Sustainable Bond Analysis
First Half Year 2024
Published
September 2024
Sustainable Bonds are back
- Record H1 Sustainable Bond Issuance
- Emergence of Transition Bonds
- Pace of Social Bond Issuance Mixed
A strong bounce back in Sustainable Bond issuance (including Sustainable-Linked Bonds (SLBs) and Municipal Bonds) early in the first half of 2024 has driven issuance to record quarterly levels in Q1 2024 (Figure 1).
Source: ICE
The strong issuance activity in H1 2024 opens potential to restore the year-on-year growth of Sustainable bond issuance following the interruption of this trend over the past couple of years (Figure 2). H1 2024 issuance has already exceed 50% of 2023 full year issuance.
[Figure 2] Sustainable Bond Issuance by Category - $bn
Source: ICE
Green Bonds, Social Bonds, Sustainability Bonds and Transition Bonds all registered year-on-year increases in issuance in the first half of 2024 (over H1 2023) (Figure 2). Blue Bonds and SLBs were the only categories to see a H1 issuance decline compared to H1 2023.
[Figure 3] H1 Sustainable Bond Issuance by Category % of total by value
Source: ICE
Transition Bond issuance has grown strongly in H1, representing over 5% of total Sustainable bond issuance in Q1 and 3.47% for H1 as a whole (Figure 3). This emergence of interest in Transition Bonds seems consistent with our recent analysis examining the growth of Transition investing.
[Figure 4] H1 Sector breakdown of Transition Bond Issuers
Source: ICE
The bulk of Transition bond issuance in the first half of the year originates from government entities (Figure 4), driven by Japan, according to ICE data. Other issuers adopting this type of Sustainable bond are generally from high emission sectors with harder to abate products and services.
Comparing Transition bond issuers with Green/Blue bond issuers, there are similarities, with Electricity sector featuring across both categories of bonds (Figure 4, Figure 5).
[Figure 5] H1 Sector breakdown of Green and Blue Bond issuers
Source: ICE
An analysis of where proceeds from H1 bond issuance are destined identifies renewable energy projects as attracting the highest levels of investment (16.78%) (Figure 6).
[Figure 6] Project categorisation of H1 Bond Proceeds as stated in Pre-Issuance documentation
Source: ICE and Luxembourg Stock Exchange
[Figure 7] SDG Alignment of H1 Bond Proceeds use as stated in Pre-Issuance documentation
Source: ICE and Luxembourg Stock Exchange
This is consistent with the strong issuing activity by the electricity sector and translates (in combination with some other project categories, such as Energy Efficiency) into 18.5% of Sustainable bond proceeds being aligned with Sustainable Development Goal 7 - Affordable and Clean Energy (Figure 7).
[Figure 8] Sustainable Bond Issuance - $bn
Source: ICE
By contrast, Social bond issuance has been mixed, with strong year-on-year growth of issuance in Q1, followed by a decline in pace in Q2 (Figure 8). However, overall issuance in H1 is still above the levels of the same period last year.
The biggest project beneficiaries for socially themed investments are Socioeconomic Advancement (6.58% of total proceeds) and Affordable Housing (5% of total proceeds) (Figure 6). This use of proceeds is in alignment with the use of proceeds under SDG 11 - Sustainable Cities and Communities, at 16.25% (Figure 7).
[Figure 9] Sustainable Bond Issuance by region in H1 2024 - %
Source: ICE
Europe continued to dominate Sustainable Bond issuance in H1 2024 (Figure 9), representing 47% of all issues by value, and the highest share of issuance since 2019. For Asia-Pacific, which had been gaining in terms of their share of issuance in recent years, there was a reversal to 23% in H1 2024 compared to the 30% share of Sustainable Bond issues seen for 2023. North America appears to be having a slight resurgence with 11% of issuance in 2024 so far, compared with 9.4% in 2023.
Whilst Sustainability-Linked Bonds have declined somewhat in issuance in H1 2024 compared to the same period in 2023, it’s interesting to observe the chosen structure of bonds issued this year. Almost half of the features chosen by issuers as the penalty for not meeting their stated targets are in the form of a coupon step up. The average step-up value across bonds from H1 is 0.364%. The next most significant form of penalty was a premium on the redemption payment, the average across which was 0.854%. Note however, that issuers often publish more than one SLB feature. (Figure 10).
[Figure 10] Usage of SLB Features by Issuers
Source: ICE
[Figure 11] Top 3 second party opinion providers - %
Source: ICE
A majority of issuers are now seeking independent reviews of their issuance and frameworks. In H1 2024, 84% of issuers obtained a Second Party Opinion (SPO), a slight increase on last year where 82% of issuers obtained an SPO. The trend of concentration towards the top 3 providers has also continued, representing 50% in H1 2024 (Figure 11).
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