Sustainable finance in global capital markets took significant market share across DCM, ECM and loans in 2021, as issuers and borrowers took advantage of investor appetite for financial instruments with sustainable, social and environmental dimensions. The continued strength of green bonds throughout the year, and the emergence of sustainable loans as a major part of the market, support sentiment going into 2022.
- In 2021, sustainable bonds reached $1trn, growth spearheaded by green bond issuance. This represents a 20-fold rise from 2015, and accounts for 10 percent of global debt markets.
- Sustainability-linked loans surge 300 percent to more than $700bn. This figure is more than three times the previous record.
- Sustainable ECM and M&A hit records of $48bn and $197bn respectively.
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The market for sustainable finance sped past a trillion dollars in 2021, marking a high point in the meteoric rise of a sub-sector that didn’t exist a decade ago.
Sustainable bond issuance is now more than 20-times the size of 2015 and accounts for one-tenth of global debt capital markets. Meanwhile, sustainability-linked loans, which looked like they had been left behind for much of 2020, came of age in 2021, tripling their previous record to hit $717bn.
Sustainable finance bond issuance in 2021 smashed the previous all-time record set the year before, rising 45 percent to $1trn. An 11 percent retraction in the final three months of the year did not prevent Q4 from staying north of $200bn raised from 400 issuances.
Activity was driven largely by the green bond and social bond sub-categories.
The rise and rise of green bonds
The astonishing ascent of green bonds during 2020 turned out to be just a staging ground for 2021, which nearly doubled the previous year to reach a record $489bn. The market plateaued in Q4 at a sky-high $120bn.
More than a thousand green bonds were issued during 2021, an all-time record and a 54 percent increase on the prior year. It will be interesting to see whether this level of activity is durable beyond the past two exceptional years, into 2022 and beyond.
Such durability looks to be in some doubt for social bonds at least.
They enjoyed an even sharper ascent than green bonds during the pandemic year of 2020, and this continued into early 2021, pushing the full year total up another 17 percent to an all-time high of $193bn.
However, the social bond market suffered an equally steep descent during the second half of 2021, raising just $20bn in the fourth quarter, some 39 percent down on Q3. (This was largely responsible for the decline in the overall sustainable finance market in Q4.)
The somewhat smaller market of sustainability bonds had a record year, reaching $186bn in 2021, up 49 percent on 2020, and doubling the previous year by number. However, the final quarter of the year saw a 31 percent fall to $35bn raised.
Sustainable finance players
Since 2020, agency and sovereign issuers have become major players in the sustainable finance market, jumping from $71bn of issuance in 2019, to $385bn in 2020 to account for the majority of the market. In 2021, this tally grew again to $406bn.
However, as proportion of the total market, they were overtaken by corporate issuers, who raised $575bn to take a 57 percent market share. Within this, corporate sustainable bond offerings accounted for a record 11 percent of global corporate debt issuance, up 6 percent on 2020.
Europe, a historically strong player in sustainable finance, was the largest region for sustainable finance bonds, taking a 54 percent market share, followed by 22 percent by the Americas and 18 percent in Asia-Pacific.
The relatively fragmented underwriting market for sustainable finance shows signs of consolidation, with the top 10 issuers accounting for 47 percent of the market, up from 42 percent last year.
JP Morgan took the top spot for sustainable finance underwriting, followed by BNP Paribas and BofA Securities.
Sustainable lending comes of age
The syndicated loan market, which had an uninspiring 2020, truly awoke in 2021, surging more than 300 percent to hit a record $717bn.
Encouragingly, the market ended on a high, with Q4 registering a 42 percent increase on the previous three months, to be the market’s second-largest quarter since records began in 2018 (although by number, the market dipped by one-fifth between October and year-end).
Borrowers in Europe and the Americas shared 86 percent of the market almost equally, representing a significant advance for the latter.
European borrowers accounted for 43 percent of sustainable lending, led by the circa-$10bn sustainability-linked credit facilities secured by Italy’s EnelSpA and Belgium’s Interbrew-Simba’s.
Asia-Pacific borrowers took just over one-tenth of the market.
BofA Securities moved into top place for sustainable syndicated loan mandated arrangers, taking almost 6 percent of the market, followed by JP Morgan and BNP Paribas.
The market for equity from sustainable companies surged 43 percent in 2021 to reach $48bn, an all-time record.
A third quarter ‘blip’, which saw deals drop to pre-pandemic levels by both number and value, was quickly forgotten, as an astonishing 400 percent surge ended the year on a high (albeit supported by the record $14bn IPO of electric truck company Rivian Automotive).
The Americas dominated the sustainable equity market, with a 56 percent market share, followed by Asia-Pacific with 26 percent.
Morgan Stanley led the market for sustainable equity offerings, acting as bookrunner on nearly 14 percent of deals by value.
M&A deal numbers surge
In the M&A markets, deal activity involving sustainable companies more than tripled 2020 levels to reach an all-time record of $197bn from around 1,270 transactions, a 60 percent increase on a year ago.
While the value of deals took a tumble in Q2, the number of deals has been surging since mid-2020, underpinning activity and helping the second half of 2021 to surpass $100bn in M&A involving sustainable companies.
Notably, SPACs accounted for 34 percent of the full year M&A total, at $68bn. Citi led the advisory league tables for 2021, advising on 27 deals valued at $58bn.