Emerging markets drove an increase in the global issuance of green bonds in the third quarter, thanks largely to a more favorable regulatory environment.
There were 742 green bonds issued globally in the three months to September-end, up 15.2% year over year and 3.5% quarter over quarter, according to data from the Climate Bonds Initiative. The 193 bonds issued in Asia-Pacific — home to many of the emerging markets that drove the overall increase — was the region's second-highest quarterly figure since at least the beginning of 2022. By comparison, the 347 green bonds issued in North America — which had the highest overall issuance by region — was just the seventh-most since the start of 2022.
At the same time, the $2.30 billion cumulative value of issuance in Latin America, home to other key emerging markets, was its third-best quarterly tally since the start of 2022, the Climate Bonds Initiative data shows.
Emerging markets are accelerating green bond issuance due to "looser regulations," or in some cases a lack of regulation, according to Jesline James, ESG assurance manager at KPMG UK.
Taiwan, Malaysia, the Philippines and the Czech Republic were particular hotspots for green bond issuance, said Krista Tukiainen, co-founder of Climate Aligned, a London-based fintech developing AI specifically for climate investment.
In many cases, governments in emerging markets, such as Brazil, are enhancing the regulatory environment for green finance through tax incentives. "In 2024, the Brazilian government introduced incentives for green bonds, including tax exemptions for international investors, and regulatory support for projects meeting sustainable criteria," Tukiainen said.
New emerging market countries are also joining the green finance movement. For example, India issued its first sovereign green bond in January, establishing a benchmark for the local green bond market, Tukiainen said.
The increased issuance of green, sustainability, sustainability-linked and social (GSSS) bonds in emerging markets is also driven by improved sentiment following the inflationary stresses of 2022, according to a report European asset manager Amundi published in May. The report forecasts GSSS bond sales to grow 7% annually through 2025.
While the number of global green bonds issued grew, the value of that issuance dropped in the 2024 third quarter to $133.61 billion quarter over quarter from $151.70 billion, according to Climate Bonds Initiative data. This was, however, a 24.6% year-over-year improvement from the third quarter of 2023, when $107.20 billion worth of green bonds were issued.
Stringent EU regulations
Green bond numbers and volumes rose in the US and Asia-Pacific markets but slowed in Europe, quarter over quarter.
"European markets are being caught by stringent regulation, so it makes sense that there is a decrease in the volume to mitigate the chances of misrepresentation by greenwashing. I expect this trend to continue into the new year," James said.
New European green bond regulations, effective Dec. 21, 2024, require deals to be at least 85% aligned with the EU's green taxonomy, according to the EU's EUR-Lex website. Restrictions on the remaining 15% aim to further enhance transparency, credibility and comparability in the green bond market, assessing issuers' ESG stances.
Top issuers
Nonfinancial corporates issued the largest share of green bonds in the third quarter, at $42.28 billion, or 31.64%, of the total. Banks followed, issuing $30.53 billion, or 22.9%, of the total. Sovereign and government-backed bonds jointly totaled $49.18 billion in the period, while development banks issued $9.61 billion in the third quarter, a slight decrease quarter over quarter.
Green bond issuance from development banks could increase next quarter, according to Tom Eveson, vice president of corporate solutions at Morningstar Sustainalytics. "Development banks are increasingly using green bonds to channel more capital into emerging markets," he said.
By country, the US led green bond issuance with $20.34 billion in the third quarter, followed by mainland China at $17.86 billion and Germany at $14.75 billion.
Trump reelection
Uncertainty surrounding the recent US election campaign slowed corporate activity, said Eveson, affecting green and "vanilla" bonds, which are those not related to ESG.
The reelection of Donald Trump following the Nov. 5 election is likely to lead to a "slowdown" in climate policies, and in some cases a reversal of legislation, according to Tukiainen.
Tukiainen said that if Trump rolls back the Inflation Reduction Act (IRA), for example, market issuers may struggle with green labeling, despite projects qualifying for existing subsidies. Only an expanded IRA could improve the political climate for green labeling, easing ESG hostility concerns.
"This hostility often relates more to social justice issues than environmental concerns," she said.