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Green bond market is stuck in choppy waters

Illustration of Benjamin Franklin with his head almost under water

Illustration: Eniola Odetunde/Axios

Moody's ESG Solutions, the credit ratings giant's sustainability arm, amended its outlook for sustainable bonds, and is now expecting them to hold flat through year-end.

Why it matters: Volatility is chipping away at a key financing lever for energy-transition and climate-technology companies, as the stakes for climate crisis mitigation soar higher.

Context: The amended guidance comes just a week after Axios reported a looming correction in the ESG ETF markets, even as the sector has outperformed the S&P 500 in 2022.

By the numbers: Companies issued $203 billion in green, social, sustainability and sustainability-linked (GSSS) bonds in Q1, down 11% from Q4 2021 and down 28% year-over-year.

  • Moody's ESG Solutions now estimates bond issuance will top out at $1 trillion this year, roughly flat to 2021. It previously predicted bond issuance to top $1.35 trillion for 2022.
  • GSSS bond volumes fell for the fourth straight quarter in Q1, and was the lowest quarterly issuance since Q3 2020.

But, but but: There's something of a silver lining here, in that bond issuance would need to accelerate in order to meet the Moody's target.

What they're saying: Moody's ESG Solutions analysts pointed to global market conditions and the Ukraine war as potential sources of lagging Q1 bond issuance.

  • "One possible explanation is relative softness in the European market — which typically accounts for the bulk of global sustainable bond volumes — where markets were very quiet following the onset of Russia’s invasion of Ukraine," the report states.
  • "Another potential explanation is issuers forgoing some borrowing for long-term capital investment in an uncertain environment, instead favoring borrowing to shore up liquidity, or shifting their financing needs to the loan markets," it adds.
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