Labelled green bonds and climate-aligned bonds make USD1.45trillion universe
Headroom for growth into 2020s. Focus on banks and corporates as investors engage on brown to green
Flagship Climate Bonds report launched in London
The green bonds market continues to boom, said Climate Bonds CEO Sean Kidney to an audience of investors at the Climate Bonds Initiative’s flagship report, ‘Bonds and Climate - Change State of the Market 2018', London launch earlier today.
The new report; the annual international analysis of labelled green bonds and wider climate-aligned bond universe, is sponsored by HSBC.
It identifies over USD1.45trillion of potential green bonds showing that the market has headroom for huge growth into the 2020s.
Sean Kidney comments
Demand for green product:
“There is enormous green potential."
"Investor demand for green bonds remains incredibly strong; more companies responding, would increase supply and satisfy investor appetite for a quality product that is consistent with international climate targets.”
“Investment in climate solutions sectors like low carbon transport, clean energy, low carbon buildings and sustainable land use is happening, but it will become much larger.”
Investor Engagement and large emitters:
“This demand for quality green product will be ongoing. It’s a natural outcome of institutional investors lifting their green portfolio allocations whilst increasing their engagement with corporates on climate risks, climate opportunities and the development of business models, and capex plans consistent with the Paris 2 deg. target.”
“Leveraging this climate-aligned market to help create a larger and more diverse green finance sector is now part of the growth story. A large market gets major investors to engage with climate related assets and builds confidence that green finance is the future.”
“To achieve the low carbon transition needed to meet Paris targets, institutional investors are also looking to global energy leaders to shift their business models towards growth opportunities in clean energy. Issuing green bonds is one way they can draw attention to their brown-to-green transition strategies.”
The 2018 report is the 7th edition and it provides a complete analysis of the labelled global green bond markets, major sectors of investment, and also the climate-aligned universe that includes issuers of unlabelled bonds from companies in climate related business lines and activities.
This year’s report also provides an in-depth review of the variety of green bond structures being used, including ABS, Green Schuldschein, sukuk, covered bonds, private placements, hybrids and MTN programmes.
Some of the key findings are:
- USA, China and France are top three countries for labelled green bond issuance, followed by Germany, Netherlands, Sweden, Spain, Canada and Mexico
- Fannie Mae is by far the largest green bond issuer with USD37.7bn of outstanding aligned volume, followed by the EIB with USD26bn and Germany’s Kreditanstalt fuer Wiederaufbau (KfW) with USD15.2bn
- Transport is the largest area of potential green bond issuance, withUSD532bn climate-aligned bonds already outstanding. Transport represents 44% of the climate-aligned universe, followed by energy at 23%
- Energy has the highest number of climate-aligned issuers (292) while the buildings sector has the largest number of bonds outstanding (1,843)
The last word
Green bonds and green finance are an almost permanent fixture in financial news and climate events. The recent Global Climate Action Summit (GCAS) in San Francisco had a slew of investment related announcements including major signatories to the Green Bond Pledge the launch of a new Global Green Bond Partnership and the Investor Agenda.
Behind the headlines and the investor demand, this report reveals there's a bigger climate aligned investment universe than previously assessed.
Moving much of this investment into the green space, with its greater transparency, disclosure and focus on use of proceeds is an emerging element in the climate finance suite.
As is banks and big emitters incorporating issuing large scale green debt as a increasing feature of their transition plans.
Investors have long looked for more quality green opportunities from a mix of sectors.
Our flaghsip report points to where some of these can be found.
'Till next time,