Green bonds lead the charge as GSS bond issuance hits $5trn

Green, Social, and Sustainability (GSS) Bonds market has now surpassed $5 trillion in cumulative issuance, according to the latest quarterly GSS report by leading ESG, Sustainability and Impact data provider MainStreet Partners.

The Q3 2024 GSS Bonds Market Trends Report highlights the strength of the market in 2024, with Green Bonds once again leading the way – now representing 57% of total GSS Bond issuance year to date.

In the first half of 2024 alone, Green Bond issuance reached a record-breaking $356 billion, making it the most active period for Green Bonds since the market's inception. Europe continues to dominate, contributing $291 billion in issuance, a 13% year-on-year increase.

The Report also explores how the current regulation will affect Funds that invest in GSS Bonds. In particular, the European Securities and Markets Authority (ESMA) Guidance on the use sustainability-related terminology in fund names will require fund managers to align their portfolios with either the Paris-Aligned or Climate Transition Benchmarks, with no minor consequences for many portfolios.

The Report reveals that as many as 122 GSS bonds funds are facing a dilemma to comply with the requirements under either of the benchmarks by adjusting their portfolio positioning or face a potential name change. The majority of these funds are aligned with sustainability goals but may need to meet new benchmarks’ constraints.

Other Key Findings from the Report:
• Sustainability-Linked Bonds show structural improvements: SLB issuers targeting GHG-emissions now cover an average of 70% of their total greenhouse gas emissions with Sustainability Performance Targets (SPTs), marking a significant increase from 58% in 2023. This signals a growing commitment from issuers to ambitious and transparent transition plans.
• Utilities Drive Green Transition: The Utilities sector displays the highest average Green Debt Ratio with 39% of its total debt issued in the form of Green Bonds, using the instruments to finance energy transition projects.
• Carbon Footprint Insights: The report also emphasizes the importance of carbon footprint-ing for green projects, noting that Green Bonds continue to provide a clear pathway for asset managers aiming for net-zero targets.

Jaime Diaz-Rio Varez, research associate at MainStreet Partners, said: "Our data highlights the organic and robust growth of the GSS Bond market. Record-breaking issuance this year underlines the critical role that GSS Bonds play in financing the transition to a greener, more sustainable economy.

"For this growth to keep its momentum, it is vital that regulators continue in their mission to create a transparent environment for investors, but also, it is equally as importantly to create a supportive environment for transitioning issuers."