Green bonds look likely to be yet another casualty of the Covid-19 outbreak, according to a report from DBRS Morningstar.

The firm reported that, through the first five months of 2020, green bond issuance has been running well below the level it was at the same point last year.

Heading into the year, it was expected that green bonds would continue their momentum from 2019, which saw record issuance of US$261.9 billion.

However, the pandemic disrupted those expectations, DBRS said.

Total issuance so far this year is US$66.6 billion, down about 36% from this point last year.

In particular, issuance by financial institutions is down by about half from 2019 “as the spread of Covid-19 across the globe shifted the banks’ priorities towards supporting existing customers in order to mitigate the impact of the economic slowdown,” DBRS said.

At this point, DBRS said it’s unlikely that issuance volume this year will regain 2019 levels, but the pullback may prove short-lived.

“We expect this slowdown to be temporary as the banks increasingly engage with their social responsibility role and encounter elevated investor pressure to better align lending activities with sustainability causes,” said Lito Chousiada, assistant vice president at DBRS.

DBRS noted, “It is important for the banks to demonstrate their ability to better align part of their lending activities to support sustainability causes, especially given that an increasing number of asset managers are committing to making a positive impact on the environment through their investments.”

To that end, a number of banks have publicly disclosed changes to their lending practices designed to minimize their exposures to sectors that are heavy polluters, DBRS reported.

“Increasing investor pressure, especially from the asset management side, towards sustainable financing is another reason banks have been becoming more transparent in providing additional information on climate-related issues,” the rating agency said.

As of the end of May, 111 banking organizations had officially signed on to the principles developed by the Task Force on Climate-Related Financial Disclosures (TCFD), up from 78 in May 2019 and 46 in May 2018.

“Given the increasing awareness of climate change risks across clients, investors and regulators, we expect the number of banks that sign up to support TCFD recommendations to continue increasing,” DBRS said.