Climate Bond Driving Billions

Climate Bonds Initiative

The New Forecast for The Green Economy

The Climate Bonds Initiative has published its 5th annual report ‘Bonds and Climate Change: the State of the Market in 2016’ (SotM) today.  

This annual flagship report is the only global analysis of the climate-aligned bond universe. Their analysis discovers and quantifies those bonds that are being used to finance low carbon and climate resilient infrastructure; this includes bonds that are labelled as green as well as bonds that are financing climate solutions but do not carry a label. The company's collaboration with entities such as the CCDC, CECEP, NAFMII and Shanghai Stock Exchange helped identify unlabelled domestic bonds

Report's Key Findings

$694 billion

Total combined $576bn from bonds not labeled 'green' and $118bn labeled green.
 

$464 billion

Low carbon transport (67%)
 

$130 billion

Clean energy (19%)
 

$97 billion

Building and Industry, Agriculture and Forestry, Waste and Pollution, Water or  Multi-Sector bonds

$96 billion

Increase over 2015 (16% jump). $95 billion in new bonds from existing issuers, plus $85bn from new issuers, minus $83bn of matured bonds and issuers that no longer meet their climate-aligned criteria.

3,590

Number of bonds issued from Jan 2005 to May 2016, from 780 individual issuers across transport, energy, buildings and industry, water, waste and pollution and agriculture and forestry.

78% 

 Investment grade, the majority of which have tenors of 10 years or more and/or are government-backed.
 

In the climate-aligned bond universe, the Chinese RMB is the dominant currency (with 35% of the total amount outstanding), followed by the US dollar (24%) and the Euro (16%).

During the research phase of the report, they analyzed over 1,700 different issuers to discover those with over 95% of revenue derived from climate-aligned assets. Bonds from these issuers formed the data pool used in compiling the report. The HSBC Climate Change Centre of Excellence commissioned State of the Market 2016, continuing their support from previous years.  

Zoe Knight

Zoe Knight, Managing Director, Climate Change Centre of Excellence, HSBC said: “The growth in size and depth of both the climate aligned and labeled green bonds is a positive for potential investors looking to lift their green exposure post the COP21 at Paris. It’s a sign of the scale and liquidity in the market and demonstrates the potential for future green investment. Encouragingly, the report shows that financing low carbon growth paths in the major emerging economies through green bonds has begun and with sound market frameworks, can undergo rapid growth.”

 

Country Specific Findings

  • China leads with $246bn of total issuance (36%)
    • US ($136bn/16%)
    • France ($64bn 9%)
    • The United Kingdom ($62bn 9%).
  • Unlabeled issuance is dominated by China Railway Corporation (largest issuer with $194bn). This figure highlights the significance of bonds within the transport sector and demonstrates the continuing importance they will play in raising finance for low-carbon transportation.
  • Burlington North Santa Fe is the largest issuer from within the USA, making up 17% of USA issuance alone.
  • Energy is smaller but more numerous with over 200 separate Energy issuers making up a total of $28bn issuance.
  • 40% of the entire Water theme is made up of US issuers, primarily Municipal bonds which have been labeled as green bonds.
  • USA-based issuers continue to drive the green labeled bond market, the USA being the largest single issuing country to date of labeled green bonds.

Sean Kidney

Sean Kidney , Climate Bonds CEO added: “Bridging the climate finance gap doesn’t require complex new investment models.  The re-alignment of bond market activity with climate change and low emission goals will deliver a stable long term source of green investment. This report shows that the large scale harnessing of bonds and other forms of debt based capital towards climate and carbon goals is within reach.”

“Green bond based capital to fund infrastructure projects are now an established model. As countries look to turn their INDC commitments into climate plans the report shows that green and climate resilient transport, urban development, water and energy projects are already being financed by green bonds and can be scaled up. The biggest challenge now is for policy makers and investors to develop models that simply accelerate the flow of investment."