Issuance volumes of green, social, sustainability and sustainability-linked (GSSS) bonds grew modestly in 2023 to $946 billion from $925 billion in 2022, maintaining a record 14% share of overall bond issuance, with continued growth in Europe and Asia Pacific markets offset by another year of sharp declines in North America, according to a new report from Moody’s Investors Service.

For 2024, Moody’s forecasts the GSSS market to hold steady at around $950 billion, as increased investment in and adoption of green technologies help the market maintain resilience in the face of an environment of higher-for-longer interest rates and moderating economic growth.

By region, Moody’s anticipates that Europe will maintain the largest share of GSSS volumes, after accounting for 45% of issuance in 2023, with sustainable bonds representing 20% of total bond issuances, and growing to $428 billion in 2023 from $411 in 2022, as sustainability issues remain top of mind for issuers. Similarly, GSSS issuance remains strong in Asia Pacific, hitting $234 billion in 2023 compared to $219 billion in 2022 and $194 billion in 2021, as countries including Japan and Singapore implement sustainable finance policies.

In North America, by contrast, sustainable bond volumes continued to decline in 2023, falling by more than 20% in the year to $110 billion from $139 billion the prior year, and representing only 4% of overall issuance volumes. Moody’s anticipates that volumes may bottom out in the region in 2024, with tailwinds from incentives from the Inflation Reduction Act driving increases in green technologies, although the report also notes uncertainty from the upcoming U.S. election on federal climate policy clouding the issuance outlook.

By bond type, Moody’s estimates green bond volumes will increase modestly to $580 billion in 2024, up 3% from $564 billion in 2023, as issuers from across sectors finance climate transition plans, and companies in hard-to-abate sectors invest in capital intensive projects to meet decarbonization commitments, with growing policy support improving the cost competitiveness of climate technologies such as green hydrogen, biofuels, battery storage and carbon capture, utilization and storage (CCUS).

Social bond volumes are expected to fall slightly in 2024, according to the report, declining to around $150 billion from $160 billion in 2023, as issuers integrate social features into broader sustainable financing frameworks, and turn to sustainability bonds – anticipated to grow to $160 billion from $150 billion in 2023 – to combine green and social use of proceeds.

Following years of sharp growth before dropping off significantly in 2022, sustainability-linked bond (SLB) issuance volumes levelled off in 2023, with Moody’s anticipating a modest decline in 2024 from $62 billion to $60 billion, as issuers continue to face challenges from investor scrutiny over issues such as the credibility and robustness of the bonds’ linked sustainability targets. While challenges for the still-developing SLB market persist, Moody’s notes that the quality of sustainability-linked bonds has been improving, and finds that new issuers continue to support the market, representing around two-thirds of issuers in 2023, compared to only around 31% of other GSSS bond types.

Adidtional factors highlighted by Moody’s that may support the GSSS market include the emergence of regulatory green bond standards, such as the new European Green Bonds (EuGB) label, addressing greenwashing concerns and growing investor scrutiny of labelled instruments, and the growing reliance by sovereign emerging markets issuers of sustainable finance markets to fund their climate mitigation and adaptation plans and address the climate finance gap for developing economies.