Green bond issuance set for another record year

Issuance bolstered by the increased participation of corporate issuers

GLOBAL issuance of green bonds appears poised for another record year following a strong third-quarter in which issuers raised close to US$33 billion, data from Moody’s Investors Service has shown. The market also saw a shift towards the increasing participation of corporate issuers this year.

In the first nine months of 2017, issuers generated US$94.5 billion in bond proceeds earmarked for green projects. This represents a 49% increase in volume compared to the same period in 2016. Moody’s predicts that green bond issuance will exceed US$120 billion by the end of the year.

One of the biggest shifts in the market has been the increased participation of corporate issuers. This is an encouraging sign that the market is maturing as more issuers become familiar with the asset class. Corporate green bond issuers represented around 37.6% of the market in Q1-Q3 2017, compared to only 19.2% in the same period in 2016.

For some recent examples, Indian clean energy company Greenko raised US$1 billion from investors on July 17 2017 in a green bond issuance. City Developments Limited issued the first green bond in Singapore on April 6 2017 when it raised S$100 million (US$73.5 million) for its flagship Republic Plaza building. Hong Kong-based Concord New Energy Group is currently in the market for its own green bond.

Financial institutions also played a key part in bolstering the green bond market, with banks examining their loan books for green projects in need of capital. China Development Bank (CDB) priced a US$500 million five-year green bond on November 10, which saw an oversubscription of 3.4x with 41% of the demand coming from the EMEA region. CDB had already issued a Chinese onshore green bond this May raising 725.18 million yuan (US$109 million) in that trade.

Most issuers funneled proceeds towards renewable projects, with 73% of the volume eligible for those projects. This was followed by energy efficiency projects, sustainable water management, and pollution prevention/control. Chinese and French issuers took a leading role in the market, each representing around 18% of green bond volumes in Q1-Q3 2017. This is another consistent show for China which only officially entered the green bond market in 2015.

Evidently experiencing impressive growth since 2015, the green bond market has much more room to grow, particularly in emerging markets, where the idea of local currency-denominated green bonds is being discussed. However, local currency green bonds could discourage international investors that are uneasy about the local regulatory environment relating to disclosure and governance. Moreover, the domestic investor base for local currency green bonds may be too small for issuers to engage with. Availability of investable and eligible projects are also factors that emerging market issuers need to be aware of.

Nevertheless, governments are making efforts to encourage the growth of green bonds. The Securities Commission Malaysia on November 8 launched the Asean Green Bond Standards, tailored for Asean issuers. The standards are based on the Green Bond Principles, one of the globally recognized standards for green bonds. Fiji became the first emerging market sovereign to issue a green bond last month with the aim of setting an example for climate-vulnerable nations.