Sustainable Bond Report
The International Organization of Securities Commissions (IOSCO) releases sustainable bond report, aimed at summarizing the development of the sustainable bond market and providing recommendations.
The International Organization of Securities Commissions believes that the attention of financial markets to sustainable products is constantly increasing, and the cumulative issuance scale of global sustainable bonds in 2024 has exceeded $5.7 trillion.
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Introduction to Sustainable Bond
Sustainable bonds are important financial instruments for achieving environmental and social goals, and the world’s first sustainable bond was a green bond issued by the European Investment Bank in 2007. There are two classification methods for sustainable bonds, namely financing mechanism-based classification and label-based classification.
Based on financing mechanisms, sustainable bonds can be divided into:
- Use of proceeds bonds: The funds raised by bonds are specifically used to achieve environmental or social goals and cannot be used for other purposes.
- Sustainability linked bonds: Funds raised through bonds can be flexibly allocated but are linked to the issuer’s achievement of sustainable goals and have measurable sustainable outcomes.
Based on labels, sustainable bonds can be divided into:
- Green bonds: Raising funds to achieve environmental goals, such as mitigating and adapting to climate change, protecting biodiversity, and maintaining ecosystem services. Green bonds also include climate bonds and blue bonds.
- Social bonds: Raising funds to achieve social goals such as healthcare, education, infrastructure, etc.
- Sustainable development bonds: Raising funds to achieve environmental and social goals.
- Sustainable Development Linked Bonds: Focus on whether the sustainable goals set by the issuer can be achieved.
- Transition bonds: Focus on the issuer’s climate transition and carbon reduction actions.
Development of Sustainable Bond
The global issuance of sustainable bonds has been increasing year by year from 2014 to 2021, with a high proportion of green bonds and sustainable development bonds. The issuance of sustainable bonds in 2022 decreased by 19% year-on-year, mainly due to the high-interest rate environment. The issuance of sustainable bonds increases again in 2023 and 2024 and may reach a historic high in the next two years. These increases are attributed to government subsidies reducing issuance costs, as well as the establishment of issuers’ sustainability and transition goals.
The issuers of sustainable bonds mainly include government agencies, enterprises, financial institutions, etc. Among them, the proportion of green bond market enterprises issuing has increased from 24% in 2015 to 39% in 2024. In the social bond and sustainable development bond markets, government agencies have the largest proportion of issuance, accounting for 59% and 68% respectively. Some jurisdictions have made innovations in the field of sustainable bonds, such as Hong Kong releasing the world’s first tokenized green bond to increase transparency in information disclosure.
How to Promote Sustainable Bond Development
The International Organization of Securities Commissions proposes the following recommendations for sustainable bond development:
- Improve the transparency of the regulatory framework for sustainable bonds: Referring to international sustainable bond standards to develop market guidelines and rules can enhance the interoperability of different sustainable bond markets.
- Establish classification standards for sustainable bonds: Different jurisdictions have similar classification standards for sustainable bonds, but there are differences in the definition of some bonds (such as transition bonds). Establishing a consistent sustainable bond classification standard can reduce these differences.
- Increase information disclosure requirements: Issuers should increase the disclosure of sustainable bond information to enable investors to understand the achievement of key performance goals, reduce uncertainty and greenwashing risks.
- Introduce external review: Sustainable bonds can increase external review mechanisms to ensure they comply with the description in the issuance documents and the sustainable bond framework, boost market confidence, and reduce conflicts of interest.
- Carry out educational projects: Issuers, investors, financial institutions, and regulatory agencies all need to strengthen their knowledge of sustainable bonds, possess effective capabilities, and cooperate to support the development of the sustainable bond market.
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