25 February 2019
Welcome to Sustainable Bonds Insight – a depiction in words and pictures of the green, social and sustainability bond market, reviewing 2018 and providing a vision for the evolving marketplace. 2018 was a difficult year for fixed income markets generally, but the green, social and sustainability bond market weathered the storm.
The final figures for the year, according to Environmental Finance’s database, saw the green bond market raise $174.9 billion, compared with $173.5 billion the previous year.
However, the social and sustainability bond markets saw stronger growth. Social bonds saw $13.9 billion of issues, up from $11.2 billion, while sustainability bonds saw $18 billion of issues, up from $10.3 billion.
So, the value of issues for 2018 disappointed expectations – some had forecast $250 billion of green bonds at the start of the year.
Yet the overall picture for the combined market is one of growth in the face of adversity.
And a significant milestone was passed during the year, when the green bond market – which is a little over a decade old – exceeded $500 billion in capital raised since its inception.
The market continues to evolve. Sovereign issuers were one of the major drivers of the market last year, which is exciting because of the scale and liquidity they bring. Belgium was the single biggest issuer, with its $4.5 billion offering. Other sovereign issues came from Indonesia, Ireland, Fiji and Lithuania, while France continued to tap its green bond. At the time of writing, it has raised a total of €16.5 billion. More sovereigns are on the way, including the Netherlands.
Another feature was the dramatic growth of issues from financial institutions in 2018. They accounted for 30% of the market, up from 21.7% in 2017.
However, corporate issuers largely remain wary. The market remains driven by demand from investors in Europe – the euro overtook the dollar as the biggest currency in 2018.
But other parts of the globe are proving to be green bond hotspots. Japan saw rapid growth, with $4 billion of issues in 2018, up from $2.4 billion the previous year, helped by its own green bond guidelines. Elsewhere in Asia, South Korea and Indonesia all embraced green bonds.
The launch of the biggest ever green bond fund – the IFC and Amundi’s $1.4 billion Emerging Green One – should further boost demand for emerging market green bonds.
Another highlight of the year was the launch of Seychelles’ ‘blue bond’ to help protect its ocean-based economy. While it only raised $15 million, it could help pave the way for similar issues. Interestingly, the Nordic Investment Bank has since launched its own blue bond, to help preserve the Baltic Sea.
The overall picture for the combined market is one of growth in the face of adversity
Ever since the market’s inception, there has been a lively debate about ‘what is green?’. 2019 may prove to be an important year in the debate, because the European Commission is working on its taxonomy of sustainable finance, which will underpin its own green bond standard.
While some argue that the interim period before this standard emerges has depressed issuance – who would want to issue a green bond only to find out months later that it does not comply with a forthcoming standard? – it is expected that the standard will eventually boost issuance and give comfort to the market.
And this shot in the arm could be felt around the world, as Chinese regulators are in talks about harmonising their green bond standards with those of the EU, and other countries are likely to follow suit.