Sustainable bond volumes are set to surge again this year, with issuance of green, social, sustainability and sustainability-linked bonds expected to hit $1.35 trillion in 2022, according to a new report released by Moody’s ESG Solutions.

According to the report, 2021 marked another record year for sustainable bonds, with issuance growing 64% year-over-year to nearly $1 trillion. While full-year growth remained strong, however, fourth quarter issuance declined slightly compared to the prior year quarter, in line with an overall slowdown in overall global bond issuance. While Moody’s anticipates continued growth in the sustainable bond market, driven by a continued focus on sustainable development and the pursuit of net zero goals, growth rates are expected to decline as the market matures and tightening monetary policy pressure the larger bond market.

Green bonds continued to dominate the sustainable bond market in 2021, with issuance volumes reaching $523 billion, up 78% over the prior year. Social bonds grew 19% for the year to $199 billion, although issuance slowed markedly in the second half of the year, as pandemic-related financings began to wind down. Sustainability bond issuance increased 31% in 2021 to $179 billion.

By far, the fastest growing sustainable bond segment throughout 2021 was the sustainability-linked bond market, which surged 10x to $90 billion, compared to only $9 billion in 2020. Sustainability-linked securities are an increasingly popular form of sustainable finance instruments, with attributes including interest payments tied to an issuer’s achievement of specific sustainability targets.

Moody’s forecasts sustainability-linked bonds to remain the fastest growing segment of the market in 2022, with anticipated volumes more than doubling to $200 million. The Moody’s ESG Solutions report, however, noted increased investor scrutiny on the credibility and robustness of KPIs and sustainability performance targets (SPTs) embedded in sustainability linked bonds, potentially acting as a headwind to the rapidly growing market.

Moody’s ESG Solutions anticipates continued strong growth in the green bond market, with issuance forecast to reach $775 billion in 2022, up 48%, driven by issuers looking to finance climate mitigation efforts and to advance net zero commitments. Climate adaptation initiatives are expected to be a key driver of green bond volumes, as the growing frequency and severity of extreme climate events increases the need for adaptation and resilience financing, according to the report.

Similarly, the report forecasts 25% growth in sustainability bonds to $225 billion, with increased participation from financial and nonfinancial corporates. Social bond volumes are expected to decline 25%, however, following dramatic growth over the past two years, driven by pandemic-related financing.

Matthew Kuchtyak, Vice President – ESG Outreach & Research at Moody’s ESG Solutions, said:

“We expect global sustainable bond issuance to increase 36% and hit a record $1.35 trillion in 2022. Sustainable bonds will continue to rise as a share of global bond issuance, potentially reaching 15% of total issuance this year.”

Click here to view the Moody’s ESG Solutions report.