The total global value of climate-aligned bonds has reached nearly US$600 billion, an increase of 20 percent from last year, according to the latest Climate Bonds Initiative (CBI) annual report.
The report, Bonds and Climate Change: the state of the market in 2015, finds that 32 percent of this year’s increase of US$95 billion was due to the rapid growth of the green bond market and 40 percent was due to climate-aligned rail issuance–one of the more surprising aspects of the report, Sean Kidney, CEO of CBI told Development Finance.
“The growth in rail issuance is good news for the necessary expansion of rail globally,” he said. “Other surprising factors included the arrival of Indian green bond issuers this year–which was much earlier than we’d expected–and the lack of US corporate green bond issuance which is a big gap given the size of the US corporate market.”
Low-carbon transport accounts for US$418.8 billion (70 percent) of the total climate-aligned bonds universe followed by clean energy, which accounts for US$118.4 billion (20 percent). The remaining 10 percent of bonds fall into the Buildings and Industry, Agriculture and Forestry, Waste and Pollution or Water themes or are Multi-Sector bonds.
HSBC Managing Director, Zoe Knight, Head of Climate Change Centre of Excellence, and who commissioned the report, said: “Scaling up finance for the transition to a low-carbon economy is critical for addressing climate change. This report provides investors with an important insight into how to access climate related themes through the fixed income market.”
Recent developments in the green bond market in terms of size and diversification are included. The report reveals that in 2014, US$36.6 billion of green bonds were issued, triple the 2013 issuance of US$11 billion. CBI expects this growth to continue and green bond issuance in 2015 to reach US$70 billion, with a stretch target of US$100 billion. According to the report, diversification of currencies and ratings of green bonds is an encouraging sign of a deep and liquid green bond market developing.
“China and India are leading the way but Brazil, Mexico, Turkey, Indonesia, Thailand, Malaysia are following suit,” added Kidney. “Brazil, Mexico and Turkey already have Green Bond Market Development Committees underway and in Indonesia the issuance there is being led by the government.”
Kidney also revealed that to further educate municipalities about green bond opportunities, CBI is launching a global Green City Bond campaign, including a new website, on 28 July.
“The report also has a 10 point plan for policy makers to take advantage of the growing interest in green bonds to finance their transitions to low-carbon and climate resilient economy,” he added.
The report is now in its fourth edition and deemed to be the only publication that attempts to estimate the global flows of bond finance toward climate solutions.