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Prospects for green bonds and social impact bonds

Leon Saunders Calvert
Leon Saunders Calvert
Head of Sustainable Finance, Lipper and I&A Insights

Sustainability bonds have been on the rise for the past few years. Despite the current economic crisis, 2020 is expected to be a year of growth for both green bonds and social impact bonds. At a Refinitiv webinar, experts analyzed the prospects for sustainability financing, including the impact of the COVID-19 pandemic.


  1. In the first four months of 2020, green bond issuance increased compared with 2019, and the market is expected to grow further after the COVID-19 pandemic.
  2. Other types of sustainability bonds, such as transition bonds and KPI-linked bonds, are also increasing in issuance. However, they need to be more clearly defined to achieve momentum.
  3. The high volume of COVID-19-themed bonds that have been issued will have implications for the future, and investors should be discerning with regard to these bonds.

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So far, 2020 has been a great year for green bonds.

Our data shows that the growing interest in responsible investment continues to drive green bond issuance. While the first quarter of the year saw a slight drop in green bond issuance compared with 2019, a sudden uptick in April brought this year’s proceeds to $53.3 billion — a 3 per cent increase compared with this time last year.Demand for green bonds chart. Prospects for sustainability bonds in 2020

The fact that green bond issuance increased when most countries around the world were already in lockdown due to the COVID-19 crisis implies that we can expect to see continued growth over time.

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Green bond expectations post-COVID-19

During the Sustainability Bond Overview: Green Bonds and Social Bonds in 2020 webinar, we asked our participants what they expect to see in terms of the volume of sustainability-labeled bonds issued this year.

The overwhelming majority (75 per cent) said they expect an increase. Only 7 per cent foresee a potential decrease, while the remainder (18 per cent) predict that it will stay about the same.

Investors, traders, and sustainability professionals have good reason to be optimistic about the future of the green bond market. As Paul O’Connor, Green Bonds Executive Director at J.P. Morgan, pointed out: “The key drivers haven’t changed.”

During the COVID-19 lockdown period, we may be seeing a slowdown in growth rates in green bond issuance. However, the market is still strong, and dynamics and incentives to issue will remain after the crisis.

Global issues like climate change, plastic pollution, and population increase will not have disappeared. What’s more, the projects addressing them will continue to require financing from responsible investors.

It’s also important to note that the current situation “shines a light on business models,” as O’Connor put it. In the future, we may see an increased focus on how businesses are contributing to or undermining ESG objectives.


While green bonds are undoubtedly the most mature sustainability-labeled product out there, there is a broader sustainability financing agenda that involves several other types of bonds.

Examples of other types of sustainability bonds include transition bonds, climate bonds, and KPI-linked bonds.

To increase the issuance of these types of bonds, there needs to be more standardization about how these products are to be defined. It’s crucial to have market guidance that reflects the views of an established authority on what constitutes a good transition-bond or KPI-linked bond, for example.

Of course, a set of customary practices can emerge that is organically based on precedence, as issuers set their own criteria and the market accepts them as credible, but it’s a slow process.

“People are reluctant to come to market with propositions that are different from the precedence that has been set,” said O’Connor.

Instead of waiting for market players to arrive at a consensus, guidelines can help incentivize issuers by giving them a foothold in the market and the confidence to go ahead. Both Refinitiv and Paul O’Connor are involved in working groups that are looking to define such guidelines.

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What’s ahead for green bonds?

When the wider webinar audience was asked about the trends they predict for this year in the sustainability bonds market, they answered:


Besides concrete trends brought about by the COVID-19 crisis, there are several frequently asked questions and topics of debate concerning green bonds that are worth discussing.

Is there a price advantage to green bonds?

The question that comes up the most is: Do green bonds provide an opportunity for investors to get better pricing?

Currently, there’s no evidence to suggest that green bonds price better than conventional bonds. There is a lot of research being carried out on ‘greeniums’, but for now, the outcomes seem to vary on a case-by-case basis.

“It’s extremely difficult to isolate the influence of the green label on the overall pricing outcome,” said O’Connor. “Pricing shouldn’t be the main driver to go ahead and do a green bond. There’s no guarantee that you’ll get this pricing benefit.”

Green bonds have other characteristics that may allow them to perform better. For example, Ulf G. Erlandsson, CIO at Diem Credit, said: “There is a case to be made that green bonds will trade with lower volatility than a lot of the traditional bonds.”

How will the EU taxonomy affect the volumes of labeled bonds being issued?

There’s an undeniable regulatory overhang when it comes to labeled bonds. But developing standards needs to be balanced against an overly strict taxonomy. Erlandsson said this could be a factor in hindering the evolution of the market.

When the EU taxonomy for green bonds comes into effect, the pool of issuers who can issue bonds that are in full alignment with it — and can demonstrate that alignment — will be very small.

“More investors will be asking about alignment, but they’ll be sympathetic to the fact that alignment with the taxonomy is not going to happen overnight,” said O’Connor.

During the transition period, companies can still issue green bonds in accordance with green bond principles.

How will oil price volatility impact green bonds?

The oil sector has been hit hard by the COVID-19 crisis, with prices reaching an unprecedented degree of volatility. And yet, March and April saw the biggest volume of oil bond issuance in history.

How will this impact the transition to low greenhouse gas (GHG) energy production and the green bonds that support it?

It’s difficult to forecast trends in the energy sector. From a portfolio construction perspective, investors should consider the high correlation between the drop in oil prices and the COVID-19 crisis.

“You don’t want to have assets in your portfolio that are underperforming when the rest of the market is doing poorly,” Erlandsson said.

Non-fossil assets have an advantage on this front.

This experience may also heighten the expectation for oil and gas providers to come forward with proposals on how they’re going to diversify and adapt their business model.

Social impact bonds post-COVID-19

Historically, the role of social impact bonds has been downplayed when compared with other areas of ESG investing. However, during the crisis, social impact bonds have taken center stage, due to a sudden increase in issuance driven by COVID-19.

In April, $12.7 billion worth of social impact bonds were issued around the world, more than the total amount raised in 2019.

Demand for social bonds. Prospects for sustainability bonds in 2020

The proliferation of COVID-19-themed bonds will undoubtedly have implications.

It could mean that we now have more clarity on the connection between social and humanitarian crises and economic realities. And we may see an increase in climate-related and social bond issuance going forward.

However, investors should be discerning when it comes to COVID-19-themed bonds, and avoid issuers that are just trying to ‘ride the wave’. Financing survival in a crisis is different to financing long-term sustainability.

O’Connor suggested focusing on issuers that weren’t set up to do humanitarian work or crisis relief, but now offer propositions that reflect a change of direction and an intent to use their unique set of skills to provide a solution for COVID-19-related problems — like developing a vaccine.

The future for sustainability bonds

While the COVID-19 crisis has slowed the growth of green bond issuance, we can expect to see a return to pre-crisis momentum in the long-term.

The issuance of social impact bonds skyrocketed in response to the crisis, and we may see more alignment between humanitarian causes and economic activity in the future. Market guidelines are needed to aid the growth of other labeled bonds.

Explore Refinitiv ESG data sets to access green bonds market data for financial controllers, through our partnership with the Climate Bond Initiative (CBI), the industry standard for green bonds, as well as Refinitiv’s Environmental, Social & Governance (ESG) company database and scoring.

ESG investing

Green bond market data by Refinitiv.