European Companies to Lead Green Bond Issuance, Data Suggests

Companies will increasingly see green, social and sustainability (GSS) bonds as a primary way of raising capital in the coming years, new data suggests.

A report by PwC Luxembourg and Strategy& has found that GSS bonds will represent as much as 50% of total new bond issuance by 2026 — the equivalent of almost $1.7 trillion.

This will be led by non-financial corporates, the report said, indicating that more and more companies are responding to investor demand for sustainable fixed income securities.

Private sector companies not related to financial services could account for more than 49% of GSS issuance by 2026, the report found through a survey of 100 institutional investors and 100 issuers.

Of the three segments, green bonds are expected to increase the most with an expected new issuance of €691.2 billion ($727 billion) by 2026. Sustainable bonds could account for more than €391 billion, while social bonds could reach €317 billion.

The findings come after GSS bond issuance hit a record year in 2021, with €500 billion of new bonds hitting the market, according to PwC and Strategy&. This represented 13.7% of total bond issuance.

Asset management group NN Investment Partners recently estimated that the size of the green bond market would exceed $1 trillion by the end of 2022. Estimates very considerably according to what definitions of green, social and/or sustainability bonds are used.

PwC’s report found that issuance was accelerating as public and private sector organizations were attracted by the reputational benefits and access to a “broad and committed” investor base.

Two thirds (67%) of PwC’s surveyed issuers experienced higher oversubscription for GSS bonds than their non-GSS bonds. In response to this demand, 84% of issuers said they intended to increase their GSS offerings within the next 24 months.

Andrew McDowell, partner at Strategy&, said: “GSS bonds have grown up from a niche market dominated by international financial institutions into a mainstream asset class.

“With investors showing no limits to their appetite for GSS bonds, and with more and more public and private issuers seeing the reputational and funding advantages of accessing the GSS market, it is plausible that GSS bonds could account for almost half of total European bond issuance by 2025.”