Global issuance of impact bonds had a strong start to 2023, with US$236 billion of impact bonds launched in the first quarter. This represented a 36% increase quarter on quarter and 11% growth year on year.

Growth in issuance was observed in all regions, with Europe, the Middle East and Africa (EMEA) showing the most significant quarter-on-quarter growth of 41%. It remained the largest issuing region in the world with US$128 billion of impact bonds launched during Q1, which represented more than half of global issuance. Rising issuance was driven by activities in France and Germany.

France returned to the top of the list of issuing countries after a lackluster year in 2022, launching US$28 billion of impact bonds in Q1 2023, which represents 44% growth quarter on quarter. Germany issued 68% more over the same period. The Middle East also contributed to growth, launching three times more impact bonds than the same period a year ago, with sizable issuances from governments of UAE and Israel.

Issuance from the Asia-Pacific (APAC) rose 16% quarter on quarter driven by issuers from Korea and Hong Kong. Issuance from China, which was the largest issuing country of impact bonds in 2022, fell 17% from the previous quarter to US$26 billion after various sectors including financials, industrials and utilities slashed issuance significantly. Nonetheless, APAC issued US$66 billion of impact bonds during Q1 2023, representing 28% of global issuance.

The Americas contributed to 11% of global issuance, launching US$26 billion of impact bonds in total. The amount was 9% higher than Q4 2022, driven by increasing issuance from the United States, Cayman Islands and supranational agencies in the region.

Green bonds remained the most popular type of impact bond representing 64% of all impact bonds issued during Q1. Issuance continued to grow as governments and corporates seek to raise funds for their energy transition efforts, with 5,232 issuances funding renewable energy projects.

The total issuance amount of green bonds grew 31% quarter on quarter in Q1 to US$151 billion, supported by Germany and the United States which launched 72% and 82% more, respectively. Supranational entities - those whose domicile is not in any single country - also launched 55% more green bonds, with the European Investment Bank issuing the two largest green bonds of the quarter. These offset a 14% decrease in issuance from China, which was the largest green bond issuer globally in 2022.

In terms of performance, green bonds were on par with the broader market, with the ICE BofA Green Bond Index (GREN) falling at the same rate as the ICE BofA Euro Broad Market Index (EMU0) at 10% in the past 12 months. Greenium - the amount by which the yield on a green instrument is lower versus the conventional instrument - was more observable in Germany’s sovereign bonds in Q1, with yield spread between the green issuances and their vanilla twins widening across bond pairs of different maturities.

Sustainability bond issuance also gained momentum, with issuance amounts doubling quarter on quarter. The sustainability bond share of the impact bond market also rose from 14% to 21% in Q1. Supranational entities launched significantly more sustainability bonds in Q1 than the previous quarter, contributing to more than 45% of the sustainability bond issuances globally.

Sustainability bonds also recorded the best performance among the three different impact bond types over the past year, with the ICE Sustainable Bond Index (SSTN) falling just 6% over the past 12 months. Although sustainability bonds typically have proceeds allocated to both green and social projects, the top three projects funded by most sustainability bonds are all social-related, including essential services, socioeconomic advancement and affordable infrastructure.

Meanwhile, social bond issuance edged up 2% quarter on quarter. Social bond issuance was seen shifting from Europe to Asia in 2022 but the trend did not follow through into 2023. In Q1 2023, social bond issuance in France returned to US$15 billion, the highest level since Q2 2021. While issuance from Korea rose 23% to US$6 billion, those from Japan have fallen 55% from the previous quarter to US$2 billion despite multiple regulatory initiatives rolled out last year. Nonetheless, the performance of social bonds was still on par with the broader market, with the total return value of ICE Social Bond Index (SOCI) falling at the same rate as the broad market index.

Global Issuance3

A total of US$236 billion of impact bonds were issued globally in Q1 2023, 11% higher than Q1 2022 and 36% higher than Q4 2022.

In terms of the number of securities, 667 impact bonds were launched in Q1 2023, lower than 771 bonds a year ago but higher than 643 bonds in the previous quarter.

Meanwhile, the percentage of impact bonds certified by a third party has grown from 87% in Q1 2022 to 89% in Q1 2023, but lower than 95% in the previous quarter.

The percentage of impact bonds as a portion of the total bond market has improved slightly from 1.7% in Q4 2022 to 1.8% in Q1 2023. Both impact bonds and non-impact bonds have increased in absolute amount from the previous quarter with impact bond issuance rising at a slightly higher rate.

The relative amount was still significantly lower than a year ago when impact bonds represented 5% of the entire fixed income market. While impact bond issuance has slowed slightly over the course of 2022, the issuance amount of general bonds had continued to rise significantly amid expectation of rising interest rate.

Impact bond issuance recovered from the dip in December 2022, reaching US$92 billion in the first month of 2023 with sizeable deals launched by government agencies around the world. The top ten issuances of the month were issued by supranational agencies as well as governments of France, Ireland, Israel, Netherlands and Slovenia. However, issuance began decreasing again after the first month, dropping to its lowest point of the quarter at US$68 billion in March 2023 as bank failures brought volatility and uncertainty.

By contrast, the number of securities issued has grown throughout the quarter, from 189 impact bonds in January to 257 in March, signaling a fall in average deal size.

Issuance by Location

EMEA was the largest issuing region of Q1 2023, with issuers in EMEA launching US$128 billion of impact bonds during the quarter which represented 54% of global issuance. Issuance from the region was also 41% higher quarter on quarter owing to rising issuance in France, Germany and UK.

APAC followed with US$66 billion of issuance, representing 28% of global impact bond issuance. Issuers in the region have launched 16% more compared to Q4 2022, driven by those in Korea and Hong Kong as well as regional supranational entities.

Issuers in the Americas launched US$26 billion of impact bonds, which was 11% of global issuance of Q1 2023. The amount was 9% higher than Q4 2022, driven by increasing issuance in the United States, Cayman Islands and supranational entities in the region.

The percentage of impact bonds versus general bonds issued globally rose slightly from 1.7% in Q4 2022 to 1.8% in Q1 2023, driven by supranational entities and APAC. Relative issuance of impact bonds from supranational entities increased from just 18.6% from the previous quarter to 31.5% in Q1 2023.. Relative issuance from APAC also rose from 0.9% in Q4 2022 to 1.7% in Q1 2023 due to a slight increase in its impact bond issuance and a significant decrease in its non-impact bond issuance.

In EMEA, despite a rising issuance of impact bond in absolute terms, its relative issuance fell from 3.7% to 3.5% due to an increase in non-impact bond issuance. Relative issuance from the Americas also dropped from 1% to 0.4% quarter on quarter.

Among impact bonds, green bonds remained the most popular bond type. US$151 billion of green bonds were issued globally in Q1 2023, 31% higher than the previous quarter. The amount represented 64% of all impact bonds issued during the quarter, slightly lower than 66% in Q4 2022, owing to a higher percentage of sustainability bonds issued.

Among all impact bonds issued in Q1 2023, 21% were sustainability bonds, compared to just 14% in Q4 2022. The absolute amount of sustainability bonds issued also increased 106% quarter on quarter to US$49 billion in Q1 2023. However, the percentage of sustainability bonds certified by a third party has dropped from 90% to 59% as International Bank for Reconstruction and Development ramped up self-declared issuance of the bond type.

Meanwhile, issuance of social bonds edged up 2% from Q4 2022 to US$ 36 billion in Q1 2023. The portion of social bonds against all impact bond issuances decreased from 20% to 15% over the same period. The percentage of third party certified bonds dropped slightly from 98% to 96%.

In terms of the number of securities issued, the number of green bonds and sustainability bonds issued have increased by 14 and 16 respectively, while that of social bonds has dropped by 6 quarter on quarter.

Issuance by Bond Type

Among impact bonds, green bonds remained the most popular bond type. US$129 billion of green bonds were issued globally in Q1 2023, 14% higher than the previous quarter. The amount represented 62% of all impact bonds issued during the quarter, slightly lower than 66% in Q4 2022, owing to a higher percentage of sustainability bonds issued.

Among all impact bonds issued in Q1 2023, 21% were sustainability bonds, compared to just 14% in Q4 2022. The absolute amount of sustainability bonds issued also increased 84% quarter on quarter to US$44 billion in Q1 2023.

Meanwhile, issuance of social bonds has continued the downward trend from last year, decreasing 4% from Q4 2022 to US$ 34 billion in Q1 2023. The portion of social bonds against all impact bond issuances also decreased from 21% to 16% over the same period.

In terms of the number of securities issued, all impact bonds have had a lower issuance compared to the previous quarter. The number of green bonds, social bonds and sustainability bonds have dropped by 18%, 20% and 2% respectively.

China remained the country with the largest amount of green bond issues of Q1 2023 in dollar terms despite issuing 14% less quarter on quarter. Chinese issuers launched US$25 billion of green bonds during Q1, with 72% of it launched only in the last month of the quarter. The percentage of green bonds certified by a third party remained at 92%.

Germany followed as the second largest green bond issuer in Q1 2023.German issuers launched US$15 billion of green bonds during the quarter, 72% more than Q4 2022. The percentage of certified green bonds slid from 100% in the previous quarter to 97% in Q1 2023.

Germany was followed by the United States, which had issuers launch US$9 billion of green bonds in Q1 2023, 82% more than the previous quarter. The portion of third party-certified green bonds dropped from 85% to 75% over the same period.

Supranational entities continued to play a major role in the green bond market, launching US$13 billion of green bonds in Q1 2023, 55% up from the previous quarter. The European Investment Bank has launched the two largest green bonds of the quarter, including a €5-billion issuance and a US$5-billion issuance in February. The percentage of certified green bonds rose from 96% to 97%.

Supranational entities remained the major issuer of sustainability bonds, launching US$22 billion or 47 such bonds in Q1 2023. International Bank for Reconstruction and Development alone issued US$13 billion of sustainability bonds during the quarter, becoming the largest single issuer of the bond type.

France was the country with the largest amount of sustainability bonds issued, with French issuers launching US$5 billion in Q1 2023. It was followed by Spain and Japan whose issuers launched US$3 billion and US$2 billion of sustainability bonds respectively.

Issuers in the United States, which was the country with the largest number of issuances of the bond type in 2022, launched only US$2 million of sustainability bonds in the first quarter of 2023. U.S. issuers launched US$2.5 billion of securities in the previous quarter.

Supranational entities remained the major issuer of sustainability bonds, launching US$18 billion or 40 such bonds in Q1 2023. International Bank for Reconstruction and Development alone issued US$13 billion of sustainability bonds during the quarter, becoming the largest single issuer of the bond type.

France was the largest single issuing country of sustainability bonds, launching US$5 billion in Q1 2023. It was followed by Japan and Netherlands which issued US$2.4 billion and US$1.6 billion of sustainability bonds respectively.

The United States, which was the largest single issuing country of the bond type in 2022, launched only US$2 million of sustainability bonds in the first quarter of 2023. The country launched US$2.5 billion of securities in the previous quarter.

Issuance by Issuer Type

Governments and agencies have issued US$121 billion of impact bonds in Q1 2023, 47% higher than Q4 2022. Meanwhile, corporates have launched US$115 billion over the same period, 26% more than the previous quarter. This was the reverse of the previous quarter where corporates issuance outnumbered government/agency issuance.

American governments have launched 75% more impact bonds quarter on quarter; EMEA governments have 44% more; and APAC governments have launched 14% more. The largest government issuance in Q1 2023 was a €5-billion green bond launched by the European Investment Bank. Global supranational entities also raised significantly more than the previous quarter.

Impact bond issuance by corporates also increased over the same period, albeit at a lower rate compared to government/agency issuance. EMEA and APAC corporates raised 39% and 19% more quarter on quarter respectively, while issuances from American corporates edged up 1%.

Quasi-government entities were the largest issuing sector of impact bonds in Q1 2023, contributing to 39% of issuances across all sectors. They launched a total of US$93 billion of impact bonds, which was a 67% growth from the previous quarter. it was driven by rising activity in all regions, with EMEA quasi government entities contributing to almost half of the sector’s issuance in Q1.

The financial sector was the second largest issuing sector, launching US$70 billion of impact bonds in Q1 2023. The amount was 12% higher than the previous quarter, driven by rising issuance in EMEA. It was the only region that saw growth in issuance by the financial industry, launching 32% more quarter on quarter and contributed to 63% of the financial sector’s issuance globally. Issuance by APAC financial companies remained unchanged from the previous quarter while American financial companies issued 55% less over the same period.

The utility sector was the third largest issuing sector, launching US$23 billion of impact bonds in Q1 2023, 7% higher than the previous quarter. Similar to the financial sector, EMEA was the only region that saw growth in the utility sector by issuing 43% more quarter on quarter. Utility companies in the Americas and APAC have issued 8% and 62% less respectively.

Corporates remain the dominant issuers of green bonds in Q1 2023. Corporates issued US$93 billion of green bonds in Q1 2023, versus US$58 billion from governments and agencies.

Governments played a larger role in social bond and sustainability bond issuance. Governments and agencies launched US$29 billion of social bonds, 10% higher than the previous quarter. Meanwhile, corporates decreased social bond issuance by 21%, launching only US$8 billion compared to Q4 2022.

Sustainability bonds showed momentum with increased issuances from both government and corporate issuers. Issuance amount from governments was 254% higher than the previous quarter while that from corporates was 1% higher.

Use of Proceeds

Among issuances that have their intended use of proceeds4 reported, renewable energy was the most popular category among green bond issuers. Proceeds from 5,232 green bonds are intended to fund renewable energy projects. Green buildings and energy efficiency are the next most funded categories, involving 3,580 and 3,545 green bonds, respectively.

For social bonds, socioeconomic advancement is the most funded category, with proceeds of 1,483 social bonds intended to be spent on relevant projects. Essential service and affordable housing are two other popular categories that are supported by proceeds from 1,007 and 547 social bond issuances, respectively.

Among sustainability bonds issuances, funds raised from 12,302 bonds are earmarked to be spent on green-related projects while proceeds from 12,569 bonds are intended to fund social-related projects. The top three use of proceeds categories are all social-related, including essential service that involved 3,439 issuances, socioeconomic advancement that involved 3,092 issuances, as well as affordable infrastructure that involved 2,364 issuances.

U.S. Municipal Issuance

U.S. municipalities launched US$9 billion of impact bonds in Q1 2023, including both new and refunding issuances. This represented a 7% drop in dollar terms quarter on quarter, but an 18% increase year on year.

In terms of the number of securities issued, U.S. municipalities issued 155 fewer impact bonds than the previous quarter, and 199 fewer securities than a year ago.

California continues to be the largest issuing state of municipal impact bonds in dollar terms, launching US$6.6 billion in Q1-Q3 2022, 5% down from last year. It represents 21% of all US municipal impact bonds launched during the first three quarters. The largest issuance of the first three quarters was a US$1 billion green bond issued by the California Community Choice Financing Authority in September.

In terms of the number of bonds, New York remains the largest issuing state in the first three quarters despite a 26% drop in the number of bonds issued. New York issued 380 securities in Q1-Q3 2022, with the New York City Housing Development Corporation issuing the most over the three quarters.

Single-family housing was the top use of proceeds in Q1 2023, with US$2.1 billion of impact bond proceeds raised for the cause. The amount was 1% higher than the previous quarter.

Electricity and public power were the next most popular use of proceeds categories among US municipal impact bonds, with US$2.0 billion of proceeds raised to finance relevant projects. The amount was 4 times higher than that in the previous quarter.

Mass or rapid transport came third, involving US$1.3 billion of municipal bonds raised in Q1 2023. The amount was 64% higher than Q4 2022.

In terms of the number of securities, single-family housing also topped the list with proceeds from 458 impact bonds to be spent on the category. It was followed by multi-family housing and water projects which involved 91 and 57 securities respectively.

The total return index value of the ICE Green, Social & Sustainable Bond Index (SSAG) has been fluctuating between 90.9 and 94.7 over the first three months of 2023. SSAG reached its highest level in the beginning of February before dropping to its lowest point in early March. Altogether it has fallen 9% over the past 12 months; this is a slightly better performance than the ICE BofA Euro Broad Market Index (EMU0) which fell 10% over the same period.

Regarding the individual bond types, only Sustainability Bond Index (SSTN) has overperformed the broad market index, falling by 6% over the past 12 months. Both ICE BofA Green Bond Index (GREN) and ICE Social Bond Index (SOCI) fell at the same rate as the broader market index by 10%.

Greenium continued to exist in some of Germany’s sovereign green bond issuances, although the level of premium differed depending on the maturity of securities.

The yield spread between a Germany 5-Year Green Federal note and its non-green counterpart widened significantly since the start of 2023, reaching a peak of 14.8 bps in mid-January. It receded thereafter and reached its lowest point of 4.6 bps in early March, when the yield climbed to record high. The yield spread during the rest of month fluctuated between 4.6 bps and 9.1 bps as broader market volatility started to unfold.

The yield spread between Germany’s 10-year green federal bond and its conventional twin reached 2.2 bps in late-January and has remained relatively stable. In common with the 5-year pair, yield spreads started fluctuating in the second half of March.

Greenium has also become more observable in Germany’s 30-year green federal bond pair. Here the yield spread narrowed in 2022, but has started to widen again during Q1 2023, reaching its highest point of 1.8 bps in mid-February, before becoming range bound between 1.4 bps and 0.6 bps for the rest of the quarter.

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