Green bond comment, December 2017

A record amount of new issues, several significant 'firsts' and important regulatory initiatives in November, suggest the green bond market is well-placed for further dramatic growth.

37 labelled green bonds were issued in the month, with a combined value of more than $17.3 billion, far outstripping the previous record of $15.3 billion set in November last year and taking the total for the year-to-date beyond $100 billion. The biggest issuers were New York's Metropolitan Transportation Authority ($2.0 billion), China Development Bank ($1.7 billion), Bank of China ($1.5 billion), and Iberdrola (€1 billion).

But perhaps more significant for the long-term health of the market was evidence of diversification into new currencies, new industry sectors and new geographies. The month saw the first green bond denominated in Swiss Francs – from the Canton of Geneva, the first issue from a life insurance company – Manulife, the first Canadian municipal issue from the City of Ottawa and the first sovereign green bond from an emerging market – Fiji.

In addition to the Swiss Franc, two other under-represented currencies – sterling and Yen – also saw welcome new issues. UK sewer company Tideway's inaugural issues, amounting to £450 million, made it the largest corporate issuer of sterling-denominated green bonds. And the JPY20 billion issue from a Japanese railway company underlined the great potential of the transport sector to benefit from labelled green debt.

Other notable transport issues came from Italian rail firm Ferrovie and automotive giant Toyota, while many muni bonds and bank issues also include transport projects in their list of eligible projects.

November's three yen-denominated issues marked a significant step up in activity, as only seven green bonds had previously been issued in the Japanese currency. The fact that Manulife's bond was only the second green issue to be denominated in Singapore dollars, also suggests growing interest in the market in Asia.  

This was underlined by the launch of the Asean Green Bond Standards in Kuala Lumpur early in the month. These are based on the internationally accepted Green Bond Principles but are also consistent with the laws governing the issuance of Islamic bonds or sukuk.

Another cause for optimism on the regulatory side of the market is the initiative to develop a 'Rosetta Stone' for the green bond market to harmonise taxonomies of eligible environmental projects. The project, led by the European Investment Bank and China's Green Finance Committee, aims explicitly to promote further growth in the market.

Such initiatives, leading to standardised definitions in the market, are necessary pre-conditions for the UK to issue a sovereign green bond, climate change minister Claire Perry hinted to Environmental Finance.  

But several other countries are likely to come to market before the UK. So far only Poland, France and Fiji have issued sovereign green bonds, but there are believed to be 15 issues in preparation. Nigeria is expected to join the market within weeks, Poland's second issue is due in Q1 2018 and Morocco recently signalled its intent by publishing a green bond framework.

We understand, however, that the next sovereign issue will be a third tap of France's ground-breaking Green OAT – tomorrow (7 December) at 11.00 CET. Watch this space!

Graham Cooper is consulting editor of Environmental Finance

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