The sustainable debt market is off to a good start this year with total issuance of USD 84.3bn in January, led by green and social bonds. There has also been a significant increase in issuance of sustainability-linked bonds, with issuance of USD 3.9bn in January, equivalent to almost 40 percent of the total issued in all of 2020. In the latest issue of SEB's report The Green Bond, titled New Sustainable Assets, we take a closer look at sustainability-linked bonds and the role they can play in the green transition.
The introduction of sustainability-linked bonds (SLBs) in 2019 further expanded opportunities for issuers seeking entry into the ever-growing sustainable bond market. Following the publication in mid-2020 of the Sustainability-Linked Bond Principles, which SEB together with three other banks helped draw up, issuers from diverse industries such as forestry, real estate, pharmaceuticals and shipping have issued SLBs. Instead of defining specific use of proceeds as with green or social bonds, SLBs tie bond characteristics to the issuer's achievement of a pre-determined sustainability performance target. Since the proceeds can be used for general corporate purposes, SLBs allow a wider array of companies, including those from "brown" industries, to access the market while being incentivized to improve their performance in key areas of sustainability.
"Although the SLB market is still in its infancy, we expect it to grow rapidly over the coming years," says Christopher Flensborg, Head of Climate & Sustainable Finance at SEB. "With the importance of sustainability considerations increasing among investors, consumers and policy makers, sustainability will naturally come into greater focus for issuers when seeking capital. Combining both loans and bonds, we expect to see more than USD 1trn being raised for sustainable purposes this year for the first time ever."
"As the transition accelerates and broadens to include industries outside of the renewable energy sector, such as transportation and autos, the sustainable finance market has to evolve too and the emergence of sustainability-linked bonds is a good example of that," says Thomas Thygesen, Head of Research, Climate & Sustainable Finance at SEB. "We anticipate continued innovation within the sustainable finance market, and are enthusiastic about the prospect of continued market growth, issuer diversification, market advancement, innovation, and ultimately, positive sustainability outcomes."
SEB, which together with the World Bank developed the green bond concept in 2007/2008, publishes the research publication The Green Bond six times a year. It strives to bring readers the latest insight into the world of sustainable finance through various themes. Even though the report covers all kinds of products and developments in the sustainable finance market, we have decided to keep its historic name - The Green Bond - as a tribute to our role as a pioneer of the green bond market.
You can find The Green Bond report at sebgroup.com (http://www.sebgroup.com/) and here (https://sebgroup.com/large-corporates-and-institutions/our-services/markets/fixed-income/green-bonds/green-bonds-publications)