NORTHUMBRIAN WATER GROUP LTD Green, Social and Sustainability (GSS) bond financing has now firmly established itself as a core element of global indices.
With issuances growing rapidly in the last ten years[1], GSS bond volumes broke through
Meanwhile, 20% of all European bonds are now in GSS format[3], a significant increase on pre-2020 levels. And as green bond sales from corporations and governments reach record levels[4], they are consistently outperforming the global bond market in the secondary market.[5]
This signifies not only a coming of age for the GSS market since the first green bond was issued in 2008, but also a strength in the fundamentals of this relatively new area of debt issuance.
Long-term demand
So, what's behind the increasing prominence of sustainable financing?
Partly it reflects the demand from corporates and governments across the world to fund their regulatory or stakeholder-driven sustainability commitments. It also indicates a continued appetite from investors to allocate capital in an asset class that can offer heightened transparency and alignment with sustainable goals.
Debt capital markets also have a vital role to play in our transition to net zero, with green financing pivotal in directing the necessary capital required to achieve Paris Agreement ambitions of limiting the global temperature increase to 1.5-degreeC above pre-industrial levels.
This sectoral and geographical dispersion of investment is vital for ensuring a more sustainable and diversified base of
A key driver of
There is huge benefit in the structural maturing of the
As well as the positive societal and environmental outcomes targeted from the issuances of these bonds, this specific type of funding can act as a crucial driver for
Businesses are often keen to access the growth and benefits of moving towards sustainable business practices, but they can sometimes struggle to obtain the requisite financing to undertake such ventures. The specific 'use-of-proceeds' lending criteria of GSS issuances therefore helps unlock and redirect investment capital to
Importantly, with sustainable financing typically also offering a longer investment horizon than the shorter-term lifecycle of mainstream lending, businesses can also set growth plans more easily over the long term.
Funding these investment gaps not only adds value to previously underfinanced areas, it also means financial institutions are enabling growth across a broader range of segments and regions of the
This sectoral and geographical dispersion of investment is vital for ensuring a more sustainable and diversified base of
Growth opportunities
In pure market terms, sustainable financing can also play a fundamental role in satisfying demand factors that look set to persist into the long term.
Social housing, in particular, is a crucial element within the burgeoning GSS capital markets. Extensive waiting lists for homes and a reduction in the number of available units has led to a critical point where funding is increasingly required for investment into building new homes and improving living standards.
The 'multiplier' effect of this investment is even more impactful in regions with lower socio-economic levels where there are higher rates of personal consumption.
Elsewhere, the unprecedented levels of private and public finance required for the
This will be a vital part of stimulating growth, innovation, and job creation as part of the net-zero transition.
This will add value to previously underfinanced areas and help financial institutions facilitate growth across wider areas of the
Banks breaking new ground
The continued scaling of GSS funding can act as a significant growth driver for
As the GSS capital markets mature and a greater number of issuances emerge, previously unexplored terrain is becoming possible. However, financial institutions must be considered in their approach to sustainable financing, identifying the markets in which they can launch innovative products to fulfil any funding gaps.
Breaking new ground in this way can also represent sound commercial logic for banks. This was demonstrated recently for
As new areas are explored for funding, such as blue and biodiversity-themed issuances, many other financial institutions are likely to feel the benefits of the first-mover advantage. This will add value to previously underfinanced areas and help financial institutions facilitate growth across wider areas of the
GSS Impact Report
Download the 2023 Green, Social and Sustainability Bonds Allocation and Impact Report
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