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.