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ESG bond issuance ‘could’ reach €1.6tn by 2026

Multiple factors indicate rapid growth of green, social and sustainability bonds over next four years


Pete Carvill

PWC Luxembourg says ESG bond issuance ‘could’ reach between €1.4tn and €1.6tn by 2026.

The professional services firm says in its ESG – Transformation of the Fixed income Market report that this ‘best-case scenario’ would amount to 50% of total European bond issuance. In 2021, the company said that total green, social, and sustainability (GSS) bond issuance in Europe represented 13.7% of the whole, but that multiple factors indicate rapid growth over the next four years.

Writing in the report, PWC’s authors say: “Since the European Investment Bank issued the first green bond in 2007, the GSS bond market has moved from a niche activity dominated by supranationals into mainstream finance. Between 2015 and 2021, GSS bond issuance skyrocketed from less than €30bn in 2015 to close to €500bn – increasing close to seven-fold in just the last three years alone, in large part driven by Covid-related health expenditures funded by social bond issuance.”

The authors went on: “A normalisation of pandemic-related health expenditures is unlikely to slow the growth of the GSS bond market, reflecting massive growth in public and private expenditures on climate mitigation and adaptation and other environmental protection objectives that can be funded by GSS bond issuance. […] PWC forecasts European GSS bond issuance to reach between €1.4tn and €1.6tn by 2026.”

The firm said that the drivers behind this would be investor demand and an acceleration in issuance. It also said that the market will be driven by green bonds; energy, building and transport would guide EU sustainability transformation; medium-to-small bonds would gain back market share after Covid; currency diversification would continue to decrease; there were promising signs of development in sustainable securitised products; and sustainability-linked bonds saw a staggering H1 2021.

It was, said PWC, ‘critical’ for any bond issuer to consider GSS as a new way of financing.

$20trn needed over two decades

The greening of the economy has been a subject on these pages and others for some time. But, as this article attests, the transition has not been taken in an orderly fashion.

According to the IMF, quoting its own Global Financial Stability Report, additional investment totalling over $20trn is going to be needed over the two decades. It even blogged about it.

It is also easy to be orderly when there is order in the world. But Europe is in the middle of its biggest land war in 70 years. The continent was already in the middle of an energy crisis, itself now exacerbated by various nations pledging to wean themselves (slowly) off Russian resources.

As Stephane Monier, CIO of Lombard Odier Private Bank, recently wrote: “Europe urgently needs to diversify its energy supplies. Russia accounted for 35% of EU gas imports and around 30% of oil in 2021, making it the bloc’s biggest supplier. Supply disruptions in 2006, 2009 and Russia’s annexation of Crimea in 2014 all alarmed European policymakers. That did not prevent Russian gas imports from steadily rising. The Ukraine invasion has now pushed prices, leaving Europe facing an energy bill worth around 8% of GDP.”

And this comes after we wrote about the global energy crisis that was on the horizon back in November.