Goal of reaching $trillions in annual global issuance remains
The green finance market has reached its most substantial milestone yet, with USD 1.002 trillion in cumulative issuance since market inception in 2007, according to the Climate Bonds Green Bond Database. The milestone was passed in early December.
An encouraging characteristic of the green finance market has been the remarkable growth of green debt instruments including green loans and sukuk. Global annual issuance has increased each year since 2007 to the 2019 record of USD266.1bn (adjusted from initial USD255bn). Green instruments have orignated from a record sixty seven nations and multiple supranational institutions.
Despite the impact of COVID19, 2020 market issuance stood at USD222.8bn as of December 13th.
Climate Bonds Methodology
Climate Bonds Initiative screens self-labelled debt instruments to identify bonds and similar debt instruments (including loand & sukuk) against a rigorous Methodology, assessing their eligibility for inclusion in the Climate Bonds Green Bond Database.
Green bonds debuted in financial markets 2007 with the seminal European Investment Bank (EIB) issuance totalling an initial EUR600m (USD807.2m eqv.). In the 13 years since, we calculate the average annual growth rate at approximately 95%.
By the end of 2015, the cumulative USD100bn mark had been reached with growth accelerating towards the trillion mark in the five years since. The milestone of USD100bn in annual issuance came to pass in November 2017 during COP23 in Bonn, providing a boost in market perception that green bonds were becoming a mainstream product and vital contributor to climate finance and reaching Paris Accord objectives.
Certifications at 24% of Market in 2020
The first Certified Climate Bond came to market in 2014 and the Climate Bond Standard (CBS) has since seen market-wide adoption by best practice issuers. In December 2019, cumulative Certified Issuance reached $100bn under the CBS. This year marks the largest growth in the uptake of Certifications to date. We saw that over 24% of the market was Certified issuance and the cumulative total figure passed $150bn.
Use of Proceeds in the $1Trillion
Investment in Energy Sector comprises the largest component of the trillion, at USD354.7bn, followed by Low Carbon Buildings with USD263.5bn and Transport in third place with USD190.7bn issued.
Water infrastructure is in 4th place with USD98.7bn, followed in 5th by Waste Management with USD36.9bn. Industry, ICT and Land Use collectively total USD40.8bn and USD17.6bn is in Unallocated proceeds.
Europe is first on the podium for green issuance with USD432.5bn in issuance and North America is second highest with USD237.6bn. USD219.3bn has been issued in the Asia-Pacific region, placing it third. USD20.0bn has been issued in Latin America and the Caribbean (LAC), and USD3.5bn of green issuance is from Africa. USD90bn has originated from supranational organisations and the vital role of MDBs and DFIs in supporting initial issuances and market development is acknowledged.
Breakdown by Nation- the Top 10
The United States tops the country league with USD211.7bn in green issuance, China second with USD127.3bn, France third with USD115.6bn, Germany fourth with USD78.3bn, Netherlands fifth with USD52.1bn.
Sixth to tenth places are held by Sweden (USD40.2bn), Spain (USD34.0bn), Canada (USD25.9bn), Japan (USD24.2bn) and Italy (USD17.8bn) (see bolded text in the map below).
The Euro has been the most prominent currency with USD equivalent of 398.5bn in green issuance. USD follows closely with USD349.5bn of issuance, the Chinese Yuan is third with USD equivalent of 83.4bn in green issuance, Swedish Krona the fourth largest with USD46.9bn equivalent and the fifth largest currency is the Canadian Dollar with USD equivalent of 18.9bn in issuance.
Rankings sixth to tenth are followed by the Australian Dollar (USD18.6bn), the Japanese Yen (USD17.7bn), the Great British Pound (USD16.3bn), Swiss Franc (USD6.5bn) and the Norwegian Krone (USD6.3bn), respectively.
Issuer Type Breakdown
Financial Corporates are the largest source of issuance at USD205.6bn, with Non-Financial Corporates next on USD205.0bn, followed then by Development Banks at USD158.8bn.
Government-Backed entities have contributed USD153.1bn and Local Government issuance accounts for USD63.9bn of the market size. Asset-Backed Securities (ABS) comprise USD116.2bn and Green Loans account for USD28.9bn of the market with signs of growth, particularly in Asia.
The Sovereign Green Bonds Club - 17 in, 14 at the Door
Total sovereign issuance in 2020 has reached USD71.5bn with green sovereigns’ membership now counting 17 nations: Belgium, Chile, Egypt, Fiji, France, Germany, Hong Kong, Hungary, Sweden, Ireland, Indonesia, Lithuania, Netherlands, Nigeria, Poland, Seychelles and Thailand. By our count, there are another 14 countries potentially entering the clubhouse in the coming year.
Look out for our upcoming Sovereign Issuers’ Survey, set for launch in mid January; a one of a kind survey that reflects on the experience of issuing a sovereign green bond.
Developed Markets dominate green issuance at USD719.5bn with Emerging Markets accounting for USD193.4bn and the Supranationals contributing USD90.0bn towards the cumulative total.
2020 & Outlook 2021
The impact of the global pandemic means annual issuance in 2020 will stand at the second-highest year of issuance on record at over the USD220bn mark as of 13th December, but shy of the record-breaking 2019 figure of (USD266.1bn adjusted from initial USD255bn).
HSBC is predicting stronger growth in Asia next year. On a global basis Swedish Bank SEB is out of the blocks early for 2021 with a prediction of “moving towards” USD500bn in green bonds, heavily predicated on large EU issuance.
We’ll have more to say on 2021 forecasts in our January 2021 review of this year.
The Last Word - Reaching the $1Trillion Annual Issuance Milestone
The USD 1 trillion in cumulative green issuance allows for a moment of reflection. In just over a decade, a significant amount of capital has been harnessed towards green and climate investment. A cumulative USD 1 trillion and multiple years of annual USD200bn+ new investment looks impressive.
But climate action goal posts have shifted a long way since 2007. The next cumulative green trillion cannot take another 10 or even 5 years.
Writing in the Financial Times on December 11th, former chair of the UK Climate Change Committee Lord Adair Turner says that zero-carbon transition by 2050 requires “about USD1.5-2tn a year globally on average over the next 30 years”.
This is estimated to be approximately 1.5% of global GDP and “can be easily financed in a world of negative long-term real interest rates.”
We’ve long held the view that achieving the vital first USD 1 trillion in annual green investment early this decade, is the pivotal milestone for climate finance.
In a world now focused on transition, 2030 emission reduction, and ratcheting up climate targets, the $1Trillion annual is the next green goal the global financial system needs to be aiming for.
‘Till Next Time,
About Climate Bonds Green Bond Database & Methodology
The Methodology V1.1 outline processes and criteria to define green bonds, green loans, green sukuk and other similar labelled debt instruments as eligible for inclusion in the Green Bond Database.
The green definitions contained in the Methodology are in line with the Climate Bonds Taxonomy, which is a science-based classification system for green asset and project categories eligible for green financing. The Taxonomy is an important reference point for common green definitions across global markets and supports the growth of a cohesive thematic bond market that supports transition and development towards a net zero economy.
The Climate Bonds Green Bond Database contains green bonds and similar labelled debt instruments analysed using the Methodology. The Database is used by investors & index providers, including JP Morgan, BlackRock, State Street Global Advisors, Invesco & Amundi Asset Management, governments and a range of other debt market participants such as stock exchanges (e.g. Hong Kong Exchange) and index providers (e.g. S&P) to identify low carbon investments.