BY THE end of Q3 2023, the Climate Bonds Initiative (Climate Bonds) had recorded cumulative volume of USD 4.2tn of green, social, sustainability, and sustainability linked (GSS+) debt in alignment with its screening methodologies (aligned), plus a further USD12.7bn in unscreened bonds bearing the transition label.
The news arrives in a new Q3 State of the Market Report sponsored by IFC Green Bond Technical Assistance Program (GB-TAP), which assesses the market outlook for labelled issuance across the globe. The report is accompanied by a spotlight section on the Middle East and Africa as we approach the 28th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP28) in Dubai.
The green label’s lifetime aligned total has passed the USD 2.5trillion milestone to reach USD 2.6 trillion, the social label reached USD 762.7bn, the sustainability label stands at USD 764.2bn, sustainability-linked debt has a USD 42.5bn total and transition accounts for USD 12.7bn
The new report details the shape and size of GSS+ debt markets up to the end of Q3 2023. Year-to-date (YTD), aligned GSS+ bonds (including transition) accounted for USD 618.2bn, recording a 10% decline as compared to USD 685.8bn for the same period in 2022. Despite the decline, aligned GSS+ as a percentage of total issuance volume remains at 5%.
Sean Kidney, Climate Bonds, CEO, said, “As we embark on COP28, it is important to commemorate the importance of government action in the fight against climate change. This is well evidenced in the world of sustainable finance which has spread across the globe with trillions of debt spurred on by sovereign issuers, which has been crucial in catalysing climate capital. We urge that bigger and bolder initiatives need to emerge from COP28 to stoke capital flows to climate projects particularly in the most vulnerable areas, ensuring this decade keeps us poised to meet the Paris Agreement and avert the catastrophic demise of our planet.”
Veronica Nyhan Jones, Global Head of Climate Capacity & Inclusion, IFC, said, “As the world turns its gaze on COP28 in Dubai this week, it is most timely to accelerate the global effort of combating climate change and ensuring a just transition, especially through the participation of developing countries.
“The Middle East and Africa region possesses tremendous green and social potential for sustainable finance investment opportunities. While the region’s sustainable debt market is currently led by a handful of major issuers, IFC and GB-TAP with numerous partners have been building capacities and helping local issuers to come to market with labelled instruments that often realise green and social co-benefits.
Despite their size, it is through these medium and even small issuers – who frequently make up a large share of local economy – that we mobilise capital, unlock investment potential, and create the most meaningful impact.”
50 Sovereign issuers
At the end of Q3 2023 Climate Bonds had recorded aligned GSS+ bonds from 49 sovereigns with a combined volume of USD 435.5bn, a 36% increase YTD. Green is the largest segment with USD348.3bn (80%), and France retaining its crown as the largest source of aligned GSS+ sovereign debt with USD 66.3bn in cumulative volume. Towards the end of November, Brazil became the 50th sovereign to come to market with an sustainability bond of USD2bn.
Sustainability Spotlight: Middle East and Africa
The Middle East and Africa (MEA) has experienced 158% growth in 2023, driven by renewable energy deals from the Middle East.
In the MEA region, sustainability bonds are currently 17% of the GSS+ cumulative volume; the report highlights the opportunity to scale up issuance to tackle social and environmental challenges simultaneously. Support is needed to bridge the gap between issuer financing needs and investor risk tolerance to direct capital flows to the most vulnerable communities. It is also acknowledged that GSS+ deals are urgently needed to finance adaptation which currently falls well short of the required funding.