Global Issuance

Global issuance of impact bonds edged up 1% from the previous quarter to US$188 billion in Q3 2022, becoming the quarter of the highest issuance so far this year. Issuance remained low in the beginning of Q3 but rebounded in September as issuance more than doubled from that of the previous month. Four impact bonds worth €5 billion or above were launched in September alone.

However, total issuance in 2022 was still lower than that of last year. A total of US$559 billion of impact bonds were launched between Q1 and Q3 2022, 13% down from same period in 2021.

Meanwhile, the percentage of certified impact bonds has improved from 84% Q1-Q3 2021 to 87% Q1-Q3 2022.

Issuance by Location

EMEA remained the largest issuing region by dollar amount with the highest percentage of certified bonds. A total of US$286 billion of impact bonds were launched by EMEA entities between Q1 and Q3 2022, of which 95% were certified by a third party. Issuance from EMEA alone took up 56% of global issuance. Nine of the top ten bonds by dollar terms in 2022 were issued by European entities.

APAC followed as the second largest issuing region by dollar amount, launching US$173 billion of impact bonds between Q1 and Q3 2022. It was also the only region showing a year-on-year growth. Dollar amount of issuance in APAC between Q1 and Q3 2022 increased 13% from same period last year, supported by rising issuance from China and Japan. Issuance in EMEA and the Americas (AMER) both fell 31% and 17% respectively. However, the percentage of certified bonds in APAC is still less than EMEA, albeit an increase from 83% in 2021 to 87% in 2022.

Notably, the percentage of certified impact bonds in AMER has increased significantly from 68% to 85% this year amid regulatory actions1 against greenwashing in the United States.

The percentage of impact bonds versus all bond issuance had been falling over the year but showed signs of recovery in September. The percentage of impact bonds vs all bond issuance started at 4.9% in January and fell to just 1.5% in August, before rebounding to 4.1% in September. Relative issuances from EMEA, APAC and global supranational entities have all increased during September 2022.

China remains the largest issuing country of impact bonds by dollar amount between Q1 and Q3 2022, launching a total of US$81 billion over the three quarters, 63% up year on year. It is followed by Germany, which issued US$67 billion and 23% more than last year. France is third after launching 26% less year on year, issuing a total of US$57 billion over the three quarters.

However, looking at the single quarter, China’s issuance was behind Germany for the first time this year in Q3. Chinese entities issued US$23 billion in Q3 2022, compared with US$28 billion from Germany, supported by a €5 billion sovereign green bond and a €4 billion green bond issued by state-owned bank Kreditanstalt Fur Wiederaufbau (KfW).

Suparanational entities also issued a large amount of impact bonds despite a 34% drop from last year, launching US$76 billion over the first three quarters.

Issuance by Bond Type

Green bonds continue to be the most popular impact bond type, comprising 63% of total issuances in Q1-Q3 2022 globally. A total of US$350 billion worth of green bonds were launched over the first three quarters, rising 4% year on year supported by growing issuance from China and Germany. A decrease in the number of securities issued globally also implies a larger value size of green bond issuance on average. Two of the three €6 billion impact bonds issued this year have been green bonds, issued by Italy and the European Union.

In contrast, issuance of social bonds and sustainability bonds has fallen 41% and 23% year on year. US$90 billion of social bonds were launched in Q1-Q3 2022, taking up 16% of all issuances. US$ 117 billion of sustainability bonds were launched over the same period, representing 21% of total issuances.

China remained the largest issuing country of green bonds in 2022, launching US$74 billion of green bonds over the first three quarters. Germany followed and launched US$59 billion of green bonds during the same period.

Despite a year-on-year growth, Chinese issuance has been decreasing quarter on quarter since Q2 2022. China launched only US$20 billion of green bonds in Q3, 21% down from the previous quarter in 2022. Meanwhile, Germany launched US$27 billion in Q3, 66% more than Q2 2022. It is the first time that China has fallen behind Germany this year in terms of a single quarter’s green bond issuance.

Issuance in China declined as the regulator published the new China Green Bond Principles2 in July 2022 which require 100% of proceeds from the bonds issued to be spent on green projects (as such term is defined in such regulations). Previously, this spending threshold was 70% for exchange-traded corporate bonds and 50% for state-owned enterprise bonds. In September this year, the regulator further published a list of 18 registered green bond certifiers3 who will need to conduct self-assessment annually on their green bond evaluation and certification business and submit a written report to the Green Bond Standard Committee before the end of March each year. Issuance of certified green bonds dropped 25% immediately in Q3, with the amount of issuer declared green bonds remain almost static. While the new rule may have temporarily decreased issuance in the country, tighter standards are generally expected to boost investor confidence in the long run, as observed in the U.S. market (as described in more detail below).

In the US, green bond issuance reached US$15 billion in Q3 2021, but only 45% of the bonds were certified by a third party. As regulators started to crackdown on greenwashing in the financial sector4, the amount of non-certified green bonds fell 68% in the following quarter, bringing total issuance down by 37% and the percentage of certified bonds up to 72%. Issuance dropped further to US$4 billion in Q2 2022, while the percentage of certified bonds continued to rise to 78%. In Q3 2022, growth was seen in both quantity and certification, with its issuance rebounding to US$12 billion and the percentage of certified bonds reaching 84%. While the US certification ratio is still less than its European peers, it demonstrates the process of transitioning from a high quantity, low third-party certified market to a high quantity, high third-party certified market.

France remained as the largest issuing country of social bonds in Q1-Q3 2022 by dollar amount despite a 40% drop in issuance from the same period in 2021, launching a total of US$29 billion over the three quarters. The largest social bond so far this year was a €6-billion security launched by French government agency Caisse La Caisse d'Amortissement de la Dette Sociale (CADES).

Korea and Japan followed, issuing US$17 billion and US$9 billion of social bonds respectively over the same period. Issuance in Korea has grown 34% year on year while that in Japan increased 67%.

Social bond issuance in EMEA has generally returned to the pre-pandemic proportion of impact bonds issued (by value) after a period of heightened popularity in 2020 and early 2021 at the height of the pandemic. Issuance in the region jumped from US$2 billion in Q1 2020 to US$61 billion in Q1 2021, but has now receded to US$17 billion in Q3 2022. Meanwhile, issuance in APAC has been rising relatively steadily from US$3 billion in Q1 2020 to US$12 billion in Q3 2022, driven by growing issuance from Japan and Korea.

Supranational agencies continued to be the major issuer of sustainability bonds despite a 20% year-on-year drop. Such entities launched US$44 billion of sustainability bonds in Q1-Q3 2022, representing 37% of global issuance of the bond type.

Supranational entities continue to self-certify for a large portion of their sustainability bonds, going against the broader trend of seeking third-party certification in the market. Among all sustainability bonds issued by supranational entities in Q1-Q3 2022, only 8% were certified by a third party. The largest sustainability bond issuances so far this year were two US$4 billion securities issued by the European Investment Bank and the International Bank for Reconstruction and Development, both of which were not certified by a third party.

Meanwhile, the US is the largest single issuing country of sustainability bonds (by value) so far in 2022, launching US$12 billion of securities over the three quarters. The percentage of certified bonds stood at 90% during the first three quarters of 2022.

Issuance by Issuer Type

Both corporates and governments have issued fewer impact bonds by dollar amount in Q1-Q3 2022 compared to same period last year.

Corporates issued US$273 billion worth of impact bonds in Q1-Q3 2022, 10% less than same period last year. The fall was attributed to declining issuance from AMER and APAC. Corporate issuances in AMER have dropped 32%, driven by a 70% decrease in issuances from real estate/REIT sector and a 33% drop from the utility sector. Issuance from the financial sector, however, edged up 1% year on year, with the largest corporate bonds of Q1-Q3 2022 coming from American banks. For example, Citigroup issued a $2 billion social bond in Q1 while Wells Fargo & Company launched a $2 billion sustainability bond in Q3.

In APAC, corporate issuances have dropped 8%, with the industrial sector and consumer discretionary sector issuing 48% and 15% less than Q1-Q3 last year.

EMEA was the only region where corporate issuances have remained static year on year, with a 30% drop of issuance from the real estate/REIT sector offset by an 8% growth from the financial sector and a 29% growth from the utility sector.

Globally, governments launched US$286 billion over the three quarters in 2022, 16% down from same period last year. APAC was the only region showing a growth of 32% in government issuances year on year, with at least 16 bonds worth US$1 billion or above from the governments of China, Hong Kong, Singapore, Indonesia, Philippines and Korea, as well as the Asian Infrastructure Investment Bank.

Governments in EMEA have issued 31% less than last year, with the three largest issuing jurisdictions in the region launching 32% less than last year. Nonetheless, the largest bonds of the year still came from Europe, involving three €6 billion deals from Italy, France and the European Union.

Governments in AMER issued 28% less year on year whereas non-regional supranational agencies issued 30% less than the same period in 2021.

The financial sector continued to be the largest issuing sector of corporate impact bonds, representing 49% of all corporate issuances this year. A total of US$135 billion has been issued by the sector in Q1-Q3 2022, marking an 8% growth year on year. Rising issuances were observed in financial sectors across all regions.

In contrast, issuances from the real estate/REIT sector have fallen behind that of the utility sector this year. The real estate/REIT sector launched US$28 billion Q1-Q3 this year, 47% down from last year. The fall was driven by shrinking issuances from the US and Cayman Islands.

Issuances from the US’s real estate/REIT sector went down 55% year on year to US$4billion this year, while that from the Cayman Islands fell 90% to only US$0.9 billion. Last year, all real estate issuers from the Cayman Islands had a country of risk in either China or Hong Kong. Amid a property debt crisis in China5, the issuance amount from Cayman Islands had dropped significantly this year, leaving only two issuances having a country of risk in Hong Kong and the UAE. Meanwhile, issuances from real estate companies incorporated in China returned in 2022 with US$1 billion of impact bond launched over the first three quarters, after three years of no issuance from the country’s sector.

Although corporates continue to dominate green bond issuance and took up 59% of all green bond issuance over the first three quarters in 2022, governments have also been increasing their green bond issuances. Governments and government agencies have issued US$144 billion of green bonds in Q1-Q3 2022, 17% higher than same period last year.

However, for social bonds and sustainability bonds, governments and government agencies continue to be the major issuer over corporates, taking up 74% of all social bond issuance and 64% of all sustainability bond issuance in Q1-Q3 2022.

US Municipal Issuance

US municipalities issued US$32 billion of impact bonds in Q1-Q3 2022, showing a 16% growth year on year. Issuance amount dived in Q1 2022 following a record quarter in Q4 2021, but later recovered in Q2 and Q3 this year. In terms of quantity, US municipalities have launched 3,510 impact bonds over the first three quarters of 2022, compared with 4,006 bonds in the same period last year.

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.

The largest application of proceeds among US municipal impact bonds in Q1-Q3 2022 was to single- and multi-family housing, which together took up 38% of total issuance in the first three quarters of the year and involved a total of US$12 billion of issuances. General purpose/public improvement followed as the second largest application of proceeds, involving US$4 billion of impact bonds.

The total return value of the ICE Green, Social & Sustainable Bond Index (SSAG) decreased by 17% since the beginning of the year from 109.8 to 90.9, which is a greater drop than the broader market as reflected by a 16% drop in the ICE BofA Euro Broad Market Index (EMU0).

Among the three types of bonds, only the ICE Sustainable Bond Index (SSTN) performed slightly better than the broader market index, decreasing only 15% between Q1 and Q3 this year. Both the ICE BofA Green Bond Index (GREN) and ICE Social Bond Index (SOCI) fell 18% over the three quarters.

The ICE Sustainability-Linked Bond Index (SLBI) fell 21% between Q1 and Q3 this year. This was partly due to its lower duration risk in an asset class where performance remains driven by interest rate movements and duration. Both ICE BofA Green Bond Index (GREN) and ICE Social Bond Index (SOCI) fell 18% over the three quarters.

The yield spread (“Greenium”) between Germany’s 5-year green note and its conventional twin moved relatively steadily between 4.3 and 6.8 bps in the first half of year, but has started to fluctuate in Q3. Yield spread has spiked to 7.9 in mid-August and 7.7 in the end of September.

While greenium still exists in Germany’s 5-year green issuance, it began disappearing in the 10-year green bond. The yield of Germany’s 10-year green federal bond first became higher than that of its conventional twin in early July, and then again in late September with the green bond’s yield becoming 1.1bps higher than that of the non-green bond.

With greenium fluctuating in the 5-year issuance and occasionally vanishing in the 10-year issuance, greenium has been shrinking relative steadily in the 30-year issuance. The yield spread between Germany’s 30-year federal bond and its green equivalence has been decreasing gradually from 3.7bps in the beginning of the year to 0.9bps in the end of Q3.