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Europe set to accelerate green bond issuance to €500 billion in 2022

green bond, green bond issuanceGreen bond new issuance is set to accelerate by 25% to €500 billion in 2022, with Europe leading the spike, forecasts from NN Investment Partners (NN IP) show.

The majority of momentum stems from Europe after the European Union issued €250 billion over the next five and a half years to support the Next Generation EU fiscal plan. 

Alongside this, the introduction of the EU Taxonomy which defines clear green criteria for a number of sectors should also encourage issuance, NN IP said.

The firm’s prediction for 2022 shows that green bond issuance is likely to grow by €100 billion from levels in 2021 to around €500 billion in 2022. 

Social bond issuance is likely to grow by €25 billion to €200 billion in 2022, while sustainability bond issuance is likely to grow by €55 billion to €200 billion. 

The growth in sustainability bond issuance and growth bond issuance has likely been “constrained” by a lack of clear definitions and although the EU Social Taxonomy may help, it is still in draft form.

Douglas Farquhar, client portfolio manager, green bond, at NN IP, said he expects growth in the labelled fixed income market to remain dominated by European issuers and entities.

“The EU is expected to take centre stage on issuance with an estimated €50bn- €100bn in green bonds coming to market in 2022 to support European countries hit hard by the COVID-19 crisis. We are also expecting a strong acceleration of sectors that have previously lagged in green bond issuance, including metal and mining companies, oil and energy companies and chemical companies.”

Farquhar added that the US will also start to play a more dominant role in the sustainable fixed income market. 

“While we have not seen any signs at this stage that the US Treasury is planning to issue green or other labelled bonds, it may look to emulate European success in the longer term,” he said.

Sustainability, social and transition bonds have proven popular as a result of the Covid-19 pandemic and governments issuing social bonds to support recovery efforts. 

The expansion in the market continues and investors have exposure to provide additional liquidity and diversification for investors who want to make green bonds a replacement for part or all of their fixed income allocation.

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