billion during the year.

While the US$1.7 billion of issuances were scattered among many issuers in Asia Pacific, the European transition bond market was concentrated on a single issuer. An Italian energy infrastructure company issued almost US$1.3 billion of transition bonds in 2023.

The Blue bond market has gained traction in 2023 driven by activities in Asia Pacific. Korea topped the list with a US$1-billion Blue bond from the Export-Import Bank of Korea. It was followed by China, where issuers from a variety of sectors together launched almost US$1 billion of such bonds. Indonesia was third as the government raised US$150 million for boosting the country’s blue economy2, including coastal protection, sustainable management of fisheries and aquaculture, marine biodiversity conservation and mangrove rehabilitation. Looking at the issuer profile of Blue bonds in 2023, they do appear to currently be predominantly the issuance domain of governments and government agencies.

It was the world’s first publicly offered sovereign Blue Bond aligned with ICMA principles. ICMA, IFC, UN Global Compact, UNEP FI and the Asian Development Bank have together developed a voluntary guide for Blue bonds in September 20233, offering market participants more guidance on eligibility criteria and key performance indicators. It will be interesting to observe in 2024, whether this adjusts the issuer profile of these instruments.

Climate-focused projects continue to dominate the use of proceeds from impact bonds. Renewable energy projects are seeing the biggest focus from issuers funding projects across a spectrum of renewable energy activities including solar, biomass, wind and hydro-electric plants. This is consistent with the trend in 2022, where renewable energy and energy efficiency projects topped the leaderboard for investment targets. Slightly different in 2023 was the increased popularity in projects funding clean transportation. Also notable is the increase in popularity in funding of social projects; with essential services and projects for socioeconomic advantage featuring strongly, despite the slight decrease in social bond issuance more generally. One further noteworthy observation being the slight increase in popularity of Biodiversity Conservation projects - this coming in the year of the finalized TNFD framework.

Global issuance of sustainability-linked bonds fell 17% to US$64 billion in 2023. The market remained dominated by European entities, which contributed to 57% issuance globally. Entities in the region issued 16% less compared to the previous year, with the utility sector reducing issuance from US$14 billion to just US$3 billion in 2023 after a Netherland-based company significantly cut its issuance. Industrial sector issued the highest amount of sustainability-linked bonds in Europe after raising 249% more than the previous year.

Meanwhile, Asia Pacific and North America both saw a 33% decrease in issuance with China and US issuing 57% and 58% less year on year respectively.

Latin America was the only region that saw growth in the bond type, with issuance growing 67% to almost US$9 billion in 2023. Chile’s government raised around US$8.4 billion in 2023, more than 4 times from the previous year.

We randomly selected three SLBs issued in the first half of 2023 and paired them with a ‘twin’ traditional bond from the same issuer with comparable features to investigate whether SLBs were pricing at a 'Greenium'. We compares the yields of all six bonds throughout the year to see if we could gain any potential insights regarding their relative performance. Across the three pairs, there was very little consistency in yield behaviour other than the higher-level observation that traditional bonds seemed to outperform their SLB twin, particularly shortly after issuance. However, over the course of the year, the gap gradually narrowed. If we compare two of those pairs, where some divergence of yield was seen, the following can be observed:

This chart illustrates the yield performances of bonds from issuer A over time from May ‘23 at the point of issue of the SLB. There is little to no difference between the SLB and Traditional bond and the initial premium of the Traditional bond possibly indicating investors doubting the targets of the SLB.

In contrast however, are the bonds of issuer B, where the SLB surpassed the traditional bond by a margin of 5 to 10 bps across the yield curve, starting from the issuance date in early 2023. This particular issuer exhibited a more ambitious sustainability agenda, harvesting a “Robust” from Moody’s, in contrast to the “Limited” SPO for the SLB bond of issuer A.

When looking at the themes of key performance indicators selected by issuers of sustainability-linked bonds, there is a clear preference towards GHG emissions reduction goals, in common with 2022 trends, with this year almost 60% of SLB issuers having selected this target for their bonds. Environmental KPIs more generally appear to be a top choice, in particular, for renewable energy or energy efficiency objectives though the popularity of these has diminished since 2022, when 12% and 8% of bonds respectively set those KPIs.

Far fewer issuers are choosing socially oriented KPIs, with Diversity, Equity and Inclusion targets being the most popular but still only featuring in 4.5% of bonds issued. Some examples of other social KPIs being Education and Training, Healthcare and Health and Safety.

Further analysis on Issuers of SLBs from the last two years with GHG KPIs demonstrated that, on average, they tend to decarbonise more quickly than our broad global control portfolio, as well as more quickly than issuers of green bonds. Looking at the historical decarbonisation of these companies as well is their estimated emissions trajectories under an NGFS Net Zero 2050 scenario (all normalised), we then compared their performance with that of an equally weighted portfolio of Green Bond issuers across our universe, as well as issuers in the MSCI ACWI. It is apparent that SLB issuers have a decarbonsation trajectory much more closely aligned with achieving Net Zero by 2050 than the other groups.