Sustainable bond markets: Q3 of 2022 in graphs
The evolving landscape of sustainable bond markets reflects broader economic challenges, with recent data indicating significant shifts in issuance patterns. Per the full note from Nordea, the sustainable debt market has shown a robust adaptation amidst persistent inflation and climbing interest rates, with a notable decline in overall bond issuance by 16% projected by S&P for the year. As the Nordics emerge as a relative outlier, investors are increasingly favoring established instruments over newer formats, suggesting a prioritization of stability amid market turbulence.
What the desk is arguing
The desk interprets the recent trends in sustainable bond markets as indicative of broader investor preferences and economic adjustments. Per the full note from Nordea, the third quarter of 2022 highlights how the energy crisis and rising inflation pressures are reshaping the corporate approach to sustainability and financing. As sustainable debt markets adjust, many investors are pivoting towards established formats rather than newer, less understood products.
Evidence from the report shows that sustainable debt issuance in the Nordics has nearly doubled year-on-year, constituting around 12% of the Nordic bond market in 2022. This growth in the Nordics stands in contrast to the overall decline in bond issuance observed globally, driven by tight financial conditions and heightened risk aversion among investors.
While sustainable debt products had initially garnered excitement, the preference for tried-and-true structures indicates a market focused on reliability. This suggests a cautious investor sentiment as firms navigate through uncertainty, driven by energy prices and inflation dynamics.
How other firms see it
Our perspective aligns with jpmorgan, indicating a continued focus on sustainable investment despite market headwinds, while firms such as bofa voice more bearish sentiments about the immediate future of sustainable bonds given economic conditions. Understanding these divergent views can help traders position their portfolios more effectively as they consider addressable currency impacts.
Notably, the evolving dynamics in sustainable debt may impact related markets, including EUR/USD, especially as the European Central Bank's policies shift in response to energy inflation and recession risks. The anticipated recovery in Nordic bond issuance could further correlate with performance in local currencies against the backdrop of Eurozone pressures.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Sustainable bond issuance is adapting amid challenging economic conditions, with a projected 16% overall decline in bond issuance.
- 02Nordic markets are performing better than global peers, with sustainable debt making up 12% of the bond market.
- 03Investors are favoring established debt products as newer sustainability-linked offerings struggle to gain traction.
- 04Rising inflation and energy prices are significantly influencing corporate behavior towards sustainability initiatives.
Market implications
Traders should monitor the momentum of sustainable issuance in Nordic markets, particularly as it could indicate broader trends that affect EUR/USD dynamics. Additionally, attention to central bank indicators and policy changes will be critical as the economic landscape evolves.
Risks to this view
Any significant shifts in energy prices or a marked change in central bank policies that lead to improved economic stability could invalidate this cautious outlook. A swift recovery in overall market confidence would likely result in a resurgence of issuance in riskier sustainable debt instruments.
Sustainable finance Sustainable bond markets: Q3 of 2022 in graphs 05-10-2022 After a turbulent first half-year, the third quarter shows a market adapting to the new-normal: persistent inflation and rising interest rates. The energy crisis has not only resulted in a risk of recession in the Euro area but also created ambiguity for corporates’ sustainability ambitions, pushing the financial sector to the forefront of issuing sustainable debt. While markets are starting to adapt to rising interest rates, sustainable debt markets continue to show a decline from the previous year’s record issuance levels.
In the beginning of September, S&P revised its forecast to a 16% decline in overall bond issuance by the end of the year. Looking across the different formats, the share of sustainability-linked bonds, which were expected to show the highest increase due to the format’s novelty and broader range of applications, instead remained relatively stable. The novelty of the format may have actually worked against its favour during the last quarter, with increasingly tight-pursed investors generally showing a preference for more established use-of-proceeds products.
With high transparency in the allocation of proceeds, many investors have greater confidence in the ability of the use-of-proceeds formats to directly deliver the impacts sought. Global GSSS issuance by format Source: Nordea and Bloomberg Nordics less negatively impacted than global markets The Nordics seem to have weathered the global turmoil better than global sustainable debt markets, with total GSSS quarterly issuance in Q3 2022 nearly double of that in Q3 2021. Sustainable debt now constitutes around 12% of the Nordic bond market, with the majority in 2022 issued in Sweden followed by Norway.
Nordic quarterly GSSS issuance Source: Nordea and Bloomberg Country distribution of GSSS issuance 2022 Source: Nordea and Bloomberg Financials the only sector to show growth Increasing energy prices and scarcity of renewable energy, coupled with continued geopolitical uncertainty, cast some short-term doubt over companies’ sustainability targets. Combined with a stormy real estate sector, a core component of the Nordic bond market, this has led to the first decrease in corporate issuance since the inception of sustainable bonds. The financial sector, including banks and insurers, has been the only sector to add growth throughout 2022 so far, making up nearly half of the Nordic sustainable bond market by Q3 2023.
Nordic GSSS issuance by sector Source: Nordea and Bloomberg Authors Name: David Ray Title: Nordea Sustainable Finance Advisory Name: Lea Gamsjäger Title: Nordea Sustainable Finance Advisory Nordea Sustainable Finance Advisory Nordea's Sustainable Finance Advisory team helps clients navigate fundamental changes in the financial markets as the global economy shifts towards becoming sustainable and low-carbon. Find out more about our sustainable product offerings and holistic advisory services. Learn more Sustainable finance Corporate insights Insights Sustainability ESG Share on Facebook Share on Threads Share on Linkedin 24-11-2025 Sustainability Nordic companies stick to climate goals despite global uncertainty Amid geopolitical tensions and fractured global cooperation, Nordic companies are not retreating from their climate ambitions.
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