The report, titled: ESG - Transformation of the Fixed Income Market? provides an in-depth overview of the sustainability evolution across fixed income markets in Europe, with the insights generated through a detailed survey of 100 investors and 100 issuers.

In 2021, total GSS bond new issuance in Europe reached a new record of EUR 500bn representing 13.7% of total bond issuance. However, the findings from the PwC report suggest further rapid growth in issuance by new and existing players in both the public and private sectors, drawn by reputational benefits and access to a broad and committed investor base.

Key Findings from the report

• Growth of GSS bond market – In a “best-case” scenario, PwC forecasts new GSS bond issuance to reach EUR 1.6tn by 2026, representing almost 50% of total new bond issuance. Even under its “base case” scenario, PwC expects GSS bond issuance to rise rapidly to EUR 1.4tn, or 43.9% of total new bond issuance.
• By segment - Green bonds are forecasted to reach EUR 691.2bn of new issuance by 2026 in base case scenario, with social bonds accounting for EUR 317.1bn and sustainability bonds accounting for EUR 391.8bn. According to the survey, 82% of issuers selected green bonds as the top GSS bond to issue in the next 24 months.
• Expansion – According to the survey, 84% of issuers intend to increase their GSS offerings in the next 24 months. Among them, 88% of them plan to increase their issuances by more than 5%, with 35% of those surveyed preparing increases of over 20%.
• Investor Demand – 67% of PwC’s surveyed issuers have experienced higher oversubscription for GSS bonds in comparison to their plain vanilla counterpart, reflecting clear investor demand for GSS bonds. 88% of investors surveyed say they will further increase their allocation to GSS bonds in the next 24 months, with 3 out of 4 investors targeting allocation increases of over 5%.
• Public Sector – The public sector (sovereign and supranational) has dominated GSS issuance and PwC predicts public sector GSS issuance will reach EUR 712bn by 2026 – up from EUR 266bn in 2021 – driven in part by the European Commission’s green bond issuance programme to finance the EU’s NextGeneration EU plan.
• Private Sector – PwC expects that private sector issuance, particularly from the non-financial corporate sector, will gain importance in the coming years, increasing from 46.5% of total GSS bond issuance in 2021 to 49.1% in 2026.

Andrew McDowell, Partner, Strategy& Luxembourg – “Ever since the European Investment Bank issued the first green bond in 2007, followed quickly by the World Bank, GSS bonds have grown up from a niche market dominated by international financial institutions into a mainstream asset class. With investors showing no limits to their appetite for GSS bonds, and with more and more public and private issuers seeing the reputational and funding advantages of accessing the GSS market, it is plausible that GSS bonds could account for almost half of total European bond issuance by 2025.”

Olivier Carré, Financial Services Market Leader and Sustainability Sponsor at PwC Luxembourg – “The political and regulatory shift in the EU triggers a seismic shift re-directing capital flows towards sustainable economic activities. This changes the strategic relevance of the GSS bonds instrument. In particular, for CFOs of companies in transition towards more sustainable activities or with a mixed business book, the issuance of GSS bonds can help financing such transition and qualify as eligible investment for investors subject to SFDR and EU Taxonomy.”