Moody’s Lowers Forecast for Global Green Bonds Issuance due to COVID-19

Moody’s has lowered its forecast for global sustainable (green) bonds issuance this year after economic fallout from the coronavirus outbreak

Bond credit rating agency Moody’s has stated that it has lowered its forecast for global sustainable bond issuance this year after economic fallout from the coronavirus outbreak reduced green bonds volumes in the first quarter, even as social bond issuance rose to a record.

In a report published recently by Moody’s Investors Service, it was revealed that the total sustainable bond issuance fell to USD 59.3 billion in the first quarter of 2020, down 32 percent from the previous quarter, as green bond volumes declined 49 percent to USD 33.9 billion. Still, social bond issuance reached USD 11.9 billion, more than double the previous quarterly record, while sustainability bonds registered a strong USD 13.4 billion total. The surge in social and sustainability bonds has been primarily led by multilateral development banks, which have increasingly turned to these instruments to finance their coronavirus response efforts.

“We now expect green bond volumes of USD 175-225 billion this year, down from our original USD 300 billion forecast,” said Matthew Kuchtyak, AVP-Analyst at Moody’s. “However, we maintain our combined USD 100 billion forecast for social and sustainability bonds, given the heightened market focus on coronavirus response efforts.”

“Greater emphasis on social finance and sustainable development will likely be one of the lasting outcomes of the coronavirus crisis.”

Furthermore, the report also detailed that there was an increase in liquidity borrowings in the first quarter by investment-grade companies seeking to fortify balance sheets in anticipation of an economic slowdown. This was especially evident in the last two weeks of March when a surge of borrowing contributed to an all-time monthly record for new bond issuance from US investment-grade companies. Such borrowings are often brought to market quickly with proceeds not tied to specific projects, two characteristics that potentially explain the drop in use-of-proceeds sustainable bonds.

Moody’s continues to see a number of factors supporting growth in sustainable bonds over the long run. These include strong investor demand, heightened governmental focus on climate change and sustainable development, gradual greening of the financial system, and increased issuer focus on highlighting sustainability plans to stakeholders.

In August 2019, the rating agency had predicted that the global green bonds issuance in the financial year 2019 was expected to reach and perhaps even cross the record USD 200 billion mark. “The global green bond market hit a new all-time quarterly high in the second quarter of 2019 as issuers brought  USD 66.6 billion of green bonds to market globally, propelling the first half of 2019 issuance to a record USD 117 billion,” the credit rating agency had stated in an analysis.

“Following its strong performance so far this year, the green bond market remains on course to eclipse our 2019 forecast of  USD 200 billion of total issuance,” the agency, an arm of the financial services firm Moody’s Corporation, said in its report. It added that the first-half issuance was 47 percent higher than issuance in the same period of 2018 after issuance grew just 11 percent year-on-year between the first six months of 2017 and 2018.