Bending not Breaking: Sustainable Debt Issuance in the Face of Rates Turmoil and ESG Pushback 

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The global sustainable debt market experienced a drastic drop in 2022, marking the first time it recorded a decrease. This was due to several factors, including higher borrowing costs and increasing doubt among investors over the ESG label.

The sustainable debt market saw a dramatic drop in 2022, with total issuance falling to $863 billion from the record $1.1 trillion issued in 2021. This marked the first time since the market’s inception that total issuance of green, social, sustainability, and sustainability-linked bonds had fallen year on year.

Falling Down of Debt Markets

The social bond market experienced the sharpest decline among all the sustainable debt labels in 2022, recording a 34% decrease to $141 billion. This was mainly due to government agencies and corporations reducing their spending on eligible projects, resulting in less need for capital in that sector.

In the wake of the pandemic, many countries have shifted their focus to long-term climate goals. This pivot from relief to sustainable development has resulted in a surge in social issuance, even as other sectors of the sustainable debt market saw a decrease. This trend has been driven by sovereigns, increasingly turning to green bonds and other forms of financing to fund climate-friendly projects.

Sales of sustainability bonds, whose proceeds can be used for social and green projects, fell by 22% to $154 billion in 2022 – the second biggest drop since the market’s inception.

Green bonds, meanwhile, saw the smallest year-on-year decline, dropping 11% to about $480 billion. While this was still a notable decrease from the previous year, it was propped up by a surge in sales from China that provided some cushion for the sustainability debt market.

Charlotte Edwards, Head of ESG FICC Research at Barclays, said, “We expect green bond issuance to continue to dominate the market thanks to strong demand and a long list of green projects that need funding as companies put decarbonisation plans into action.”
The overall decline in sustainable debt issuance was further exacerbated by a rising interest rate environment that increased borrowing costs across all sectors.

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