IFR Green Bonds Roundtable 2017
There is no doubt that the subject of sustainable finance is at the forefront of current debate and no doubt that the consensus has already built that climate risk is financial risk. More than that, there is widespread commitment to tackle the issues of climate risk in a socially responsible way.
The consequences of global warming are well documented: greenhouse gas emissions are driving changes in weather cycles, polluting cities and jeopardising long-term economic growth, as well as threatening countless lives.
Climate change is at the top of the global policy agenda; it’s providing the impetus to transition the world towards a low-carbon economy.
Financing that transition does not come cheap, however. And mobilising private investment into funding the transformation is key to reaching the targets outlined in the Paris agreement. The Green bond market will play an important role in mobilising those funds.
It’s worth remembering, though, that the Green bond market is a relatively new phenomenon. The first deal was launched just 10 years ago when the EIB issued its debut Climate Awareness Bond, a bond that was listed on the Luxembourg Stock Exchange.
Since then, the market has grown. In 2016, issuance ballooned to nudge the US$100bn mark - thanks in no small part to China’s enthusiasm in embracing Green bonds during its time as head of the G20.
As well as increasing in volume, the market has also increased in diversity. There are now over 400 borrowers from around 30 different countries in the market, with deals launched in more than 20 currencies. The issuing universe has expanded from the initial wave of development banks to include commercial banks, cities, corporates, and more recently, sovereigns. Deals have appeared in a number of formats in an assortment of sizes and across a range of maturities.
Nevertheless, it’s still a small part of the US$90trn bond market. The market is still developing and, as it develops, it will face numerous tests - it’s facing a number of them right now. The success of the Green bond market will be judged on how it overcomes those challenges and, more importantly, whether it has the desired impact on climate change.