Onwards and upwards

Channels: Green Bonds

Companies: ICMA, The World Bank, HSBC

The green bond market continues to evolve, attracting new issuers in new parts of the world. A significant milestone was passed in November when the figure for issuance for the year broke through the $100 billion mark. It was the first time this had been achieved.

Onwards and upwards

The previous year saw $92.4 billion of issues, which was also a record.

As this article went to press, in mid-December, the figure for 2017 was $122.7 billion.

In its early years, the market was supported by multilateral development banks, but is now also being driven by municipalities, financial institutions and a growing number of corporates.

One of the big themes of the market's recent evolution is sovereign issuance.

Poland was the first national government to issue a green bond, when it raised €750 million ($800 million) in December 2016.

It was followed in January by France, with a €7 billion issue – comfortably the biggest green bond ever issued. It has tapped this twice, bringing the total to more than €9 billion, and it could eventually grow to twice this size.

Fiji and Nigeria have also come to the market, with smaller issues. Poland plans another issue in early 2018, while Belgium has announced plans to raise several billion euros through a green bond in 2018.

There are thought to be more than 10 sovereigns planning issues, including Hong Kong and Sweden.

Investors are excited about sovereign green bonds because they bring scale and liquidity.

Sovereign bonds are a staple food for most big investors, so green bonds issued by countries will help propel the green bond market further into the mainstream.

The green bond market could prove particularly powerful if it helps channel additional funding to developing countries to help them meet their climate agreements. The $2 billion emerging markets green bond fund being launched by the IFC and Amundi could be transformative.

There is also progress being made on harmonising impact reporting and developing standards, with the Climate Bonds Standards continuing to develop and gain traction, ISO launching a working group to explore drawing up standards, and the EU expected to announce a green finance taxonomy.

With the Task Force on Climate-related Financial Disclosures (TCFD) urging companies and investors to start thinking about risks and opportunities presented by climate change, I would expect to see growing demand for green bonds from 'pureplay companies', or bonds with recourse to green assets, such as asset-backed securities.

Finally, the market is broadening into sustainability bonds market, helped by ICMA publishing Social Bond Principles and Sustainable Bond Guidelines to accompany its Green Bond Principles. More green bonds are referencing the UN's Sustainable Development Goals (SDGs) in their frameworks, reflecting the growing attention many investors are paying to the SDGs.The World Bank and HSBC have both issued bonds with an SDG label.