2020 - a record year for impact issuance, likely to be repeated in 2021

A record $500bn¹ in impact bond issuance was added to the market in 2020, an increase of 60% on the $313bn issued in 2019. This increase could easily be repeated in 2021, which would take the overall market close to $2 trillion by the end of the year, according to a review by Insight Investment, a leading global asset and risk manager.

Government-related issuance, at $260bn, accounted for more than half of 2020’s total issuance, driven by pandemic-related bonds. Financials, with $121bn added, led issuance from the corporate sector and became the first of this set to exceed the $100bn mark for annual issuance. Utilities continued to build a rapidly deepening pool, adding $57bn, up 18% on 2019. Other sectors fell back: by 50% in consumer staples and 35% in energy. Most issuance originated from France which at 18% of the overall total was almost twice that of the next nearest countries - Germany and then the US - both with approximately 10% added. In Asia Pacific, South Korea, Japan and China accounted for 12 % of collective issuance, in 6th, 7th and 10th place respectively. Issuance in the UK, in 15th place below Luxembourg, may gain impetus from the Government’s recently announced plans to issue a green gilt.

Joshua Kendall, Head of Responsible Investment Research and Stewardship, said: “Impact bonds can help the investors align with their non-financial objectives, but rigorous due diligence is vital to avoid the risk of ‘greenwashing’.” In 2020, approximately 10% of impacts evaluated by Insight received a ‘red’ score and 40% a ‘green’ score.”

In 2020, green bonds remained the biggest impact bond category, at 53% of issuance, but the rise of social bonds was striking, marking an almost nine-fold increase to $161bn in issuance (from $18bn in 2019), propelled by the global response to Covid-19. Issuance in sustainability-linked bonds increased by 67% on 2019. Insight anticipates a similar total impact bond issuance for 2021, albeit with lesser volumes in social issues, made up for by increases elsewhere, particularly sovereign debt and steady growth in corporate sectors.

Kendall added: “More broadly, fixed income investors might consider the extent to which they are acting to influence the structure of new issuance. Corporates can be receptive to direct engagement and feedback. Also, for asset owners such as pension funds, the nature of fixed income investing requires the long-term management of sustainability issues. There is great opportunity to incorporate impact objectives within mandates.”

¹Figures shown in USD. All data sourced from Bloomberg. Currency conversion could result in a significant impact on the figures shown.