ESG bond issuance to reach €1.6trn by 2026

PWC says green, social and sustainability bond market has moved from niche to mainstream

PWC Luxembourg has predicted ESG bond issuance ‘could’ reach between €1.4tn and €1.6trn by 2026.

The professional services firm said in its ESG – Transformation of the Fixed income Market report that this ‘best-case scenario’ would amount to 50% of total European bond issuance.

In 2021, the company said that total green, social, and sustainability (GSS) bond issuance in Europe represented 13.7% of the whole, but that multiple factors indicate rapid growth over the next four years.

Writing in the report, PWC’s authors say: “Since the European Investment Bank issued the first green bond in 2007, the GSS bond market has moved from a niche activity dominated by supranationals into mainstream finance.

“Between 2015 and 2021, GSS bond issuance skyrocketed from less than €30bn in 2015 to close to €500bn – increasing close to seven-fold in just the last three years alone, in large part driven by Covid-related health expenditures funded by social bond issuance.”

The authors continued: “A normalisation of pandemic-related health expenditures is unlikely to slow the growth of the GSS bond market, reflecting massive growth in public and private expenditures on climate mitigation and adaptation and other environmental protection objectives that can be funded by GSS bond issuance. […] PWC forecasts European GSS bond issuance to reach between €1.4trn and €1.6trn by 2026.”

The firm said that the drivers behind this would be investor demand and an acceleration in issuance.

It also said that the market will be driven by green bonds; energy, building and transport would guide EU sustainability transformation; medium-to-small bonds would gain back market share after Covid; currency diversification would continue to decrease; there were promising signs of development in sustainable securitised products; and sustainability-linked bonds saw a staggering H1 2021.

It was, said PWC, “critical” for any bond issuer to consider GSS as a new way of financing.

A version of this article was first published on ESG Clarity‘s sister title Expert Investor.