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Impact Bond Analysis

Global green bond issuance booms

Q2 2023

Published

August 2023

Author
Michelle Wong
Michelle Wong

Regulatory Research Specialist APAC, ICE Data Services

Rebecca Palmer
Rebecca Palmer

Sustainable Finance, ICE Fixed Income & Data Services

Highlights

  • Global green bond issuance hit a record US$314 billion in the first half, with the finance sector dominating the market, while governments and agencies also played a larger role.
  • Analysis on the use of proceeds from impact bonds1 indicates that the most common category of project for such funds was renewable energy , with around 400 issuances representing more than US$157 billion of investments.
  • The issuance of sustainability-linked bonds amounted to US$35 billion in 1H 2023, falling 28% year on year. European corporates accounted for 65% of issuances globally. Among all sectors, the industrial sector issued the largest amount of such bonds in the first half.
  • The Asia-Pacific region had a record half-year with US$140 billion of impact bonds issued. Japan and Hong Kong drove regional growth, though China remains the top issuing country globally.
  • North America saw a 20% year-on-year drop in first-half issuance, with US$42 billion of impact bonds: growth in green bond issuance was offset by falls in social and sustainability-linked bonds.

Executive Summary

An active second quarter for impact bond issuance brought total issuance to US$492 billion for the first half, up 12% on the same period last year.

Europe remains the largest issuing region globally, launching US$244 billion of impact bonds during the first half. The 16% year-on-year growth was driven by rising green bond issuance in the Netherlands and a major sovereign issuance from the Italian government. France and Germany remained the largest issuing countries in the region, together accounting for 36% of European issuance despite a 3-4% year-on-year drop from both countries.

Asia Pacific had a record half-year with US$140 billion of impact bonds issued in 1H 2023. The 10% year-on-year growth was driven by Japan and Hong Kong which both reached a record amount of issuance with support from government and agency issuances. China, the top issuing country globally, was followed by Korea as the two largest issuing countries in the region despite a 3% and 7% fall in issuance, respectively.

North America saw a 20% year-on-year drop in issuance, launching only US$42 billion throughout the first half of 2023. Issuance from the United States, which represented 83% of the region’s issuance in 1H 2022, dropped 13% in 2023. A 19% growth in green bond issuance was outweighed by a 25% and a 60% fall in social bond and sustainability bond issuance, respectively. The financial sector has significantly reduced issuance of these two bond types from US$5 billion to US$37 million.

Notably, issuance from the Middle East has increased by almost four times to US$7 billion supported by sizable issuances from the United Arab Emirates ahead of the COP28 in Dubai. The Government of Sharjar launched the first local government green bond in the country while Israel also issued its first sovereign green bond.

Global issuance of green bonds reached a record high of US$314 billion in 1H 2023, despite signs of saturation from the leading issuing countries. Issuance from the top two issuing countries, China and Germany, remained static at US$53 billion and US$37 billion respectively. However, growth was still evident in other countries. For example, green bonds were the only impact bond type that saw an increase in issuance in the United States, rising 19% year on year. Issuance from Italy also rose fivefold and continued to rise in the Netherlands. In fact, all regions saw growth in green bond issuance except in Africa and Latin America.

The percentage of green bonds issued with a second-party opinion2 has reached a record 97% as green bond standards mature around the world. The review rate had been particularly low among green bonds issued by Chinese and US entities, but the situation has improved over the past three years. The review rate in China has improved from 24% in 1H 2020 to 92% in 1H 2023, while the rate in the US has increased from 77% to 82%. Renewable energy projects were the most popular use of proceeds for green bonds during the first half of the year, followed by energy efficiency projects and clean transportation projects.

Governments and agencies have played a larger role in the impact bond market in 2023, launching US$269 billion of impact bonds, up 19% year on year. Sovereign issuances have reached a record US$57 billion during the half-year, involving governments from Europe, Latin America, Central America, Middle East and Asia Pacific.

Corporate issuance edged up 3% to US$220 billion. Issuance by the financial sector continued to rise as the industry serves as a conduit for impact investing. Issuance from the utility sector dropped slightly as the debate persisted around funding companies in the hard-to-abate sectors. The distressed real estate and REITS sector has significantly reduced issuance and fell out of the top three issuing sectors for the first time, replaced by the consumer discretionary sector.

Issuance of social bonds has remained static at US$77 billion, with rising popularity in Asia Pacific offset by slower activity in Europe. Europe remained the largest issuing region of social bonds led by France, though issuance has reduced by half since its record 1H 2021. Supranational entities3 have also drastically reduced issuance while issuance from the United States fell 25% year on year. By contrast, Korea and Japan have been going against the global trends by raising more in social bonds and less in green bonds. The issued amount of social bonds launched by the two Eastern Asian countries rose steadily to US$15 billion and US$9 billion, respectively. Socioeconomic causes, essential services and affordable infrastructure were some of the most popular uses of proceeds among social bond issuances.

Sustainability bond issuance grew 11% to US$101 billion in 1H 2023. The market is still dominated by supranational entities, which accounted for 38% of the bond type issued globally. Peru was the largest single issuing country for the first time, launching US$7 billion of sustainability bonds in 1H 2023 supported by major sovereign issuances.

Separately, US$35 billion of sustainability-linked bonds were issued in 1H 2023. This was 28% lower than 1H 2022 as issuance fell across all regions except in North America, where rising issuance from Canadian companies have offset falling issuance in the United States. Nonetheless, European countries still led the market despite a 25% reduction in issuance. Activities were generally concentrated in the hard-to-abate sectors, with the industrials, energy and utility being the top three issuing sectors of sustainability-linked bonds.

Analysis

Green, Social and Sustainability Bonds

[Chart 1] Global issuance of green, social and sustainability (GSS) bonds

Impact bonds issued globally in 1H 2023 reached US$492 billion in 1H 2023, which was 12% higher than 1H 2022. The percentage of issuance with a second-party opinion was 89%, up slightly from 88% in 1H 2022.

[Chart 2] Global issuance of GSS bonds by month

Global issuance of impact bonds reached US$249 billion in Q2 2023, which was 3% higher than the previous quarter and 12% higher year on year. Issuance was particularly high in January and June, reaching US$95 billion and US$94 billion, respectively.

[Chart 3] Issuance of GSS bonds by region

Europe was the largest issuing region 1H 2023, launching US$244 billion of impact bonds in 1H 2023. It represented 49% of global issuance during the half-year. The amount of issuance also rose 16% year on year, driven by issuers from the Netherlands and Italy which each launched US$24 billion of impact bonds. Issuance rose 5% in the Netherlands and jumped 5 times in Italy year on year. France and Germany remained the largest issuing countries in the region despite a 3% and 4% decease, launching US$45 billion and US$43 billion, respectively.

Asia Pacific followed as the second-largest issuing region. The region had a record half-year with US$140 billion of impact bonds issued in 1H 2023, 10% higher than 1H 2022. The growth was driven by issuers in Japan and Hong Kong. Japanese issuers launched a record US$23 billion of impact bonds, which was 13% higher year on year supported by government and agency issuances. Hong Kong’s issuers also launched a record US$13 billion of impact bonds following multiple green bond issuances from the government, representing a 194% increase from the previous year. China and South Korea remained the two largest issuing countries in the region despite a 3% and 7% fall in issuance, respectively.

Issuers in the North America have issued US$42 billion of impact bonds in 1H 2023, which was 20% lower year on year. Issuance from the United States, which represented 83% of the region’s issuance in 1H 2022, dropped 13% to US$37 billion in 1H 2023. Issuances from the utilities sector, the financial sector, and the real estate sector/REITS have decreased over the year.

Notably, issuance from the Middle East has increased by almost four times to US$7 billion in 1H 2023. The growth was supported by sizable issuances from the United Arab Emirates (UAE) ahead of COP28 in Dubai, including the first local government green bond issued by the Government of Sharjar. Israel also issued its first sovereign green bond worth of US$2 billion.

[Chart 4] Top 5 issuing jurisdictions of GSS bonds in 1H 2023

China remained the largest single issuing country globally, with its issuers launching US$54 billion of impact bonds in 1H 2023. The amount was 3% lower than 1H 2022, driven by a decrease in government or agency issuances. The percentage of impact bonds issued with a second party opinion continued to improve and has reached a record high of 89%, compared to 82% in 1H 2022.

France was the second largest issuing country, with its issuers launching US$45 billion of impact bonds in 1H 2023. It was 4% lower year on year driven by lower issuances from governments and agencies. All issuances had a second party opinion.

Germany followed closely with US$43 billion of impact bonds launched in the half-year. Issuance was 3% lower year on year due to lower issuances from corporates. The financial sector, which represented 72% of the country’s corporate issuance in 1H 2022, fell 43% year on year. 99% of the country's bonds were issued with a second party opinion.

Supranational entities continued to the lead the market with US$61 billion of issuance in the half-year, rising 8% year on year. They have issued 47% more sustainability bonds in 1H 2023 compared to 1H 2022. The percentage of bonds with a second party opinion was 44%, lower than 56% in 1H 2022.

[Chart 5] Global issuance of GSS bonds by bond type

A record US$314 billion of green bonds were issued globally in 1H 2023, representing 64% of all impact bonds issued during the half-year. The amount was 16% higher year on year. Increasing issuance was observed in all regions except in Africa and Latin America, where issuances has dropped 48% and 70%, respectively. Green bond issuance has edged up 1% in North America, compared to 9% in Asia Pacific and 21% Europe. The percentage of green bonds with a second party opinion also reached a record high of 97% as green bond standards mature around the world.

Issuance of social bonds has remained static at around US$77 billion. Europe remained the largest issuing region of social bonds, launching US$39 billion of them. Issuance activities in the region have slowed down with a 10% year-on-year drop in issuance. Issuers from North America also reduced issuance by 25% to US$8 billion in 1H 2023. In the contrast, issuers in Asia Pacific have raised social bond issuance by 32% to US$28 billion. The percentage of certified social bonds also remained static at 88% globally.

Issuance of sustainability bonds rose 11% year on year to US$101 billion in 1H 2023. Europe was also the largest issuing region of this bond type, with issuance from the region rising 35% year on year to US$29 billion in 1H 2023. Issuers from the Middle East rose almost eight times to US$3 billion. The bond type has the lowest percentage of second-party opinion of 65%, compared to 70% in 1H 2022.

[Chart 6] Top 5 issuing jurisdictions of green bonds in 1H 2023

China and Germany remained the top two issuing countries of green bonds, with issuance remained unchanged at US$53 billion and US$37 billion respectively. The United States was the next largest issuing country of the bond type, with issuers from the country launching US$25 billion in 1H 2023, 19% up year on year.

Italy followed as the fourth largest green bond issuer, raising five times more green bonds than the previous year with US$22 billion during the first half of 2023. The Italian government has launched a €10 billion green bond in April, which was also the largest green bond issuance of the half-year globally.

Issuance from the Netherlands has also been increasing steadily over the past three years. Issuers from the country launched US$19 billion in 1H 2023, 18% higher year on year.

Among the top green bond issuing countries, China and US have been the two major countries where percentage of bonds issued with second-party opinion has been particularly low. Nonetheless, the situation has been improving in both countries over the past few years. Bonds issued in China saw a second-party opinion rate of 92% in 1H 2023, higher than 86% a year ago. It followed the release of the China Green Bond Principles in July last year, which align with international standards to require 100% of funds raised to be used for green projects. Among the Chinese green bonds, 81% of the issuances align with PBOC’s Green Bond Endorsed Project Catalogue.

The percentage of green bonds with a second party opinion was 82% in the United States, compared to 69% in 1H 2022. The percentage was particularly low among green bonds issued by municipalities. These bonds had a second party opinion rate of 69% in 1H 2023, compared to 90% among the remaining issuances in the country.

The top three European countries all had 100% of second-party opinion sought.

[Chart 7] Top 5 issuing jurisdictions of social bonds in 1H 2023

French issuers continued to lead in social bond issuance. Issuers in the country launched US$23 billion of social bonds in 1H 2023, although issuance had been gradually decreasing over the past three year since its record issuance in 1H 2021. French state agency Caisse d'Amortissement de la Dette Sociale (CADES) has launched the largest social bond of 1H 2023, raising€5 billion.

Korea followed with issuers launching US$15 billion of social bonds in the first half of the year. The amount of issuance was 56% higher than a year ago driven by issuance activities from government agencies. Social bond was the only bond type that saw an increase in issuance in the country. Both green and sustainability bonds have dropped 21% and 71% in issuance respectively.

Japan came third, with issuers in the country launching US$9 billion in 1H 2023, 48% higher year on year. Government agencies in Japan more than doubled their issuance of social bonds year on year while 82% of the social bonds were issued by expressway companies, both public and private. The Japanese regulator has been supporting the market by launching the Social Bond Guideline in 2021, which was further enhanced in 2022 with a list of example indicators that issuers can publish to quantify their social benefits. By contrast, the country’s green bond issuance dropped 21%.

The United States and supranational entities each launched around US$8 billion of social bonds. The percentage of certified social bonds was 31% and 72%, respectively, compared to 100% in France, Japan and Korea.

[Chart 8] Top 5 issuing jurisdictions of sustainability bonds in 1H 2023

A large portion of the sustainability bonds were launched by supranational entities. They issued US$39 billion of the sustainability bonds in 1H 2023, which represents 38% of global issuance of the bond type. The largest issuances of the half-year were two US$5-billion bonds launched by the International Bank for Reconstruction and Development (IBRD) in February and April. IBRD launched a total of US$24 billion of sustainability bonds over the 1H 2023.

Peru and France were the two largest single issuing countries of 1H 2023, each launching US$7 billion during the half-year. Peru topped the list of single issuing country for the first time, launching almost 12 times more than 1H 2022. The national government alone launched PEN 9 billion (US$2.5 billion) of sustainability bonds as well as an exchange and cash tender offer of existing sovereign bonds for a combined sum of US$6 billion4. It was Peru’s first sovereign sustainability bond issuance in its own currency. Meanwhile, French issuers had launched 27% more year on year.

Issuance from Japan rose 43% to US$6 billion while that in the United States fell 60% to US$5 billion.

[Chart 9] Issuance of GSS bond by asset type

Governments and agencies issued 22% more impact bonds than corporates in 1H 2023. The amount of impact bonds issued by governments increased 19% year on year to US$269 billion, driven by increasing activities from European and Asian governments. Sovereign issuances have reached a record US$57 billion in 1H 2023, involving governments from Europe, Latin America, Central America, Middle East and Asia Pacific.

Meanwhile, issuance from corporates globally rose 3% to US$220 billion, led by companies from Europe and Asia Pacific. Meanwhile, corporate issuance in North America has fallen 26% to US$20 billion.

[Chart 10] Issuance of GSS bonds by sector in 1H 2023 compared with issuance in 1H 2022

Financials remains the major issuing sector of corporate impact bonds, with US$117 billion of such bonds launched in 1H 2023. It represented 53% of all corporate impact bond issuance during the half-year. European financial companies contributed US$74 billion or 64% of the sector’s issuances, 22% higher year on year. Financial institutions in Asia Pacific issued US$34 billion, 21% higher year on year. The largest corporate issuance of 1H 2023 was a CNY 30billion (US$4 billion) green bond issued by China’s Shanghai Pudong Development Bank in March.

Utilities was the second-largest issuing sector, launching US$39 billion during the half-year. It represented 18% of all corporate impact bonds issued. The sector’s issuance dropped 6% year on year, with slower activities observed in all regions except in Europe and the Middle East. Issuance from European utilities companies accounted for 66% of the sector’s global issuance, rising 20% year on year to US$25 billion.

Consumer Discretionary followed as the third-largest issuing sector, with US$13 billion of impact bonds launched over the same period. Similarly, growth was driven by European corporates, which issued three times more year to year and reached US$9 billion in total. Issuance from North American companies rose almost 4% year on year to US$1 billion. In Asia Pacific, issuance from the sector was reduced by half dragged by Japanese and Korean companies.

The real estate and REITS sector, which had been among the top three issuing sectors since 2014, dropped out of the list for the first time. The sector launched less than US$10 billion of impact bonds in 1H 2023, falling 62% year on year as the global property market continues to be in distress.

[Chart 11] Use of proceeds of GSS bonds5

Analysis carried out by ICE on the use of proceeds from impact bonds indicates that the most common category of project for such funds was into renewable energy investments. Across both green and sustainability bond types totaling around 400 issuances, the funds associated with these bonds destined for renewable energy projects was more than US$157 billion. The next most common project destination for funds of impact bonds in 1H 2023 was into clean transportation projects with over 300 bonds representing investment of over US$146 billion.

Among green bond issuers, renewable energy was the most popular project type in 1H 2023, with proceeds from 292 green bonds intended to be spent on renewable energy projects. Energy efficiency and clean transportation were two other popular project types for green bond issuers, with proceeds from 234 and 213 green bonds to be spent on relevant projects.

Essential services, socioeconomic advantages and affordable housing were the most popular project types among social and sustainability bond issuers. The proceeds of 55 social bonds and 178 sustainability bonds were intended to fund socioeconomic advantages projects. The proceeds of 50 social bonds and 184 sustainability bonds were intended to raise funds for essential services projects. 49 social bonds and 134 sustainability bonds were intended to fund affordable infrastructure projects.

Sustainability-Linked Bonds

[Chart 12] Issuance of sustainability-linked bonds by region

The issuance of sustainability-linked bonds amounted to US$35 billion in 1H 2023, falling 28% year on year. European corporates led the market, accounting for 65% of issuances globally. However, issuance from the region dropped 25% year on year to US$22 billion in 1H 2023. The issuance amount fell in all regions except in North America, where activities was supported by a Canadian energy infrastructure company.

[Chart 13] Top 5 issuing jurisdictions of sustainability-linked bonds in 1H 2023

Italy had the highest amount of sustainability-linked bonds issued in 1H 2023, with almost US$6 billion launched during the period. The amount almost doubled year on year, supported by sizable issuance from an energy firm.

It was followed by the Netherlands, where issuers have launched almost US$5 billion of sustainability-linked bonds. The amount was 4 times lower than its record amount of issuance in 1H 2022, with a utility firm issuing significantly less over the period.

French issuers followed with US$4 billion of sustainability-linked bonds launched in 1H 2023, which was 18% lower year on year. Issuances were driven by activities in the industrial sector.

Canada and the United States both launched around US$3 billion of the bond type.

[Chart 14] Issuance of sustainability-linked bonds by sector in 1H 2023 compared with issuance in 1H 2022

The industrial sector issued the largest amount of sustainability-linked bonds in 1H 2023, amounting to US$8 billion or 24% of global issuance. Issuance doubled from 1H 2022, driven by European issuers which accounted for 78% of all issuances from the sector. Issuance from North American industrial issuers remained fairly static at US$650 million, while that from Asia Pacific has halved as China reduced its issuance by four times to US$180 million.

The energy sector launched US$6 billion of sustainability-linked bonds, 23% more year on year. Issuers from Canada increased by 17 times while those from Italy increased by 83%.

The utility sector came third, issuing US$4 billion of these bonds. The amount was three times lower year on year due to lower issuance from the Netherlands.

Past reports

1 In this report, we define impact bonds as green bonds, social bonds and sustainability bonds that are either declared as such by the issuer or which have a second party opinion assessing alignment with impact bond market guidelines. All data and charts used in this report are based on data obtained by ICE and available via its product offerings.

2 A second party opinion provides an independent assessment of the accuracy and integrity of a bond, loan or framework that may take the form of a report, certification, verification, assurance or other.

3 Supranational entities are multinational organisations working collectively on matters affecting each member, but where there is no single country of issue defined, for example the European Union or the International Bank for Reconstruction and Development.

4 https://chambers.com/articles/issuance-of-sovereign-sustainable-bonds-by-the-republic-of-peru-for-up-to-us-2-5-billion-3

5 Use of Proceeds data sourced from Luxembourg Stock Exchange

* AMER includes Bermuda, Brazil, Canada, Cayman Islands, Chile, Mexico, Paraguay, Peru, United States of America, Virgin Islands, Argentina, Colombia, Costa Rica and Panama. APAC includes Australia, Bangladesh, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Macao, Marshall Islands, Mauritius, New Zealand, Pakistan, Philippines, Singapore, Taiwan, Thailand, Uzbekistan, Vietnam, Fiji, Seychelles, and Sri Lanka. EMEA includes Andorra, Austria, Belgium, Benin, Bosnia and Herzegovina, Czechia, Denmark, Egypt, Finland, France, Georgia, Germany, Greece, Guernsey, Hungary, Iceland, Ireland, Isle of Man, Israel, Italy, Jersey, Liechtenstein, Luxembourg, Netherlands, Norway, Poland, Portugal, Romania, Russian Federation, Rwanda, Serbia, 25 Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Togo, Turkey, Ukraine, United Arab Emirates, United Kingdom of Great Britain and Northern Ireland, Estonia, Latvia, Lithuania, Namibia, Nigeria and Qatar.

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