S&P forecast expansion of transition and blue bonds in 2024

A recent report from S&P Global Ratings forecasts a moderate increase in green, social, sustainability, and sustainability-linked bonds (GSSSB) to US$ 1 trillion this year.

Whilst green bonds will continue to dominate the market, transition bonds which can provide access to the sustainable finance market for issuers in sectors that may not qualify for green bond labels, but require financing for initiatives to reach climate and environmental goals, are expected to push the growth.

While the transition bond market has only reached a cumulative $15 billion issuance since 2019, and defined transition bond principles have yet to emerge, the report notes major recent drivers for the market, including the recent launch by the Monetary Authority of Singapore (MAS) of a transition taxonomy, and Japan’s plans to issue $130 billion of transition bonds over the next decade, starting with an $11 billion inaugural issuance in February 2024.

S&P also anticipates stronger issuance of blue bonds, or those targeting sustainable use of maritime resources, as more data and policies emerge promoting a sustainable blue economy.

By region, the report anticipates Europe, which claimed a 45% share of GSSSB issuance volumes in 2023, to continue to maintain its leading position, but also expects emerging markets issuers to gain prominence, continuing a trend from 2023, in which EM issuers issued bonds in local currencies on strong anticipated demand from domestic investors, and as new participants gained access to the GSSSB market.

The report also anticipates that GSSSB issuance could grow by 10% in Asia Pacific, after a 7.6% increase to $235 billion in 2023, with public sector issuers increasingly participating in the market, Japan scaling up transition bond issuance, and affordable housing initiatives fueling social issuance.

Asia-Pacific social bond issuance grew 43% in 2023. The region had the highest proportion of social bonds in 2023 globally. Many of the largest issuances in this region focused on affordable housing or transportation. Issuers from Japan, Korea, and Hong Kong accounted for most of the total value.

International public finance issuers lead the way for sustainability bonds, with issuance coming primarily from supranational agencies that can address both green and social projects. 

Transition bonds are poised to have their largest ever year, though the relatively nascent nature of these bonds may lead to some doubts among market participants. Similarly, questions will continue about the efficacy and ambition of Sustainably Linked Bonds (SLB’s). As GSSSB markets continue to mature, 2024 may be a year of broadening regional reach and instrument types as opposed to strong overall growth.