Green bond market is stuck in choppy waters

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.