In 2023, $229bn* was issued in Green, Social, Sustainability / Sustainability-Linked (GSS/S) format from within the FI sector, representing a 9% outperformance year-on-year (YoY).

Banks led the way, with a 12% YoY increase, partially offset by insurance and other FI sub-sectors which saw GSS/S issuance decline. Unlike the corporate and SSA segments of the GSS market, the FI sector has been the only one to see annual YoY growth since 2018, even in 2023 when the aggregate GSS/S market declined by 6%.

For 2024, we expect further growth of 3-5%, corresponding to $235-240bn of GSS supply. In 2023, 77% of supply was with a green label - a significantly higher proportion than in the broader market (59%). We do not expect to see material changes to the composition of the GSS/S mix in 2024.

*Source: Bloomberg Finance L.P., 31/12/2023

• Green product launches, such as retrofit financing, and a marked rise in social banking products, are driving sustainable lending volumes and supporting asset tagging.
• There are new entrants from within the FI sector, for example private equity.
• Green Asset Ratio (GAR) disclosures are supporting asset identification.
•  There is innovation and new structures such as Sustainability-linked Loan Bonds (SLLB).
• The ‘Cost of Living’ challenge could encourage increased social issuance, including from those issuers that don’t currently have Social Bond Frameworks.
• Financing will likely stretch beyond climate change mitigation, for example climate change adaptation or biodiversity.

• The reduction in sustainable asset registers. For some issuers, GSS issuance volumes have likely exceeded sustainable asset growth in 2023, meaning there is less ‘dry powder’ heading into 2024 than there was 12 months ago.
• Although GSS bond maturities in 2024 are slightly higher than 2023, they are still modest compared with 2025 or later, leaving little headroom for banks to refinance maturing GSS bonds against previously used GSS assets.
• Banks continue to face macroeconomic challenges, which is suppressing overall lending volumes, including sustainable lending.
• Increased scrutiny over impact reporting and additionality may lead banks to issue fewer ‘well-structured’ GSS bonds vs frequent issuance.
• The reduction of the ‘greenium’ is eroding the financial incentive for FIs to maintain active GSS programmes.

Global financial institutions’ GSS/S issuance by year

Global Financial Institutions’ GSS/S issuance split by label

• Net zero progress: Several banks published their inaugural transition plans in 2023. We expect the number of banks voluntarily publishing transition plans to increase in 2024, alongside the number of banks with Science Based Targets initiative (SBTi)-validated interim decarbonisation targets.
• Bank treasury ESG integration: We’ve observed an increase in the number of bank treasuries making public commitments to ESG integration or purchasing GSS bonds for their investment portfolios. This could prove to be a valuable source of demand for GSS issuers in 2024.
• Structural innovation: Nordea and Bank of China brought the SLLB structure to a broader range of investors by issuing in the EUR and USD markets respectively in 2023, whilst Bank of China also issued a transition bond. Other issuers may follow in 2024, although we do not think this will materially affect overall volumes.

EUR Senior: GSS issuance of €60.4bn in 2023 (+14% vs 2022), with total senior supply at €257.9bn (+10%); resulting in GSS as a % of total issuance of 23% which is same as 2022.

GBP Senior: £3.7bn of GSS issuance in 2023 (+208% vs 2022), with total senior supply at £32.0bn (+1%); resulting in a notable increase of GSS as a % total issuance to 12% (2022: 4%).

EUR Covered: GSS issuance of €22.7bn in 2023 (+16% vs 2022), with total covered supply at €192.7bn (-6%); resulting in modest increase in GSS as a % of total issuance to 12% (2022: 10%)

GBP Covered: 2023 GSS issuance is nil (2022: £0.5bn), with total covered supply at £19.6bn (+24%), resulting in GSS as a % of total issuance of nil (2022: 3%).

GSS/S activity reached new heights with unprecedented issuance of €91bn in 2023. Total volumes surpassed 2022 levels by 14% – continuing the trend of YoY increases in contrast to most sectors / geographies, which witnessed a decline. Green issuance (c. €72bn) maintained its longstanding dominance representing 79% of GSS/S issuance in 2023, marginally down on 2022 (85%) due to a rise in social issuance of 16% (+4ppt vs 2022). Sustainability (5%) and other labels (SLLB, Transition, etc.) made up the balance. Issuance was concentrated around Senior format, with Senior Non-Preferred (36%) almost being equal to Senior Preferred (35%), followed by Covered (24%), which has proportionally increased YoY, at the expense of GSS capital issuance (5%)

European Bank and Insurance GSS/S supply 2023

European Bank and Insurance GSS/S issuance breakdown 2018-2023

GSS+ markets themes

• Environmental use of proceeds continue to dominate: Despite developments in other labels, green remains the cornerstone of the GSS/S market; representing c. 60% of the GSS/S market in 2023, in line with 2022.
• International Capital Market Association (ICMA) provide guidance on blue bonds: Alongside other stakeholders, ICMA released new guidance on blue themed bonds earlier this year. The guidance builds on existing sustainable market standards such as ICMA Green Bond Principles and classifies blue use of proceeds bonds as a subset of green use of proceeds bonds. This should support additional blue economy financing in 2024.
• GSS execution dynamics remain favourable: Use of proceeds bonds, for example, achieved on average 0.3x higher o/s for EUR Corporate issuance in 2023; for Financial Institutions EUR Senior issuance the equivalent figure is 0.5x which ultimately drives the ‘greenium’.
• EU Green Bond Standard (GBS): The European green bond regulation will apply 12 months after entry into force, so from December next year, issuers can officially start marketing bonds as European Green Bonds, which may result in ‘premium pricing’.
• Product development and innovation: We have seen several developments in 2023, particularly with regards to Commercial Papers (CP), Trade Finance, Sustainable Hybrids for Multilateral Development Banks (MDBs), Sustainable-linked Loan Bonds and new ESG deposit products. These instruments could continue to come to the fore in 2024, driven by increasing precedents in the market and further market guidance.
• SLBs remain resilient amongst softer supply: SLBs account for almost a quarter of total corporate GSS/S supply in 2023, and whilst overall supply has fallen, the structure has remained resilient, accounting for the same proportion as 2022 – and structures are more robust.

Environmental themes

• Nature, the next ESG frontier: Key disclosure and investor initiatives in this area (such as the Taskforce on Nature-related Financial Disclosures (TNFD) and NA100) alongside enhanced data infrastructure will likely result in enhanced action and accountability.
• Adaptation acceleration: The increasing frequency of adverse climate events is driving urgency around climate change adaption into 2024. Companies and investors are expected to enhance stress-tests and properly embed physical risks events.
• Time for transition: A combination of government policy developments and product innovation could lead to a scaling up of transition finance in 2024 – across entities, activities and instruments, driving transition frameworks by sovereigns.
• Carbon impact on supply chains in the spotlight: Organisations will likely look more to improve the carbon impact of supply chains, amidst pressure from stakeholders, enhanced regulatory scrutiny and enhanced data solutions.

As always, if you would like to discuss any of the above further, please reach out to our authors:

• Caroline Haas, Head of Climate and ESG Capital Markets
• Doug Shuffman CFA, Vice President, Climate and ESG Capital Markets
• Jake Hallam, Vice President, Climate and ESG Capital Markets
• Pulkit Khurana, Associate, Climate and ESG Capital Markets
• Siobhan Wartnaby, Analyst, Climate and ESG Capital Markets

* For further analysis and information on the Primary Market, take a look at the full monthly newsletter on Market Insights. If you do not have access to Market Insights, please contact us. Also, for any unfamiliar terms used within this article please refer to our insights glossary.

Additional information

1 Source: NatWest Markets Syndicate (31/12/23), includes Global Financial Institutions EUR & GBP Issuance.

2 Includes European Bank & Insurance GSS/S Issuance

3 Source: Bloomberg Finance L.P (31/12/23)