ESG Watch: First half 2021 record breaking but this is not the end

Both the EU and the ECB are pushing the issue of ESG forward. However, the markets are not lagging behind. EUR ESG bond issues in the first half of 2021 have already reached the level of the entire year 2020. As at the beginning of the year, we continue to expect the volume of issues in 2021 to more than double compared to 2020. The immense growth potential comes primarily from the SSA area and here we expect a further boost from debuts in the ESG area of Spain and the NGEU program. In total, we believe it is possible that over EUR 500 bn of EUR denominated ESG bonds will be issued this year.


  • Q1 2021 is the record quarter for ESG issuance so far but we expect this record to be beaten already in H2 2021
  • We expect EUR ESG new issuance to reach EUR 500 bn in 2021
  • In the medium term, we expect ESG bonds to represent 30% of primary market volume
  • The Social Bond trend seems to be over, Sustainable Bonds and Sustainable Linked Bonds are the products of the hour
  • Country and industry mix is becoming more and more colorful - the EU, Italy and Spain are driving significant volume growth
  • The CEE region has an incredible amount of untapped potential in ESG bonds
  • Austria is becoming richer in ESG issuers, the Republic itself is still missing

ESG bond market volume where is the journey heading?

In the first half of 2021, EUR 223 bn of EUR ESG issues were placed. With EUR 115 bn placed, the first quarter of 2021 represented the strongest ESG issuance quarter ever. However, we expect this record to be history by Q3 or Q4 at the latest. In particular, the green portion of the NGEU program is likely to shape the green bond market in the future and make the EU the world's largest green bond issuer in a very short time. Likewise, with the SURE program, the EU became one of the largest Social Bond issuers in the world in a short period of time.

All in all, we expect the EUR ESG bond issuance volume to more than double again compared to the previous year, which almost doubled compared to 2019 as well. More precisely, we expect EUR ESG issuance volumes of more than EUR 500 bn in 2021, with growth coming particularly from the SSA sector. We have already briefly outlined the role of the EU here. We expect the EU to start placing green bonds as part of the NGEU program in H2 2021. For 2021, we expect a green bond volume from the NGEU program of EUR 20 - 25 bn. From 2022, we expect a green bond volume of at least EUR 50 bn per year from the NGEU program. Another important growth driver is the sovereign sector, with Italy (already in the market in H1 21) and Spain (planning issuance in H2) being the most important ones. Globally and across all currencies, we expect ESG bond issuance to exceed USD 1,000 bn this year. These volumes again underline that the EUR is and will remain the dominant currency for the ESG market, well ahead of the USD market.

Chart 1 - EUR ESG bond issue volume quarterly
Source: Bloomberg, Eikon, Raiffeisen Research

Share of ESG bonds in the EUR fixed income market

The EUR bond market is on a dynamic expansion path. Annual volumes placed have increased from EUR 1,000 bn to well over EUR 3,000 bn in 2020. This year, the volume could be surpassed again and an annual volume in the order of EUR 3,600 bn (in the medium term, we expect an annual volume in the range of EUR 2,500 bn) could be reached. Thus, our expected issuance volumes of EUR 500 bn of ESG bonds would be equivalent to a share of just under 14% of new EUR issuance in 2021. Thus, we will continue the dynamic growth path in 2021. In 2018, ESG bonds still accounted for 5.6% of the EUR new issue market; this share rose to 8% in 2020 and is already 13.3% by the half-year point of 2021. In our view, however, there is still a lot of room for improvement and in the medium term we expect 30% of new EUR issues to be ESG products. We can also imagine that transition bonds, for example, will play a major role. On a quarterly basis, we saw the highest share in Q4 2020 so far with over 18% ESG bonds.

Chart 2 - Share ESG new issues of total new issues (EUR denominated)
Source: Bloomberg, Raiffeisen Research

The type of ESG bonds in rotation

For many years, the ESG bond market was actually synonymous with Green Bonds. This picture changed significantly with the beginning of the COVID-19 crisis in Europe - suddenly Social Bonds were en vogue. These rose from a niche existence to a main ESG bond pillar in a very short time. At their peak, in terms of market share of EUR ESG new issues, they reached 58% of ESG issuance volume in Q4 20, outpacing Green Bonds. From our point of view, this was only a short peak which was supported by the EU-SURE program (EU short-time work program) and other measures to cushion the impact of Corona. In our view, the share of Social Bonds will decline again significantly in the coming quarters.
This share will be replaced in particular by Sustainable Bonds and Sustainable Linked Bonds (SLB) in the short term. In our view, both of these ESG bond classes have advantages for issuers and are ultimately more flexible than pure Green Bond or Social Bond frameworks. Sustainable Bonds allow the issuer to choose or mix the best of both worlds (Green + Social) and are therefore especially suitable for SSA issuers, who only need one program (example Slovenia). SLB bonds, on the other hand, allow the issuer any freedom in the use of funds as the inflows from the issue do not necessarily have to be invested in ESG improvements, but the issuer only commits to comply with pre-agreed ESG targets. However, we believe that the transformation of the ESG market is far from complete. We expect further products to gain in importance here. While we believe that Blue Bonds, for example, will always be a niche product under the Green Bond category, we particularly expect that Transition Bonds should or must play a major role in the first phase (until 2030).

Chart 3 - Share of EUR ESG issues per different ESG categorie
Source: Bloomberg, Raiffeisen Research

Not only the type of bonds, but also the type of issuers are in transformation

On the one hand, the geographical footprint of EUR ESG bonds is becoming more and more widespread. For example, South American-, Asian- and Australian issuers have placed EUR ESG bonds, as the EUR market is currently extremely attractive for ESG issues - also thanks to the clear support of the EU and the ECB. In Europe, too, the field of issuers continues to grow - with the EU, Italy and Spain the most important new issuers have already been mentioned. Not only Western European issuers are seizing the opportunity, but also issuers from the RBI core region are increasingly placing in the ESG area, even if the dynamics are still lagging behind the overall market. Slovenia, for example, has just priced a sustainable bond and Serbia is also considering an ESG issue.

Chart 4 - EUR ESG bond issuances per country
Source: Eikon, Raiffeisen Research

The ESG issuer picture is also changing when we look at it on an industry basis. More and more new industries have been added as ESG issuers. While utilities used to dominate the corporate sector, more and more issuers from a wide range of industries are now entering the ESG market. In particular, it is noticeable that the share of the formerly very dominant utility sector is strongly declining and especially the real estate sector is discovering ESG as a funding source. But also almost all other industries are becoming more active in the ESG bond market, with a large number of issues from the consumer sector (cyclical and non-cyclical) currently standing out. Also striking is the development of the energy sector, where Repsol, Eni, PKN and Neste Oyj, among others, have already issued large-volume ESG issues this year, taking advantage of the immense investor interest in these products. Especially the EUR benchmark Green Bond issue of the Polish PKN is in our view an example of how the ESG market can also accompany or promote a transformation and in our view an excellent example of the market potential in the CEE region.

Chart 5 - Share of ESG issues per industry
Source: Bloomberg, Raiffeisen Research

Role of ESG bond in Austria and CEE

As already mentioned above, there are positive examples in the region. Nevertheless, the market is still clearly lagging behind its possibilities. Especially if we look at the potential CO2 savings compared to many core European countries, it seems to make sense to finance the green transformation in the CEE region to a large extent by means of EUR-denominated ESG bonds. This is currently also a focus of RBI, which not only plays a pioneering role as an issuer of green bonds in Austria, but also in the Czech Republic and Slovakia, as well as in Romania (in Ron). In addition to its pioneering role as an issuer, RBI also currently occupies the top position in terms of its role in the region in the DCM area. No other bank has successfully placed more ESG issues from the region in recent months.
Currently, the market is still dominated by a few issuers from even fewer countries. With Slovenia, we had at least one new entrant this year that made an extremely successful debut (read more here). Serbia is also thinking about a similar step and for Romania it would be the next logical step in our opinion. Overall, however, the market is still in its infancy.

Chart 6 - Issue volumes EUR ESG bonds in the RBI core regions
Source: Bloomberg, Raiffeisen Research

The share of Austrian EUR ESG bonds outstanding almost corresponds to the current volume of the entire CEE region. A similar picture emerged in 2021. Here, too, Austria clearly occupies the top position. It should also be noted that some CEE issuers such as CPI Property in the classic Bloomberg search are not assigned to the CEE region - but this does not change the big picture that especially the EU-affiliated CEE countries have a huge almost untapped potential in the coming years. For a long time, the Austrian ESG bond market was dominated by issues of RBI, which is the number 1 on the AT market in terms of volume, and by issues of Verbund. Since 2020, more issuers have joined the market, e.g. EVN, Uniqua, Hypo NOE, UBM, Oberbank, VIG, Hypo Tirol, S-Immo, Erste and Kelag have placed ESG issues. There are still no ESG issues from the Republic of Austria, but in our opinion this is only a matter of time and will give the Austrian ESG market an additional tailwind.

Chart 7 - Share EUR ESG issues*
*per country in the RBI core regions; Source: Raiffeisen Research
Chart 8 - EUR ESG new issue share 2021*
*for the RBI core regions; Source: Raiffeisen Research

This is also evident if we look only at the share of CEE countries in EUR ESG new issues. This was well below 1% in 2020 and is currently also just about one percent. For a long time, Polish government bonds played a pioneering role in this area, but in the last two years Poland has significantly scaled back its efforts in this direction.

Chart 9 - Share of the EUR ESG bond issuance per year of the whole EUR ESG market
Source: Bloomberg, Raiffeisen Research
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Joerg leads the Fixed Income & ESG Research department. Before joining Raiffeisen Research, he gained expertise in international consulting projects, auditing and risk management, which gives him a broad perspective as he analyzed companies from different angles. In recent years Joerg has been working intensively on the topic of sustainability in the financial markets and developed the RBI ESG Scoring Tool for this purpose. If you have questions about all kinds of sustainable financial products, Joerg is the right person for you. Joerg is CFA Charterholder graduate in business administration and economics.