Green bond growth to return in 2023

Markets 360 analysts expect 2023 green bond issuance to return to the highs seen in 2021, led by Europe, with China emerging as the new growth market.


After a doubling in green bond issuance in 2021 to over half a trillion US dollars, the market saw its first contraction in 2022. For 2023, however, the BNP Paribas Markets 360 team expects global green bond supply to recover and potentially exceed 2021 levels, as transition remains a priority and as investors return to bond markets. They are more bullish now for the sector than they were back in November, and now expect issuance of around US$ 600 billion.

We think 2023 could see around US$ 600 billion of green bond issuance, with risks currently to the upside that issuance could go even higher. Green bond issuance will be led by Europe, where we could see as much as 1 in 4 euros raised by utilities coming from green bonds.

Trevor Allen, Head of Sustainability Research at Markets 360, Global Markets BNP Paribas

As flows return to bonds, the environment is likely to be more favourable for green bonds. Even in 2022, the Bloomberg MSCI USD Green Bond Index suffered less than the Bloomberg Global Aggregate Total Return index, despite the former being 90% composed of corporate bonds. This could reflect the more ‘buy and hold’ nature of investors in the green space, and the team’s view is that demand is not going away.

Patterns in nature - houseleek
Recovery and growth

Looking at the supply side, green bond issuance is a function of green capex. The contraction observed in 2022 issuance was partly explained by the global economic shock caused by the energy crisis, putting an end to a period of significantly low rates and bullish markets. It was also a reality check for renewable energy goals: a lack of storage capacity, permitting delays, the geographic concentration of supply chains, and uncertain government action to regulate energy prices, were other key headwinds for green capex spending. But the energy crisis has also highlighted the urgency to scale up much cheaper renewables, improve energy efficiency and scale material circularity.

On balance, Markets 360 analysts believe this means that a growth boom in green bond issuance, similar to the one from 2020 to 2021, is very unlikely, but a recovery from 2022 is definitely on the cards. Again this year, they expect to see new sovereigns enter the space, highlighted by issuance from India and Greece. On the demand side, the market should be supported by inflows into fixed income, as the asset class recovers from last year’s sell-off.

European public sector to increase green bond issuances

Europe typically supplies around 50% of annual green bond issuance, and the team expects 2023 to stay on trend, with higher volumes from both the European public sector and Europe typically supplies around 50% of annual green bond issuance, and the team expects 2023 to stay on trend, with higher volumes from both the European public sector and corporates. The public sector should continue to be a key enabler in the green space. Official announcements from European member states already point to higher green bond issuance and a longer average maturity of issuance as well. There is also set to be more joint green borrowing under the EU’s NextGenerationEU programme; only 6% of the green pillar’s milestones and targets set by member states in their recovery and resilience plans has been achieved so far, lagging project completions in other areas.

Utilities have stepped up their game in recent years, and the share of green in their total outstanding issuance has continued to rise, reaching almost 25%. Nonetheless, the analysts see a risk that Europe falls behind its longer-term goals (RePowerEU goal of setting up 600GW of solar capacity by 2030 for example) given the setbacks the industry is facing – grid connectivity, permitting, and storage development needs to increase to see more capacity come online. The acceleration of renewable project development is not fast enough to stay on track in the short term, they believe, without help from the EU, similar to the tax credits offered up for renewable project development in the US Inflation Reduction Act of 2022.

China stepping up

China increased its share of the green bond pie in 2022, despite its own domestic challenges. China represents more than a third of global solar energy generation now, from just 4% in 2012, and dominates over 80% of solar module manufacturing. This has translated into substantial growth in green bond issuance, of which more than half has come from Financials

Biodiversity rising in importance

80% of green bond proceeds have been concentrated in energy, buildings and transport. However the theme of biodiversity rose in importance in 2022, and we think this momentum will eventually filter through to the sustainable-bond space.

Veins of earth - Bretagne, France

What about transition bonds?

Innovation may also come from an old concept, as China and Japan look to resurrect the transition bond. China and Japan both already have corporates looking at this type of issuance; and global oil and gas explorers could start to look at this framework as well. The upside is that it would be an acknowledgement that companies are at different stages of transitioning, and some that are at the very early point need to attract funding for their transition, but are struggling to do so under green and sustainability-linked bond frameworks. The downside of course is that it could take the pressure off corporates from attempting to transition faster. The team expects transition bond issuance to grow most in Asia, as transition bond principles guidance is not provided by the International Capital Market Association at this juncture.

BNP Paribas: green bond market leader

BNP Paribas has been recognised as an industry leader in green bonds, having placed #1 in the FY2022 Global Green Bond manager league table for Corporates & Government, according to Bloomberg data.

This continues in 2023, with the bank ranking #1 in the Bloomberg January Global Green Bond manager league table (Corporates & Government), with over 7% of market share, in which BNP Paribas supported 30 client green bond issuances.

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