ESG Bond Markets: Slowing Growth in 2024 Amid Evolving Market Conditions
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Global ESG Bond Supply Outlook: Slowing down in 2024
The global ESG bond markets have seen staggering growth in supply over the last seven years. Since 2022, however, growth has slowed, and we think ESG bond issuance is set to continue on that trend in 2024.
ESG bond markets have seen staggering growth in supply over the last seven years. A peak of €1 trillion of self-labelled ESG bonds was reached in 2021. However, with the issuance of Covid-19 mitigation bonds dying out, supply chain disruptions, inflation and higher (funding) costs, market conditions have changed significantly. We believe similar trends will emerge throughout 2024 to those seen this year, with some segments slowing down their ESG bond issuance – leading to a relatively stable market compared to 2023.
Global ESG bond supply in 2024 expected at €820bn
We forecast a global ESG bond supply of €820 billion for 2024. This is a relatively stable amount compared to 2023, which we estimate at €815 billion by the end of the year. According to our estimates, we should see sovereigns, supranationals, agencies, financial institutions and corporates issuing €325 billion in EUR. For the US dollar, we expect the market to stay stable at €225 billion (US$240 billion). For ESG bonds printed in other currencies, we expect the segment to grow softly from €260 billion to €270 billion.
The global ESG bond supply has stagnated since 2022 (in EUR equivalent)
The EUR currency will represent c.40% of total issuance
The EUR currency has always led the global ESG bond supply, and we expect it to represent close to 40% of all ESG bond issuance in 2024 with €325 billion.
Governments, supranationals and agencies will be the biggest contributors. With a total of €160 billion expected in 2024, sovereigns, supranationals and agencies will account for about half of total EUR ESG bond issuance in 2024.
The EUR-denominated ESG issuance by supranationals and agencies has reached €95 billion year-to-date, meaning levels for the entire year will likely fall behind 2022 and our initial target of €131 billion. For 2024, we are pencilling in a €100 billion aggregate figure. One slowing factor behind the relatively low issuance is the European Union. The EU has become a dominating player in the green bond segment, with 2022 having seen €24.4 billion in EU green bond issuance. In 2023, this figure stands at a meagre €7.7 billion – and there's only one more window for a syndicated deal and two auction slots this year to meaningfully raise this figure.
The EUR-denominated sovereign ESG issuance (mainly in green bonds) currently stands at close to €64 billion, which is moderately ahead of what we had anticipated. Volumes in the final months of the year look set to remain limited, pointing to a final figure of around €65bn. For the upcoming year, we see issuance growth stagnating as overall government funding plans could come in moderately lower. We are forecasting €60 billion in gross ESG issuance for the sector in 2024.
EUR ESG supply by contributor type in 2024
