2023: Green Bonds to dominate sustainability-linked debt

Green bond issuance is likely to climb further in 2023 as major governments and transnational institutions increase sales, while other types of sustainable debt are expected to develop much more slowly. The Climate Bonds Initiative estimates that green bond issuance totalled $487.1 billion last year, down from $522.7 billion in 2021.

According to Moody's Investors Service, the broader sustainable bond market, which includes green, social, sustainability, and sustainability-linked bonds (GSSS), witnessed a fall year on year in 2022 for the first time since 2011.

Apple Inc. invested $4.7 billion in the form of green bonds, which have supported revitalizing the development of new low-carbon manufacturing and recycling technologies. Since 2016, Apple has issued three green bonds, with projects exhibiting path, the investments can diminish global emissions and bring clean power to communities around the globe. As part of this exertion, Apple is procuring direct carbon-free aluminium following a major advancement in smelting technology to reduce emissions. In the initial stage, the aluminium is produced at an industrial scale outside of a laboratory without creating any direct carbon emissions during the smelting process.

Matt Kuchtyak, Vice President for Sustainable Finance at Moody, said, "The macroeconomic environment has impacted issuance in bond markets. However, bond issuance fell 27 per cent in 2022 following record fixed-income sales in the preceding two years."

"We expect a little pickup in issuance this year, but not a very different story in 2023 (and) the same forces impacting broader debt issuance is also affecting sustainable bond markets."

The Atlanta, Georgia-headquartered American industrial aluminium company Novelis Inc. on 16th May 2022, released its first Green Bond report. The leading sustainable aluminium solutions provider and world leader in rolled aluminium products issued a 500 million EUR (approximately $588 million) Green Bond in March 2021 to fund projects aligning with its environmental sustainability priorities. As of 31st March 2022, Novelis has allocated $140 million of the net proceeds of this issuance to finance new or existing projects to increase aluminium recycling capacity and reduce primary aluminium usage, including improvements at recycling facilities in the U.S., Brazil, South Korea and Germany. When accomplished, the Green Bond projects anticipated restraining carbon emissions by more than three million tonnes annually.

Moody's predictions in 2023, the GSSS will issue $950 billion, of which $550 billion will be green bonds, $150 billion in social bonds, $175 billion in sustainability bonds, and $75 billion in bonds linked to sustainability (p4).

The second-largest investment bank in the world by revenue, Goldman Sachs, predicts green bond issuance will reach a record 600 million euros ($652 billion) in 2023, which is a more optimistic prediction. Euros account for over two-thirds of green bond issuance, demonstrating Europe's supremacy in developing sustainability-focused finance.

The leading financial institution stated Green Bond sales would benefit from three factors: more issuance to support the transition away from fossil fuels, robust investor demand, and more substantial policymaker incentives and standards.

The high-purity alumina provider Altech Chemicals, which aims to become the world’s largest supplier in its segment, has entered the conclusive stages of a $195 million listed green bond offering to dispense additional financing for the construction of a planned $400 million high-purity alumina (HPA) plant in Malaysia. Out of the funds raised, around $135 million will be utilized as secondary debt for the construction of the 4,500 tonnes per annum plant in the state of Johor, Malaysia, with the balance to be allocated for bond coupon (interest) repayments. The bond offering will be in counting to a $257 million credit facility already committed by Germany’s state-owned KfW IPEX-Bank.

In its first green bond issuance this year, India raised INR 160 billion by selling two tranches of Green Bonds in January and February.

On January 31, 2023, Vedanta Aluminium announced that it had raised $250 million through sustainability-linked loans from international banks to finance its capital expenditures and lessen its carbon impact. The ability of the borrower to satisfy sustainability goals is a factor in the interest rate of sustainability-linked loans. However, the company intends to use these funds for capital expenditure to achieve the decarbonization and safety performance criteria used to determine the loan terms. The loan will fuel the company's expansion, including manufacturing value-added aluminium products. International banks from the Middle East and the Far East, such as Mashreq Bank, First Abu Dhabi Bank, and CTBC Bank, are among the lenders.

Green bonds are virtually identical to conventional bonds, with the exception that the funds obtained must be used for certified environmentally friendly projects or activities. More straightforwardly, it is stated that a green bond is a type of fixed-income instrument designed primarily to raise capital for environmental and climate change initiatives. These bonds often have the same credit rating as their issuers' other financial obligations because they are typically asset-linked and backed by the issuing entity's balance sheet.​

Rusal, one of the leading global aluminium producers, has signed a new five-year sustainability-linked pre-export finance facility for USD$ 1.085 billion. The financed amount is increased from the initially announced USD 750 million because of Rusal’s commitment to low-carbon aluminium technologies and green aluminium production. This finance facility is the first-ever sustainability-linked syndicated facility arranged by international and domestic commercial banks in Russia. The interest rate is linked to a sustainability discount or premium determined by the company’s fulfilment of the sustainability key performance indicators (KPI).

In January, the European Union introduced more decisive sustainability reporting criteria, and the accounting organisation IFRS will follow suit by June. China unveiled its green bond principles in July 2022, which, like European revisions, strengthened current restrictions to make them more environmentally demanding for issuers.