S&P Global Ratings says that strengthening green bond market fundamentals are likely to fuel about a 30 per cent increase in self-labelled instruments globally in 2018, in a report published today; ‘Green Bond Issuance Is Expected To Shoot Up Further’.
That would push issuance to around USD200 billion for the year. That compares to issuance of USD155 billion in 2017, up from a mere USD13 billion in 2013, according to the Climate Bonds Initiative.
“The green bond market has grown by 80 per cent a year over the past five years, demonstrating rapid development of new green markets, combined with the continuous and global political push to address climate change,” says S&P Global Ratings credit analyst Noemie De La Gorce.
While we expect this growth will slow down in 2018, we believe solid market fundamentals may drive the expansion of the green bond market to new types of issuers, geographies, and financing types.
We expect to see new issuers getting involved with new forms of financing vehicles such as green loans, green funds, and green structured products. We also anticipate new issuances of green Islamic bonds (so-called green sukuks) following the first USD58 million issuance by the Malaysian company Tadau-Energy in September 2017.
“Low-carbon technologies in the energy, transport, and buildings sectors are likely to remain the main beneficiaries of green investments, reflecting the importance of emissions reductions in these sectors in the fight against climate change.” says De La Gorce.
“That said, we do see some growth potential for projects in the water, waste, and air pollution sectors. The USD13 billion green bond program issued to finance the U.K. Thames Tideway Tunnel is one of the recent examples of green proceeds allocated to the water and wastewater sectors. We also expect the green finance market to broaden to new geographies. While Europe remained the primary region for green bond issuance in 2017, North America is rapidly bridging the gap.”
“In the US, the self-labelled green bond market more than doubled in 2017, driven largely by states, municipalities, and corporates, despite volatile federal climate policies (see “Green America: The Prospects For The Development Of The Green Bond Market In The US,” published on 5 Sep, 2017).
“While the recently revised US tax code and the expected tightening of monetary policy could reduce this growth to some extent, particularly from public issuers, we expect the US to remain one of the leading countries for green bond issuance in 2018.” says De La Gorce.
Emerging markets are also likely to maintain their involvement in the market, led by China, India, and Mexico. The contribution of those three countries to global labelled green bond issuance rose significantly over the last two years, to 20 per cent in 2017 from 7 per cent in 2015. Last year’s largest issuers included the Bank of Beijing (USD5 billion), the Indian energy company Greenko (USD1 billion), and Mexico City Airport (USD4 billion).