Following a strong start to the year, the ESG-labelled bonds market logged a noticeable deceleration in the second quarter of 2024, according to Sustainable Fitch. In a new report, the data provider noted issuance value fell by 31% year-on-year, bringing the tally for the first half of 2024 to 14% below H1 2023. Although it is likely too early to speculate on the reasons behind such a dip, Sustainable Fitch suggested they could include increased regulatory scrutiny and requirements, macroeconomic challenges – especially in China – perceived loss of pricing advantages from labelled debt (greenium), and reduced interest from “sustainably biased” institutions. In addition, while green bond issuance dropped by 29%, it continued to represent 63% of the total issuance value for the period. “This underscores their continued appeal to investors and issuers, largely due to familiarity with this type of bond and the widely shared and accepted science-based criteria on which they are based,” Sustainable Fitch said. In comparison, sustainability-linked bonds (SLBs) had a “minimal presence” in Q2, representing just 4% of total issuance value. “[This] is likely due to scrutiny regarding their credibility and impact, as investors remain cautious about the effectiveness and transparency around key performance indicators and targets,” Sustainable Fitch said. On the ESG regulation front, nature and supply chains have taken central stage this year – with the report pointing to the EU’s adoption of the Nature Restoration Llaw and the Corporate Sustainability Due Diligence Directive, as well as the US’ Federal Supplier Climate Risks and Resilience Rule and India’s BRSR Core-framework.
