The growing importance of labeled bonds in global bond benchmarks in the first half of 2024 suggests these bonds are growing faster than the broader bond market, MSCI said following research into green, social labeled bonds and durable.

In a report, the investment research firm noted a net addition of US$350 billion in the first half of 2024 to the labeled bond market, bringing the total market value to US$3.8 trillion.

In Asia-Pacific, the top emitters were Australia with $12.4 billion, followed by Singapore with $4.6 billion and India with $3.2 billion.

However, the report showed that Asia-Pacific-based issuers lagged behind in long-term cumulative issuance, while European issuers dominated the market.

Although total labeled bond issuance in the first half of the year remained comparable to levels observed a year ago, MSCI anticipates a slowdown in the second half. Over the past two years, emissions have also been significantly stronger in the first half and generally declined in the second.

Continuous change

The labeled bond market brings together issuers wishing to raise capital to finance various environmental and social commitments and establish relationships with investors focused on sustainable development.

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However, MSCI highlighted that many self-labeled bonds have not been assessed by a third party for their alignment with recognized external frameworks and may have limited contribution to sustainability-related investment objectives.

Nevertheless, in terms of the most frequently issued labels, green bonds have continued to dominate the labeled bond market. Sustainable bonds come in second, accounting for 21 percent of bonds issued and 19 percent of bonds outstanding.

Social bonds come third, accounting for 12 percent of bonds issued and 18 percent of bonds outstanding. Meanwhile, sustainability-related bonds accounted for 4 percent of bonds issued and 6 percent of bonds outstanding.

MSCI predicts that the labeled bond market could be further supported by issuance under the European Green Bond Standard, which will apply from December 2024, and will attract investors seeking to align with the targets. of net zero emissions. The initiative is a voluntary standard that aims to define what is considered “green” financing through a self-labeled green bond.

Issuers in the Europe, Middle East and Africa region, primarily the European Union, issued 47% of all labeled bonds at the end of the first half of 2024, according to MSCI. This is even though the region only accounts for around 25 percent of global emissions.

In contrast, the Apac region is responsible for 55 percent of global emissions but has issued only 22 percent of all labeled bonds.

In terms of issuer types, the MSCI report said corporate issuers dominated in the first half of the year, with $250 billion in labeled bonds, or 56 percent of the total. At the same time, supranational, sovereign and institutional entities issued $200 billion, or 44% of the total.

“This reflects a continuing evolution in the labeled bond market, with corporate issuers playing a more central role. The performance of the labeled bond market has largely mirrored that of the bond market as a whole, influenced primarily by traditional fixed income risk and return factors,” MSCI said.