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Green bonds forecast: investments to break through $1trn

EU, US and China issuances add up to 73.5% of 2019 total


Elena Johansson

Annual green investments could surge to $1trn (€901.8bn) in the early 2020s, while green bonds issuance could reach $350-400bn, an NGO has predicted.

Sean Kidney, chief executive of the Climate Bonds Initiative (CBI), an organisation which works to mobilise debt capital markets for climate solutions, said: “The 2019 results and 2020 estimates bring the vital international milestone of $1trn in annual green investment by 2021/2022 into sight.

“Acceleration into trillions of annual investments to support transition, adaptation and resilience must become the hallmark of the new decade.”

Among the green bond investors is the Japanese Government Pension Investment Fund, with ¥161.7trn (€1.32trn) of assets under management.

The fund announced that its investments in labelled green, social and sustainability bonds reached over $3bn last year.

To further promote environmental, social and governance (ESG) integration in fixed income investments, the GPIF said that it has closed 10 partnerships with multilateral development banks, including the World Bank Group.

A 2018 report by the GPIF and the World Bank Group said that fixed income is catching up fast with the equity space in terms of integrating ESG.

As challenges, it found, that demand for green bonds is outstripping supply.

While the voluntary Green Bond Principles are widely used as a standard, the 2018 report also noted that “there is an ongoing discussion about the definition of green bonds, and the setting of standards to facilitate credibility and transactions”.

In 2019, the EU released a report for a voluntary Green Bond Standard, which is based on its classification system to promote the standardisation of green bonds.

Regional issuers

Green bond and green loan issuance jumped a staggering 49% in 2019 to $254.9bn (of this, $6.8bn was green loans) from $171.1bn in 2018.

Collectively, the EU, US and China accounted for 73.5% of the 2019 global total issuance.

Europe is the region leading among global green bond issuers, reaching a 2019 issuance of $106.7bn, according to the CBI.

The US tops the national ranking with $50.6bn of issuance, followed by China with $30.1bn and France with $29.5bn. Supranationals issued a total of $14.5bn, the CBI announced.

Individual green bond issuers

The top five cumulative green bond issuers for 2019 were, according to the CBI:

  • US Federal National Mortgage Association (Fannie Mae) – $22.8bn
  • German Reconstruction Credit Institute (KfW) – $9.02bn
  • Dutch State Treasury Agency – $6.66bn
  • Republic of France – $6.57bn
  • Industrial and Commercial Bank of China – $5.85bn

The top five largest individual green bonds/loans issuers in 2019 were:

  • Dutch State Treasury Agency – €5.99bn
  • KfW – €3bn
  • Chinese Industrial Bank Co. – CNY20bn ($2.91bn)
  • Republic of France – €2.47bn ($2.77bn)
  • Dubai-based Noor Energy 1 – $2.69bn as green loan

Clean energy dominated the use of proceeds of green bonds at 31.5%, followed by low-carbon buildings at 29.3%, low-carbon transport at 20.2%, water at 9.3%, with land use and waste both at 3.5% and other categories comprising the remainder.

Sovereign green bond issuers

Sovereign green bonds reached over $25.8bn (approximately 10%) of total issuance in 2019, including both repeat sovereign issuers and inaugural transactions from Chile and the Netherlands, the CBI said.

So far, 12 nations/regions have issued green bonds.

Chile has announced additional green issuance in 2020, while France and Netherlands are expected to issue again and inaugural issuance has been predicted for Egypt, Germany, Italy, Kenya, Sweden and Spain, among others, CBI added.

Kidney commented: “We need multiple sovereign green issuances by governments; decisive action from central banks and regulators; institutional investors de-risking and realigning investment strategies towards zero carbon; banks and insurers greening their portfolios; and global corporations committing to the Paris goals and the Task Force on Climate-related Financial Disclosures [reporting framework].

“These will be the signs of market maturation and the financial sector driving capital re-allocation in the 2020s to face the climate emergency.”

The CBI will release a full analysis of the $255bn global green issuance in a report scheduled for end of January 2020.

According to Last Word Media Research, the top 10 green funds domiciled in Europe are as follows:

Source: Morningstar data