Axios Pro: Climate Deals
May 13, 2022
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🍻 Happy Friday, Climate Deals readers!

1 big thing: Green bonds 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, Megan reports.

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 Megan 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 2022 bond issuance to top $1.35 trillion.
  • 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 lowered Moody's target.

What they're saying: "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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