Columbia Threadneedle: Specific use of proceeds bonds hitting 0.5 trillion dollar

Columbia Threadneedle: Specific use of proceeds bonds hitting 0.5 trillion dollar

December 4, 2020

ESG-investing Fixed Income
Outlook vooruitzicht (09) koers omhoog koersgrafiek

By Dr. Ben Kelly, Senior Thematic Analyst, Responsible Investment at Columbia Threadneedle Investments

As we approach the end of 2020 we have seen continued strong growth of ‘specific use of proceeds bonds’ and hit $0.5 trillion of new issues this week. This is an increase of 64% increase on the 2019 issuance. What has been particularly pleasing is not just the growth, but also the breadth of investing.

Bond issuance is no longer just the preserve of development banks and supranational agencies, corporates and sovereigns have been highly active during 2020 as well. September was the largest-ever month of ‘specific use of proceeds’ issuance at $91.8bn which was then followed by the second-largest month of issuance in October at $83.5bn.

November also continued this momentum with $54.1 bn issued. To put it into context, the volume of issuance in these last months exceeds the total specific use of proceeds issuance in 2018 ($180 billion). Highlights during this period include the inaugural green bonds from Sweden and Germany and the world’s first sovereign sustainability bond from the Duchy of Luxembourg.

We also observed the world’s first sovereign to issue an UN Sustainable Development Goal (SDG) bond focusing on social projects located in 1,345 municipalities in Mexico selected because of illiteracy rates, school attendance rates, level of health services deprivation, lack of drainage or piped water in houses and the absence of electricity access.

When looking at specific sectors, we are also pleased to see a number of car manufacturers issuing inaugural green bonds to support the transition to electric vehicles such as Volkswagen, Volvo and Daimler.

Social bond issuance in particular has been propelled into the spotlight and increased by 894% year on year, clearly catalysed by Covid-19 even though we were seeing this trend before the pandemic started. We do not expect this to be transitory in any away.

As we look to 2021 we would expect this growth to continue across ‘specific use of proceeds bonds’ as governments, corporates and investors become ever more focused on green and social issues. We may even see further issuance records. One such area could be Green Hydrogen. Advocated by many as a potential clean energy solution to decarbonise the hard-to-abate sectors of the economy, it could become a conduit to achieving net zero targets in 2050. This is particularly relevant as 66 national governments now have net zero targets.

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