OVERVIEW - 2017 green bond issuance reaches record USD 155.5bn

The Climate Bonds Initiative (CBI) expects green bond issuance in 2018 to reach about USD 250 billion (EUR 209bn) to USD 300 billion. Below you can read an overview of 2017, published by the investor-focused not-for-profit organisation.

CBI final analysis of annual green bond issuance for 2017 shows a December 31st tally of USD 155.5 billion, a new global record, up 78% on the adjusted 2016 figure of USD 87.2 billion and well over the USD 130 billion estimate for the year.

TOP TEN RANKINGS

Green Bond Highlights 2017 has the US leading on overall green issuance followed by China and France, the three nations accounting for 56% of the 2017 global total between them. Germany, Spain, Sweden, Netherlands, India, Mexico and Canada filled out the remaining Top10 positions. In the US, the largest overall issuer was Fannie Mae with a staggering USD 24.9 billion coming from its green Mortgage Backed Securities (MBS) programme – a volume so significant that it shifted the global market.

The largest single green bond placement originated from the Republic of France via its January 2017 EUR-7-billion (USD 7.6bn) issuance, the initial sovereign issue which ended the year at USD 10.7 billion following two subsequent taps. Despite its overall bond market being much smaller than that of the US or China, France achieved the number three position in large part due to its high-profile sovereign green bond program.

Next largest cumulative bond issuers for the year were China Development Bank (USD 4.6bn), the supranational European Investment Bank - EIB (USD 4.6bn), and sub-sovereign New York MTA (USD 4.2bn).

GLOBAL SUMMARY - KEY NUMBERS

Green Bond Highlights 2017 reports 239 individual issuers came to market in 2017, of which 146, or 61%, were debut issuers reflecting a widening of the issuer base each year. Issuers came from 37 countries with 10 new entrants: Switzerland, Argentina, Slovenia, the UAE, Chile, Singapore, Lithuania, Malaysia, Fiji and Nigeria.

-- USD 155.5 billion - total green bond issuance
-- Over 1500 green bond issues
-- 78% - growth on 2016
-- 37 countries from all continents
-- 239 different issuers
-- 146 new issuers
-- USD 10.7 billion – largest single green bond
-- 3 Sovereign Green Bonds: France, Fiji, Nigeria

EMERGING MARKETS - China and India dominate, LATAM progress, Green Sukuk

China and India dominated emerging economy issuance. Additional diversity is coming from new entrants, the sovereign green bonds from Fiji and Nigeria and steady progress in Brazil and across Latin America.

In a signal of the country’s increasing commitment to comply with international best practice, issuance from China included Certified Climate Bonds from three giant state backed banks: Industrial and Commercial Bank of China (ICBC), China Development Bank (CDB) & Bank of China (BoC).

Indian issuers more than doubled issuance volume to reach USD 4.3 billion and break into the 2017 Top10 table. The rise in volume was partly attributed to state-backed entities entering the market and accounting for 47% of issuance. Major domestic Certified Climate Bonds issuance included state backed entities IREDA (USD 300m), Power Finance Corporation (USD 400m) and Indian Railways Finance Corporation (USD 500m).

2017 also saw a consolidation of green finance directions in Brazil which maintained the highest national ratio of agricultural and forestry based green bonds, new issuance from Colombia and Mexico, as well as debut bonds from local government in Argentina and a Chilean corporate.

With the first three Green Sukuk from Tadau Energy (USD 58.5m), Quantum Solar (USD 236m) and Permodalan Nasional (USD 461m), Malaysia has established itself as an innovator in green Islamic finance, in no small part thanks to incentives promulgated by Securities Commission Malaysia such as tax deductions on SRI Sukuk issuance costs.

This approach underscores the power of regulatory measures and incentives to drive issuance growth – observed in Singapore with incentives and China with fast track approval and listing visibility of green bonds.

USE OF PROCEEDS – Clean energy, green buildings, rail and urban metro predominant

Investment in renewable energy continue to be the most common use of proceeds, however their share has dropped considerably from 38% of volume in 2016 to 33% in 2017. Allocations to low carbon buildings and energy efficiency rose 2.4 times year-on-year and accounted for 29% of 2017 use of proceeds, up from 21% in 2016.

With a multitude of rail and urban metro deals, allocations to low carbon transport almost doubled in volume. The trend to finance an increasingly diverse range of projects continues. Waste, Land Use, and Adaptation themes continue to be the smallest, in part due to a lack of clear definitions on which project types would qualify.

Sean Kidney CEO Climate Bonds Initiative:

“There’s now three vital years to reach the M2020 milestone of a trillion dollars in green finance by end 2020. The final results for 2017 provide some foundation, but must be doubled and doubled again by the end of the decade.”

“The spotlight is now firmly on financial system actors, banks, insurers, corporates and institutional investors to achieve this vital 2020 climate investment target.”

“The results from 2017 also point to the areas for acceleration between now and 2020:

Increasing international alignment and market harmonisation will result in more green investment in China and the greening of the Belt and Road will also gather wider significance.

The Indian market will continue its growth with the government’s ambitious renewable energy policies and regulatory reforms providing impetus.

More brown-to-green financing initiatives will emerge from global energy suppliers and the large emitters as institutional investors look for corporate business plans and hence balance sheets to be increasingly geared towards achievement of the Paris targets and the wider clean energy and low carbon transition.

With the world’s largest bank in China, ICBC, and other leaders from Europe to Australia issuing green bonds, expectations will grow on all the top 200 banks to commence green lending programs.

Following the initial sovereign issuance from France, Fiji and Nigeria, the door is open for G20 and OECD countries to act on individual sovereign issuance in 2018 and provide stakeholder or supranational support for similar initiatives and market development in emerging economies.”

(USD 1 = EUR 0.84)

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