Sustainable bond markets: experts predict a bumper year ahead

The changing profile of issuers, market integrity and regulation will be key themes shaping the sustainable bond markets in 2022.

We can expect another bumper year for the sustainable bond markets. That’s the message from Trevor Allen, Head of Sustainability Research at BNP Paribas Markets 360, who forecasts that total green bond issuance will reach $900 billion in 2022, an increase of 68.7% on 2021.

Several BNP Paribas experts shared their insights with specialist sustainable finance publication Environmental Finance for the Sustainable Bonds Insight 2022 report. They discuss what’s coming next, the importance of market integrity, and the innovations that are driving issuer growth across sustainable bonds.

A pivotal year?

Environmental Finance notes that sustainability-linked bond (SLB) issuance multiplied over nine times in 2021, and is set to increase further during 2022.

Corporates have historically driven SLB issuance. Agnes Gourc, BNP Paribas Head of Sustainable Finance Markets, explains that there is “big interest from corporates for sustainability-linked bonds, both from investment grade and high-yield segments. It’s fair to say that last year most of the high-yield sustainable bonds have been in sustainability-linked format. We expect growth will carry on in that segment”.

This year, the evolution of SLBs could extend into public sector issuance. Gourc notes: “the big question for 2022 in sustainability-linked bonds will definitely be around sovereigns, supranationals and agencies (SSAs) and bank issuers”.

Regulation will also be an important driver of the market. “Investors will look at green bonds in Europe with a new perspective, as they have to start reporting on EU taxonomy alignment”, predicts Gourc.

Ensuring integrity in the net-zero transition

Greenwashing accusations across the sustainable finance market, notably linked to materiality of impact, are starting to emerge. This could lead some to question the market’s credibility.

Constance Chalchat, CIB Head of Company Engagement and Chief Sustainability Officer, Global Markets, emphasises that “the make or break of the market this year is ensuring real impact”.  She also notes that 2022 is “the year of the principal scale up, provided the market is not killed by greenwashing. I strongly encourage corporates to rely on rigorous, expert banks that can advise them to do the right thing”.

Addressing net-zero financing challenges through sustainable bonds is one pathway to create material impact explains Severine Mateo, Global Head, BNP Paribas Low Carbon Transition Group: “the industry is harnessing sustainable market innovations, including science based targets integrated within bonds, to scale up transformative solutions including hydrogen, battery technologies, electric vehicle charging and carbon capture”.

Sovereigns providing scale

Historically, liquidity in the sustainable bond market came from issuers in the SSA sector. Myriam Zapata, SSA DCM ESG specialist at BNP Paribas explains: “every day we see more green funds opened by investors and more public commitments made out loud. This is obviously triggered by the sovereigns providing that liquidity”.

The liquidity and innovation of structures that sovereign issuers provide across the sustainable bond market are advantageous for standard setting. Laurent Leveque, Global Head of Official Institutions Coverage emphasises “it’s not a competition between the two worlds. SSAs keep coming and usually have a big share of the total issuances because they’re big by nature, and often issue larger volumes than corporates. They’re clearly setting the standards for the market”.

Leader in sustainable finance

As an established leader in sustainable bonds, and topping the league tables, BNP Paribas teams have been at the forefront of the latest market developments.

Source: Dealogic 2021 League Tables
Source: Dealogic 2021 League Tables

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