The market for sustainable bonds, including green, social, and sustainability-linked bonds, is expected to reach a staggering $1 trillion in 2024, according to a new report by S&P Global Ratings. This growth comes despite some economic uncertainties, driven by increased transparency, emerging market participation, and strong demand for environmental and energy transition projects.

While green bonds remain the dominant force, with a projected 59% market share, “transition bonds” are attracting attention. These bonds help companies in high-emitting sectors finance their journey towards sustainability, even if they don’t meet stricter green bond standards. The report highlights Japan’s recent $11 billion transition bond issuance and predicts a strong year for this innovative category.

Green, social, sustainability, and sustainability-linked bonds (GSSSB) are expected to experience modest growth, with a notable presence of transition and blue bonds alongside the continued dominance of green bonds. The report indicates that the sustainable bond market is maturing, with its share of issuance volumes expected to reach up to 14%.

Governments are increasingly joining the sustainable bond wave, with sovereign issuance reaching a record $160 billion in 2023. This trend is expected to continue, with new entrants joining the market and major players like Japan, Germany, and France committing to significant volumes. Emerging markets are also gaining prominence, with local currency issuance on the rise and new participants venturing into the sustainable bond space.

North America, however, faces some headwinds due to macroeconomic and political factors. Still, drivers like the Inflation Reduction Act and increased investor focus on decarbonization could spur growth, particularly among U.S. municipal issuers. Overall, the outlook for the sustainable bond market remains positive, with continued expansion likely despite short-term challenges. This growth has the potential to significantly contribute to financing environmental and social initiatives around the world.

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