Green, social, sustainability bond issuance reaches almost $1trn

The Green, Social, and Sustainability (GSS) Bond market reached its highest point in three years – with issuances hitting $966bn in 2024, according to the latest quarterly GSS report by ESG, sustainability and impact data provider MainStreet Partners.

This marks an 8% increase on 2023 issuances and means that overall, total cumulative GSS bond issuance has exceeded the $5.5 trillion mark.

2024 was a big year for the asset class as Green Bond issuance had its second most active year since market inception and the most active Q1 on record, accounting for 58% of issuance during the year – reaching $561bn.

Social bond issuances saw the biggest increase in 2024 hitting $251bn (2023: $159bn), while sustainability bond issuance suffered the biggest drop to $152bn (2023: $203bn).

Transition Bonds also saw something of a revival displaying a significant growth in activity in 2024, particularly led by Japanese issuers.

The market remains European-centric, with approximately 60% of total issuance volumes coming from European issuers, and 56% from EUR-denominated bonds. Asia, amidst rapid regulatory advances, keeps a notable presence in the Social and Sustainability Bond market.

The report also navigated the effect of ESMA’s new Paris Aligned Benchmark (PAB) and Climate Transition Benchmark (CTB) look-through approaches, where the compliance analysis is more focused on the Use of Proceeds rather than on the issuer itself.

By analysing the projects financed by each of the 5,000 bonds in its database, MainStreet Partners found that this new regulation was highly relevant for Article 9 fund managers as they should start re-shaping their portfolios in advance, to avoid rapid adjustments concerning GSS Bonds to retain their themed-fund names.

For instance, just over 10% of GSS Bond volume is at risk of exclusion based on the new Paris Aligned Benchmark look-through approach and just under 20% of volume is at risk of exclusion under the new Climate Transition Benchmark look-through approach.

2025 forecast

• In 2025, MainStreet Partners expects GSS Bond issuance to exceed $1tn, however, the growth may have a slightly different look to previous years. Although Green Bonds remain the most active label in the market, we expect moderate growth for the label.

• In terms of regional distribution, the report said that it expects Europe will remain the largest regional market in the world. GSS Bonds are already well established and understood products in the European bond market, and support from policymakers will further facilitate the market’s growth. MainStreet Partners do see signs of maturity in the market and do not expect GSS Bond supply to grow significantly in Europe.

• MainStreet Partners expects 2025 will also see the birth of the “EU Green Bond Standard” market. The EU aims to further strengthen investors’ trust in the green-bond market with a new voluntary standard that requires enhanced reporting and verification. Bonds issued under the EU GBS are required to allocate at least 85% of their proceeds toward EU Taxonomy-aligned sustainable activities.

• The coming into effect of the EU Green Bond Standard is already one of the main developments to follow this year. MainStreet Partners does not foresee a strong adoption in 2025, although the data provider expects to see the impact on volumes to be clearer moving forward.

Pietro Sette (pictured), research director at MainStreet Partners, said: "2024 has shown outstanding resilience of the GSS Bond market. The continued leadership of European issuers underlines the importance of a strong regulatory environment for the growth and improvement of the market.

“Despite the positive regulatory trend to date, the look-through approach under the new Paris Aligned Benchmark and Climate Transition Benchmark guidelines pose more than a question mark for fund managers who previously had an “issuer-focused” approach. The next few weeks will prompt some rethinking for investors and will further spur more engagement with issuers.”