Although GSSSB markets may be in the early stages of development, they provide an important source of capital for initiatives that provide green, social, and sustainability benefits. Between the need for new funding for GSSSB initiatives, refinancing demands, and increasing investor interest, we think this source of financing is poised for growth.

The primary market for GSSSBs began to pick up in 2019. Over two-thirds of currently outstanding rated GSSSB debt was issued between 2021 and 2023, and we expect total GSSSB issuance could represent 14% of global primary market bond issuance in 2024, up from 8% in 2020 (see "Sustainability Insights Research: Sustainable Bond Issuance To Approach $1 Trillion In 2024," published on Feb. 13, 2024).

The majority of the total rated GSSSB market consists of green bonds. These represent 53% of total rated GSSSB debt outstanding. Europe is the main issuing region with 46% of outstanding debt, but even this figure is somewhat understated because issues from the EU itself are counted as part of the supranational region. Supranationals comprise the second largest region for GSSSB issues, and the majority of these are from development banks. In addition, GSSSB debt is heavily concentrated in investment-grade credit quality--it represents 94% of rated debt outstanding.

Chart 1

Although Rising, GSSSB Maturities Appear Manageable

The growth in GSSSB issuance is leading to rising maturities: Rated GSSSB maturities from April 2024 through 2028 have grown to $1.2 trillion. That said, refinancing needs are largely longer term. Only 6% of outstanding debt is scheduled to mature in the next 12 months, and less than half (46%) is scheduled to mature through 2028. Annual maturities of GSSSBs rated by S&P Global Ratings are set to grow to a high of $307 billion in 2026 from $117 billion for the period from April 1 to Dec. 31, 2024.

In comparison, annual rated GSSSB issuance over the past two years has been more than double that of the upcoming annual maturities from 2024 through 2028. As a result, we think the depth of the GSSSB market should be more than able to meet these refinancing needs. Furthermore, GSSSB debt does not need to be refinanced by new GSSSB debt, and issuers could seek to refinance in the far larger global debt markets.

The high concentration of investment-grade debt and issuers among GSSSB debt also reinforces our view that these upcoming GSSSB maturities are likely to be manageable. First, the debt is largely from investment grade issuers, which tend to have a high capability to meet upcoming obligations. Issuers' high credit quality is reflected in the issue-level ratings of the maturing debt--we rate almost 94% of debt maturing through 2028 investment-grade.

Nearly 25% of the GSSSB bonds maturing during this time are rated 'AAA' and a further 22% are rated in the 'AA' category. Furthermore, nearly 40% of the debt maturing through 2028 is from public issuers (mostly international public finance and sovereigns), and the majority of the GSSSB debt from these public issuers is rated either 'AAA' or 'AA'.

Chart 2

Higher-Risk Speculative-Grade Maturities Represent A Thin Slice Of The Market

Speculative-grade debt accounts for just 6% of rated annual GSSSB maturities through 2028. This debt is concentrated by vintage. Nearly 43% of outstanding speculative-grade GSSSB debt stems from a surge of nonfinancial issuance in 2021, more than half of which was from European issuers. Amid the prevailing accommodative monetary policy conditions in 2021, lower-rated issuers were able to tap the market and take advantage of low borrowing costs.

However, the increase in interest rates since 2021 is contributing to higher funding costs. The higher borrowing costs are reflected in GSSSBs, with yields for investment-grade GSSS bonds rising to 4.0% in December 2023 from 1.5% at the end of 2021.

Table 1

Europe And Asia-Pacific Have The Largest Shares Of Upcoming GSSSB Maturities

International public finance entities issued 39% of the GSSSBs maturing through 2028. These issuers are well-established in the GSSSB markets, and the majority of these bonds are from supranational entities, including international development and infrastructure banks.

By region, the largest share of this debt maturing from April 2024 through 2028 is from issuers in Europe (41%), followed by Asia-Pacific (25%).

Over the next two years, the Asia-Pacific region accounts for the largest share of the maturing debt (34%). Its share then declines, and Europe represents the largest share of maturities in 2026-2028 (46%). With Europe continuing to lead GSSSB issuance by region, it remains poised to continue to account for a large share of maturities after 2028 as well.

Chart 3

Green Bonds Represent The Majority Of GSSSB Maturities

Making up just above half of GSSSB maturities through 2028, green bonds represent the largest share of GSSSB maturities, and with strong issuance, we expect this trend will continue. Green bond maturities remain above $100 billion annually from 2025 through 2028, and peak at $161 billion in 2026. For financial and nonfinancial corporates, green bonds represent an even higher share of GSSSB debt, accounting for about two-thirds of the debt maturing over this period.

More than half of green bonds maturing in 2026 were issued by financial institutions, predominantly Chinese and European banks. In addition, Chinese financial institutions account for the largest share of green bonds maturing from April 2024 to 2028 at 30.5%, followed by 8.1% from Swedish banks. Among nonfinancial corporates, the distribution is less concentrated. The highest contribution comes from the U.S. (14.1%), followed by Germany (10.3%). By contrast, green bonds issued by sovereigns are more concentrated with 40.6% of maturities through 2028 from Germany and 34.4% from Hong Kong.

Sustainability bonds are the second-largest category of GSSSB bonds maturing through 2028. These account for $263 billion of debt maturities, with 58.4% from international public finance supranationals, followed by 20.2% from financial institutions. Social bonds maturing through 2028 account for $245 billion, mostly from European (42.4%) and supranational (25.2%) issuers.

Chart 4

Rating Distributions Vary Among Different Types Of GSSSBs

Half of rated sustainability bonds are 'AAA'--a much higher concentration within the highest rating level than other types of GSSSB--while by contrast, sustainability-linked bonds have a higher concentration of speculative-grade debt than the other GSSSB types (27%).  Meanwhile, social bonds have the highest concentration rated either 'AAA' or 'AA', at nearly 80%. In our view, this is largely due to the large share of international public finance issuers, including supranationals, which tend to be rated the highest.

We rate a much larger share of sustainability-linked bonds speculative-grade (27%) than the other GSSSB categories. And even within investment-grade ratings, sustainability-linked bonds are much more highly concentrated in the 'BBB' category than most other GSSSB types. In part, this reflects that the large majority of sustainability-linked bonds were issued by lower-rated nonfinancial corporates.

Chart 5

Public finance issuers tend to issue higher-rated GSSSBs than corporates. Outstanding debt by international public finance--54% of which are supranationals--is 94% rated 'AAA' or 'AA'. This compares to 53% for debt issued by sovereigns, 19% by financial corporates, and 8% by nonfinancial corporates. In our view, rating distributions among the different issuer types are the main explanation for these divergences.

Duration Varies By Instrument And Issuer Type

Transition bonds display the longest original tenor among the types of GSSSBs, with a median of 10 years, followed by sustainability-linked bonds, with a median tenor of seven years.   We think the longer tenor of these bond types could reflect several factors. First, these are the smallest pools of the GSSSB categories, and this small sample is heavily weighted toward an influx of long-dated Japanese issuance from 2022. Furthermore, sustainability-linked bonds tend not to have short tenors because these bonds are linked to transition-related objectives that an issuer aims to meet. However, sustainability-linked bonds also include the most early call options, which might lead to shorter effective tenors.

Tenors also vary by issuer type. Sovereigns tend to have the longest average maturities, and this holds true among the different bond types. Among social bonds, those issued by sovereigns tended to have an average tenor that was more than 10 years longer than those from other issuers, and sustainability-linked bonds from sovereigns had a median tenor that was about nine years longer than those from other issuers.

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S&P Global Ratings currently rates over $2.6 trillion in outstanding GSSSBs, and the growth of the primary market is inevitably leading to rising maturities. Annual maturities through 2028 peak at $307 billion in 2026, but annual issuance over the past few years has been well in excess of this amount. Future demand for GSSSB funding should continue to support the growth of the market, and we expect maturities to remain manageable.