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S&P Global Ratings

Modest 2018 Growth A Strong Market Fundamentals For 2019

S&P Global Ratings

S&P Global Ratings' Global Outlook 2019

ESG Monthly: November 2019

S&P Global

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S&P Global

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Modest 2018 Growth A Strong Market Fundamentals For 2019


- The green bond market is expected to remain resilient to the bearish global fixed-income market, with issuance likely to reach $180 billion in 2019, following a record high of $167 billion in 2018.

- Strong market fundamentals--policy and regulation, rising awareness of environmental risks, and new business opportunities--are likely to continue to support growth in green financing in 2019.

- However, we expect growth in new green-labeled issuance to remain below the historical annual growth rate of 80%, as the market matures and macroeconomic uncertainty persists.

- Financial institutions are expected to continue to play a more prominent role, both as issuers and investors in the green bond market.

- We expect sustainable finance to continue to grow as issuers incorporate broader sustainability considerations into their investment decisions.

Jan. 19 2019 — The labeled green bond market may grow by a healthy 8% in 2019, despite slowing global issuance overall and the likelihood of a shift in the credit cycle. In S&P Global Ratings' view, strong market fundamentals and a continuous stream of new issuers and financing instruments may push green issuance to around $180 billion in 2019 from a record-high $167 billion in 2018 (source: the Climate Bonds Initiative [CBI]). We expect financial institutions in particular to continue to increase their share of green bond issuance in the coming years, as investment needs for the transition to a low-carbon economy increase. Beyond the green bond market, we also foresee the issuance of other sustainability-related financing instruments, such as environmental, social, and governance (ESG) bonds, accelerating.

As part of the global fixed-income market, green bonds aren't immune to changes in credit conditions there. Macroeconomic factors--in particular the gradual tightening of monetary policies in Europe and the U.S.--are triggering a shift in the credit cycle and contributing to a 3%-4% decline in absolute fixed-income issuance globally. Although not a decline, growth in annual green bond issuance slowed to 3% in 2018, from 85% in 2017 (see chart 1). In the U.S., the slowdown in new green-labeled issuance from U.S. municipalities mirrored that in the broader U.S. fixed-income market following the revision of the U.S. tax code in 2017, which significantly reduced issuers' ability to refinance their existing debt.

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