The Numbers Behind 2023’s Impact Bond Growth
Key Trends from the Q1 2023 Global Impact Bond Market
The act of investing in impact bonds has garnered substantial traction, as corporations and governing bodies endeavor to uphold transparency and social accountability.
During the first quarter, green bonds continued to be the most prevalent form of impact bond, accounting for 64% of all impact bonds that were issued. The popularity of these bonds, which provide financial support for sustainable energy initiatives, is increasing on a global scale. The market for impact bonds experienced a twofold increase in the issuance of sustainability bonds, which constituted 21% of the overall market. There was a marginal rise of 2% in the issuance of social bonds.
The first quarter of 2023 saw noteworthy growth in the global impact bond market, with an issuance amounting to $236 billion. This figure denotes a 36% surge from its preceding quarter, Q4 2022, and an 11% increase from the first quarter of 2022. The proportion of impact bonds in the overall bond market increased slightly from 1.7% to 1.8% from Q4 2022 to Q1 2023, respectively.
Additionally, the percentage of impact bonds that received third-party certification increased from 87% during the first quarter of 2022 to 89% during the first quarter of 2023.
Impact Bonds by Region
The impact bond market exhibited noteworthy expansion in all regions during Q1 of 2023.
In the first quarter of 2023, the EMEA region demonstrated a leading position in the issuance of impact bonds, representing 54% of the worldwide market. The aforementioned region underwent substantial expansion, primarily propelled by France, Germany, and the United Kingdom. The Asia-Pacific (APAC) region accounted for 28% of the worldwide issuance, driven by Korea, Hong Kong, and supranational entities within the region. The Americas accounted for 11% of the worldwide issuance, with the United States being the primary contributor.
Why the Growth Makes Sense
The Q1 2023 period has witnessed a substantial increase in impact bond issuance, which can be attributed to the growing interest in sustainable investments.
The upswing in the market can be ascribed to various factors. First, social and environmental sustainability is increasingly acknowledged by both investors and corporations as an imperative step for achieving long-term success. Second, impact bonds present a distinctive prospect to synchronize financial objectives with favorable social and environmental consequences, especially in a time of uncertainty in the equity markets.
The escalating demand for investments that tackle urgent global challenges is a significant factor driving the proliferation of impact bond issuance. Investors are actively pursuing prospects to endorse undertakings and endeavors that make a positive contribution towards the attainment of sustainable development objectives, including but not limited to climate action, poverty mitigation, and gender parity. Impact bonds provide a concrete avenue for investors to direct their capital towards crucial areas by emphasizing measurable impact.