Sustainable Bond Issuance Could Reach $1 Trillion, Says S&P

It’s been quite the start to 2024 when it comes to bond issuance in the public and private sectors. Record issuance is also hitting the sustainable bond market. S&P Global Ratings predicts that sustainable bond issuance could top the $1 trillion mark this year.

“Issuance volumes of green, social, sustainability, and sustainability-linked bonds (GSSSB) are expected to grow modestly to around $1 trillion, with macroeconomic pressures offset by increased transparency, emerging market growth and demand for environmental and energy transition projects, according to a new report released by S&P Global Ratings,” ESG Today reported. It noted they anticipate “an expansion in bond types. [That includes] a more prominent presence for transition and blue bonds, even as green bonds continue to dominate.”

Sustainable bonds appeal to fixed income investors who also want to add an ESG component to their bond investing portfolio. Record bond issuance this year could hinge on expectations the Federal Reserve will cut interest rates when inflationary data substantiates looser monetary policy.

“Overall, S&P anticipates the growth trajectory for GSSSB volumes to more closely mirror the broader conventional bond market as the sustainable bond market matures, following several years of outsized growth, with GSSSB’s share of issuance volumes growing from 5% in 2019 to 13% in 2023,” the ESG Today report added. “For 2024, the report forecasts GSSSB issuance volumes of $0.95 trillion to $1.05 trillion. [That is a lishgt growth] from $0.98 trillion in 2023, reaching as high as a 14% share at the high point.”

Getting Exposure to Sustainable Bonds

Investors looking to marry ESG principles with corporate bond exposure may want to take a closer look at the Vanguard ESG U.S. Corporate Bond ETF (VCEB). It seeks to track the performance of the Bloomberg MSCI US Corporate SRI Select Index.

That index excludes bonds with maturities of one year or less and with less than $750 million outstanding. It screens for certain ESG criteria by the index provider, which is independent of Vanguard. The index excludes bonds of companies that the index sponsor determines are involved in and/or derive threshold amounts of revenue from certain activities or business segments. Those include adult entertainment, alcohol, gambling, tobacco, nuclear weapons, controversial weapons, conventional weapons, civilian firearms, nuclear power, genetically modified organisms, or thermal coal, oil, or gas.

For yield seekers, VCEB has a 30-day SEC yield of 5.11% as of February 15. Its maturities are primarily in the intermediate range (an average effective maturity of about 10 years). They also include investment-grade corporate debt to mitigate credit risk while attaining ESG exposure.

For more news, information, and analysis, visit the Fixed Income Channel.