The acceleration of sustainable bond maturities and ongoing proliferation of 'green' taxonomies globally could be major drivers for sustainable bond issuance to reach $7 trillion, according to Société Générale.
The comments follow the sustainable bond market crossing the $6 trillion cumulative issuance milestone earlier this month.
Société Générale sustainable bonds head Stéphane Marciel told Environmental Finance that the pace of redemptions of existing sustainable bonds is "increasing significantly over the coming years" which could be an "interesting driver" of the market towards the next trillion dollars.
"That is good news [for the sustainable bond market], provided that for use-of-proceeds bonds – and this is very important – eligible projects and assets are there as well," he said. "Because refinancing with new sustainable bonds older projects that had already been funded by sustainable bonds is not best market practice."
Environmental Finance has previously highlighted that this approaching 'maturity wall' for sustainable bonds is set to reshape the market. According to Environmental Finance Data, more than $850 billion worth of sustainable bonds are set to mature in 2025 and 2026 – which is set to more than double the volume that has matured to date.
Marciel said another potential driver of issuance growth was regulation – in particular, the growing use of taxonomies globally.
"Some may see regulation as something that is essentially burdensome," he said. "But when you see the multiplication of taxonomies around the world, for example, it is an important sign that should be given the right attention.
"It is not something that is nice to have, [countries] are doing this because it serves a purpose. On one side, it provides a solid referential to find eligible assets. And, on the other, it will allow to finance these assets through instruments which are going to be welcomed by investors because they are meeting stringent enough criteria."
Marciel is also optimistic that the ever-evolving sustainable finance regulation in the EU – which remains the largest sustainable bond market – could also support robust issuance in future years. This includes the landmark EU Green Bond Standard (GBS) that came into force in December and has already been used by issuers including Italian utility firm A2A, French government-owned Île-de-France Mobilités, and Dutch bank ABN Amro.
"The [EU GBS] is often referred to as the 'gold standard'," he said. "I do not know if it is the 'gold standard', but it is one of the most stringent criteria or standards that there is in this market.
"It is not easy [to issue an 'EU green bond' (EuGB)], but it can be done and the first issuers have proven it works," he adds. "Of course, there is still a big challenge from the 'do no significant harm' criteria which remains very complex."
The DNSH criteria has been seen as a major sticking point for potential EU green bond issuers. But Marciel is optimistic amid plans under the EU Omnibus directive to potentially provide some simplification with regards to DNSH.
"If that is the case, then it should facilitate and increase the amount of Taxonomy-aligned capex [capital expenditure] and assets – and there you should have the generation of a significant pool of eligible projects and capex for green bonds or green financing," he said.