The global climate-aligned bond universe now stands at USD895 billion outstanding issuance – a jump of USD201 billion from the 2016 figure. This total is comprised of unlabelled climate-aligned bonds at USD674 billion and labelled green bonds at USD221 billion.
That’s according to the 6th annual ‘Bonds and Climate Change: the State of the Market in 2017’ report by HSBC and the Climate Bonds Initiative, which was launched at the HSBC Sustainable Finance and Investing Responsibly Briefing in New York, on the first day of Climate Week NYC.
Commissioned by HSBC and produced by the Climate Bonds Initiative, the State of the Market report has become the authoritative international analysis of both the labelled green bond and ‘climate-aligned’ bond universe. This year’s dataset includes all Climate-Aligned and Green Bonds issued after 1st January 2005 and before 30th June 2017.
‘Bonds and Climate Change: State of the Market in 2017’ quantifies all bonds where proceeds are being used to finance low carbon and climate resilient infrastructure. In this report, we uncover bonds that finance investments compatible with a 2-degree transition path rather than investments that are marginally environmentally beneficial.
This takes a cue from the Paris COP21 Agreement that investments should be in line with the steep emission reduction trajectory needed to achieve a rapid transition to a sub-2-degree Celsius world.
The 2017 report has a particular focus on cities, with ten case studies identifying existing best practice green city bonds and also opportunities for new city based green bond issuance. The report reveals that the USD201 billion increase on 2016 includes USD138 billion in new bonds from existing issuers, plus USD144 billion from new issuers minus USD81 billion of matured bonds and issuers that no longer meet our climate-aligned criteria.
In the climate-aligned bond universe, the Chinese RMB is the dominant currency (with 32 per cent of the total amount outstanding), followed by the US dollar (26 per cent) and the Euro (20 per cent).
Some 43 per cent of the universe meets basic investment parameters, while the majority of bonds have tenors of 10 years or more; the majority are also government-backed.
Low Carbon Transport was the largest single sector, accounting for USD544 billion (61 per cent) of the total USD895 billion climate aligned universe, followed by clean energy at USD173.4 billion (19 per cent). Building and Industry, Agriculture and Forestry, Waste and Pollution, Water comprise 7 per cent and Multi-Sector bonds are at 13 per cent up from the 2016 figure of 8.2 per cent, a small but welcome pointer towards more diversity in issuance.
The largest labelled green bond issuers in descending order are Supranationals, USA, China, France, Germany, Netherlands, Sweden, Spain, Canada, Australia, India and Brazil, while New York City is amongst the largest sub-sovereign bond issuers in the US. The city has shown leadership in supporting best practice with both the Metropolitan Transportation Authority (MTA) and NYC Housing Development Corporation issuing Climate Bonds Certified green bonds.
Globally, development banks are the largest green issuers with EIB, KfW and World Bank in the top three positions. Issuance from corporates and commercial banks meanwhile, has grown, but demand from institutional investors continues to outstrip supplym and there is significant headroom for more quality green issuance, particularly from banks and corporates. Increasing bank based and corporate issuance is now a vital component in meeting climate finance targets & country climate plans.
Zoe Knight Managing Director, Group Head, HSBC Centre of Sustainable Finance, says: “The report demonstrates the increasing role of sub sovereigns, and cities in the financing of climate and emissions goals. We need to accelerate sustainable opportunities for long term investment to help meet these goals. More green and climate-aligned bond issuance will improve capital allocation, create market depth and help drive the climate outcomes we are all looking for.”
Sean Kidney (pictured), Climate Bonds CEO, says: “We’re making a start on green finance. But banks, corporates and governments have to be working much more closely with cities to fund climate resilient infrastructure. They must increasingly align their investments with country climate plans and build economic resilience to deal with the climate impacts to come. This also means increasing linkages with the Sustainable Development Goals (SDG) as a vital part of the transition we face.”