Green bond issuance tops US$100bn for H1 record

IFR 2290 29 June to 5 July 2019
4 min read
EMEA
Steve Slater

Green bond issuance has topped US$100bn this year, the first time that landmark has been reached in the first half of the year, to set the market on course for record issuance of more than US$200bn in 2019.

Climate Bonds Initiative, a group that promotes investment in the low-carbon economy, said Green bond issuance had reached US$106.7bn this year, after several new issues settled late last week.

It said forecasts for total Green bond issuance in 2019 range from US$180bn to US$250bn, potentially well above last year’s record annual issuance of US$163.7bn.

This year marks the third year issuance has topped US$100bn. In 2017 it reached that benchmark in November, and last year it surpassed that level in mid-September.

The largest sovereign Green bond issued so far this year is a US$6.7bn offering from the Netherlands in May. The biggest offerings from corporates this year have been US$1.7bn from Engie, US$1.6bn from LG Chem and US$1.5bn from Industrial and Commercial Bank of China.

The top four countries for issuance have been France, the United States, the Netherlands and China.

Climate Bonds CEO Sean Kidney said reaching the US$100bn milestone so early in the year was welcome, although the market is still well short of the target to get annual issuance to US$1trn during the 2020s.

He said guidelines released last week by European Union technical expert groups should help spur activity. That included the release of a EU taxonomy giving guidance on what can be classified as green, which could become the global standard for what qualifies as green in capital markets. There has been criticism that investors and issuers are confused by current standards, leading to “greenwashing”, where an eco-friendly label is put on a product even though its green credentials seem dubious.

“The EU TEG process, in particular the EU taxonomy, opens new pathways to achieve this critical climate investment goal,” Kidney said.

“The common definitions that the EU taxonomy provides across broad sectors of the real economy opens the door to brown-to-green transition of corporate assets and capex programmes, and for banks and insurance companies to sizably increase the availability of green capital,” Kidney said.

URGENT ACTION

Green lobbyists are increasingly being joined by investors in calling for more to be done to spur green finance.

Last week investors managing more than US$34trn in assets, nearly half the world’s invested capital, demanded urgent action from governments on climate change ahead of the meeting of G20 leaders in Japan.

In an open letter to the G20 leaders seen by Reuters, groups representing 477 investors stressed “the urgency of decisive action” on climate change to achieve the Paris Agreement target.

Almost 200 nations agreed in Paris in 2015 to limit the global average temperature rise to well below 2 degrees Celsius above pre-industrial times. Current policies put the world on track for at least a 3C rise by the end of the century.

“There is an ambition gap… This ambition gap is of great concern to investors and needs to be addressed, with urgency,” a statement from the investors accompanying the letter said.

Governments were urged to strengthen their Paris Agreement targets by 2020; phase out thermal coal power and fossil fuel subsidies by set deadlines; set a robust global carbon price by 2020 and improve climate-related financial reporting.

“It is vital for our long-term planning and asset allocation decisions that governments work closely with investors to incorporate Paris-aligned climate scenarios into their policy frameworks and energy transition pathways,” the statement said.

Large investors signing the statement included Legal & General Investment Management and the California Public Employees’ Retirement System (CalPERS).