The green, social and sustainability-related bond market is continuing to grow and could hit a combined record of $400 billion in 2020, up from $323 billion in 2019, Moody's Investors Service analysts said in a Feb. 3 report.

"A heightened focus on climate action by governments and the financial sector will drive further growth and innovation" in the market, Moody's said.

But those specialty products comprise only a small portion of the total market. Green, social and sustainability bonds accounted for 4.5% of total global bond issuance in 2019, up from 3% in 2018, Moody's said.

As in the past, green bonds, in which proceeds are dedicated to environmentally friendly projects such as renewable generation or energy efficiency, will continue to dominate the space in 2020 with a projected $300 billion in issuances. Social- and sustainability-focused bond market issuances are forecast to total $25 billion and $75 billion, respectively. Sustainability-linked loans hit $134 billion globally in 2019, up from $34 billion in 2018. The rate for sustainability-linked loans is tied in some way to the borrower's performance on environmental, social or governance criteria or toward achieving one or more of the United Nations' sustainable development goals.

Moody's used data from the Climate Bonds Initiative to calculate bond totals, which excluded bonds that dedicated more than 5% of the proceeds to nongreen uses or that otherwise did not align with the initiative's standards. To calculate other sustainable debt issuances, including sustainability-linked loans, Moody's turned to Dealogic.

Regarding where green bond proceeds are being directed, energy and building investments comprised the majority share, followed by transportation and water projects.

Financial and nonfinancial corporations drove most green bond issuances in 2019, accounting for about 44% of the total. While green bonds from financial institutions saw moderate growth, nonfinancial corporate issuances more than doubled in 2019 over the prior year to $59 billion.

"We expect continued gradual growth in this market segment as high-profile transactions ... will encourage other corporate issuers to consider entering the market," Moody's said. One such high-profile transaction was the $1 billion green bond that Verizon Communications Inc. issued in February 2019. Verizon said the proceeds would go toward such things as renewable energy, energy efficiency, green buildings, sustainable water management, and biodiversity and conservation.

Beyond corporations and financial institutions, government-backed entities issued $35 billion in bonds, followed by asset-backed securities with $32 billion, development banks with $29 billion and sovereigns with $26 billion, Moody's said.

Regionally, European issuers accounted for nearly half of all green bonds in 2019. The analysts noted that governments and regulators, particularly in Europe, are increasingly focused on providing structure and clarity to the sustainable finance market. In December 2019, the European Parliament, Council and Commission reached an agreement on a classification system for green financing, which excluded coal and nuclear projects.

As for social and sustainability bonds, financial institutions led the charge, comprising about 64% of global issuances in 2019, while European issuers accounted for 57% of social bonds. Japanese issuers accounted for about 25% of the social bond issuance by country.