Singapore ranks second in Apac for ESG bonds issuance in H1 2024: MSCI

THE growing prominence of labelled bonds in global bond benchmarks in H1 2024 suggests that these bonds are growing faster than the wider bond market, said MSCI following research on green, social and sustainability labelled bonds.

In a report, the investment research company noted a net addition of US$350 billion in the first half of 2024 to the labelled-bond market, bringing the total market value to US$3.8 trillion.

In Asia-Pacific, the top issuers were Australia at US$12.4 billion, followed by Singapore at US$4.6 billion and India with US$3.2 billion.

However, the report showed that Apac-based issuers lagged for long-term, cumulative issuance while European issuers dominated the market.

Although total labelled-bond issuance in H1 remained comparable to levels seen a year ago, MSCI anticipates a slowdown in H2. In the past two years, issuance was also significantly stronger in the first half and typically tapered off in the second.

Continuing shift

The labelled-bond market brings together issuers that may wish to raise capital to finance various environmental and social commitments, and build rapport with sustainability-oriented investors.

However, MSCI highlighted that many self labelled bonds have not been assessed by a third party for their alignment with recognised external frameworks, and may have limited contribution to sustainability-related investment objectives.

Nevertheless, in terms of the most frequently issued labels, green bonds continued to dominate the labelled-bond market. Sustainability bonds ranked second, representing 21 per cent of issued bonds and 19 per cent of outstanding bonds.

Social bonds were third, accounting for 12 per cent of issued and 18 per cent of outstanding bonds. Meanwhile, sustainability-linked bonds comprised 4 per cent of issued and 6 per cent of outstanding bonds.

MSCI anticipates that the labelled-bond market may be further supported by issuance under the EU Green Bond Standard, which will apply from December 2024, and attract investors looking to align with net-zero targets. The initiative is a voluntary standard that aims to define what qualifies as “green” funding through a self-labelled green bond.

Issuers in the Europe, the Middle East, and Africa region, primarily from the European Union, have issued a substantial 47 per cent of all labelled bonds by the end of H1 2024, according to MSCI. This is despite the region accounting for only about 25 per cent of global emissions.

In contrast, the Apac region is responsible for 55 per cent of global emissions but has issued only 22 per cent of all labelled bonds.

In terms of issuer types, the MSCI report indicated that corporate issuers led in the first half of the year, with US$250 billion worth of labelled bonds, accounting for 56 per cent of the total. Meanwhile, supranational, sovereign, and agency entities issued US$200 billion, representing 44 per cent of the total.

“This reflects a continuing shift in the labelled-bond market, with corporate issuers playing a more central role. The market performance of labelled bonds largely mirrored that of the broader bond market, influenced primarily by traditional fixed-income risk and return factors,” said MSCI.