British multinational bank Barclays has announced that it expects global sales of corporate bonds with environmental, social and governance (ESG) targets to rebound this year and top $460 billion (£387bn).
During 2022 the asset class had its first setback as higher interest rates weighed on credit markets. ESG bond volumes have steadily increased over the past few years, however, they declined by 22% in 2022 due to a broader slowdown in corporate bond issues, as companies faced significantly higher borrowing costs due to financial tightening actions by global central banks fighting against inflation.
Barclays said in a credit research note that corporate ESG bond issuance fell to $362 billion (£305bn) last year from $461 billion (£388bn) a year earlier. It expects ESG bond sales to grow by 30% this year and rebound to almost the same levels of 2021, predominantly driven by green bonds.
“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,” said Charlotte Edwards, head of ESG FICC research at Barclays.
Shifting the planet’s energy system away from fuels that emit greenhouse gases has been estimated to cost $2 trillion a year by 2030, according to the International Energy Agency.
Companies and banks have crafted new instruments to help fund the transition. Among ESG debt options, green bonds’ dominance is yet to be challenged by a more unique type of instrument, sustainability-linked bonds, which carry penalties for borrowers if they fail to meet specific targets.
Green finance is expected to increase significantly in 2023, with the World Bank seeking to increase its lending capacity in a bid to address climate change and other global crises.
