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Q1 bounce back for sustainable finance

Matthew Toole
Matthew Toole
Director, Deals Intelligence

During Q1, agency and sovereign issuers have pulled back from sustainable finance, hitting yearly growth. However, a broad base of corporate issuance and robust levels of equity capital raised by sustainable companies have contributed to an opening quarter bounce.

  1. Sustainable bonds top $200bn again. However, this represents a decline of 19 percent from Q1 2021.
  2. Compared with a year earlier, issuance from agencies and sovereign dropped significantly. Meanwhile, issuance by corporates rose by $7bn during the same period.
  3. Sustainable companies raise $13.6bn of equity. Companies in Asia-Pacific contributed the bulk of this activity.

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Partial recovery in sustainable finance bonds

The market for sustainable finance bonds saw a partial recovery in the first quarter of 2022 to reach $231bn, an 8 percent increase compared to the final three months of 2021.

The tally was some 19 percent lower compared with the first quarter of last year, although the same period saw the number of issues increase by 3 percent.

Q1 now marks the fifth consecutive quarter that sustainable finance bonds have topped $200bn from more than 400 issues.

Within the four categories of sustainable finance bond, social bonds were resurgent in Q1, more than doubling the previous month’s tally to reach $44bn – but still a long way off their heady heights of 12 months earlier.

Meanwhile, the impressive boom in green bonds since early 2020 tailed off slightly, down 7 percent year-on-year, to raise $110bn, despite the number of issues surpassing 300.

If you currently use Refinitiv Workspace, click here to access our Sustainable Finance Q1 2022 Review

Agencies and sovereigns curtail issuance

The overall yearly decline in sustainable finance bonds followed significantly curtailed issuance from agencies and sovereigns, from $145bn in Q1 2021 to $82bn in Q1 2022.

Between the same periods, corporates increased their issuance levels, from $138bn to $145bn, to account for 63 percent of the market, up from 48 percent a year ago.

Interestingly, the top three corporate issuers were all financial sectors issuers based in China, while Europe’s overall dominance of the market – with a 50 percent market share – points to a broad base of smaller issuers in the region.

JPMorgan was the most active sustainable finance bookrunner during Q1, followed by BNP Paribas and HSBC.

The top ten sustainable finance underwriters took 47 percent of the market, slightly down on the 49 percent enjoyed last year.

In the sustainable lending market there were fewer bright spots, with just $123bn of deals in Q1; a 14 percent decline year-on-year and a two-year low, and an even sharper 45 percent decrease on the preceding quarter.

Much of the decline was from European borrowers, which accounted for just 34 percent of the market, its lowest ever proportion.

Meanwhile, American borrowers took 43 percent of the market, led by facilities for Deere & Co, Intel and Constellation Energy.

Asia shines in sustainable equity

Equity issuance by sustainable companies fell 28 percent from the end of 2021, despite the $11bn IPO for LG Energy Solution, the second-largest sustainable equity capital markets offering on record. Even so, the $13.6bn in equity raised was the largest for any first quarter on record.

Asia-Pacific accounted for the lion’s share of sustainable company activity, with 92 percent of all equity issuance in the period, with five of the top ten offerings in the quarter.

Morgan Stanley, Goldman Sachs and BofA Securities topped the list of sustainable equity bookrunners, sharing more than a quarter of the market.

In value terms, things were less rosy in M&A, which saw just $40bn of deals involving sustainable companies, a 37 percent decline in the first quarter of 2021, and a two-year low.

However, more than 330 deals were announced in the quarter, a 24 percent increase year-on-year and an all-time high.

China accounted for 15 percent of deals, with the U.S. at 13 percent and the UK and India both at 8 percent.

Watch the video: LSEG’s Cornelia Andersson shares her thoughts on what is key to long term success for sustainable finance

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What is the current outlook for market for sustainable finance bonds?

The market for sustainable finance bonds saw a partial recovery in the first quarter of 2022 to reach $231bn, an 8 percent increase compared to the final three months of 2021.