Fixed income

Sustainable bond investments: how did they do at the start of the year?

August 09, 2024 - 2 min read

Up 11% in the first quarter of 2024 compared to the same period last year, the Green Social Sustainable Bonds market continues to rise.

The Green Social Sustainable Bonds (GSSB)¹ market appears to have continued expanding in the first quarter of 2024, with primary issuance growing on average by 11% to $321bn from $289bn in the first quarter of 2023. Meanwhile, SLB² issuance fell further by 56%, penalising overall growth in the labelled debt market.

Source: Bloomberg, Mirova, as of 03/31/24

What was new this quarter?

It looks like social bonds might be making a major comeback as the amount of social bonds issued increased by 31% during the quarter, driven by supranationals and development banks, especially from the APAC region. The region issued fewer green and sustainable bonds, however.

A sector analysis shows that issuance increased most in the communications, industrials and materials sectors. Issuance grew largely because the industrials and materials sectors have vast financing needs but also because the communications sector is greening itself, GGSB issuance

accounting for 30% of total issuance of the sector compared with 20% in 2023. On the other hand, the consumer, health care, technology and especially the banking sector accounted for smaller shares of total issuance.

A look at Euro-denominated corporate bond issuance shows that the penetration rate (corresponding to GSSB issuance as a share of total issuance) remained stable year-on-year at around 25%, despite an excellent month of January. Utilities, unsurprisingly, remained in the lead with 70% of their issuances being GSSBs.

GSSB issuance (in $BN) by sector in Q1 2024

Source: Bloomberg, Mirova, as of 03/31/24

An analysis by currency, meanwhile, shows that the Euro remains in the lead. Yuan-denominated debt fell back whereas the Australian dollar, Canadian dollar and yen appear to be gaining ground.

Finally, maturities are getting ever shorter, with senior bonds issued at an average maturity of 6.69 years compared to 6.9 years in the first quarter of 2023. This trend might also be fueled by issues of transition bonds, which are shorter dated by definition.

Which new GSSB issuers joined the market at the start of the year?

Nordic power grid operators, such as Statnett, Ellevio and Fingrid, issued green bonds during the quarter, with the latter two being first-time issuers in Euros. Fingrid’s green bond programme, rated as High Positive Impact, was particularly appreciated by our Mirova ESG research analysts as 8 of the 11 projects mentioned in the Use of Proceeds statement3 will be used to connect new renewable production capacity to the grid. But further initiatives are expected in areas such as recycling and supplier relocation.

Issuers through green bond programs during the quarter also included new Canadian banks, and most of these programs have not been invested as the banks in question were heavily exposed to fossil fuel financing.

What about sovereigns, the stars of the green bond issuance market in 2023?

The uptrend continued, with labelled debt issuance amounting to $55bn during the quarter compared with $38bn at the same time last year. France still dominates the market for sovereign sustainable bond issuance, closely followed by Germany and the United Kingdom. Five countries enter the market during the quarter: Japan, Romania, Ivory Coast, Iceland and Croatia. Japan, in particular, drew the attention of investors with its transition bond issuance in the amount of $10bn.

Written in June 2024

Mirova is an affiliate of Natixis Investment Managers.

¹GSSB (Green Social Sustainable Bonds): an acronym for Green Bonds, Social Bonds and Sustainable Bonds, which offer both environmental and social benefits. We will use "labelled debt" to refer to the GSSB, which we add the SLBs (bonds whose characteristics – primarily their interest rates – vary depending on whether or not the issuer meets certain ESG targets).

²SLBs (Sustainability-Linked Bonds): bonds whose characteristics – primarily their interest rates – vary depending on whether or not the issuer meets certain ESG targets.

³Projects financed must be accurately described in a Use of Proceeds statement attesting to an environmental and/or social benefit.

This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Natixis Investment Managers, or any of its affiliates. The views and opinions are as of December 6, 2023 and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted, and actual results may vary.

All investing involves risk, including the risk of loss. Investment risk exists with equity, fixed income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.

Investing in value stocks presents the risk that value stocks may fall out of favor with investors and underperform growth stocks during given periods.