Global green bond market now worth $66 billion and growing fast

by Search Gate staff. Published Mon 21 Sep 2015 09:19
Investors flock to the green bond market
Investors flock to the green bond market

The global green market is now worth more than $66 billion as a growing number of institutional investors eye the opportunity to invest in climate change mitigation and adaption.

The analysis was released as part of an executive briefing for the public sector “Scaling Up Green Bond Markets for Sustainable Development” at an international seminar – the Financial System, the Green Economy and Climate Change, organised by Febraban, the Brazilian banking association with UNEP and the Centre for Studies in Sustainability of the Getúlio Vargas Foundation (GVces).

The Briefing is the first result of a partnership between the Climate Bonds Initiative, UNEP Inquiry and the World Bank Group that will produce a guide to practical options for policy makers to scale up green bond markets for sustainable development.

Key points include:

• The green bond market - bonds whose proceeds are used for green projects, most commonly climate mitigation and adaptation projects - is growing rapidly, and in June 2015 was valued at US$66bn.

• This growth needs to be accelerated to keep pace with the climate challenge. According to the Global Commission on the Economy and Climate US$6.2 trillion of investment is needed annually for new low-carbon infrastructure, which countries must start building now if they are to limit the effects of climate change

• Institutional investors have the capital and are ready to invest in green. At the UN Climate Summit in September 2014, institutional investors with US$43 trillion of assets under management made statements that they are looking to invest in climate change mitigation and adaptation

• Bonds can provide the long-term, stable investment returns which institutional investors need, making them appropriate vehicles to tap into institutional investors’ large capital holdings at scale. Bonds are also an attractive financing tool for infrastructure projects, providing a potentially low cost and long-term source of capital.

Sean Kidney, CEO of the Climate Bonds Initiative, said: “We need to see trillions going to green infrastructure investment if we are going to avoid catastrophic climate change. Public sector support is required, and indeed vital, given the immense scale of the investments required and the urgency with which they need to be made.”

“There is clear interest amongst policy makers to scale green bond markets. This briefing provides a simple guide to help the public sector to translate their interest in green bonds into action. It offers a range of specific actions for policy makers in both developed and developing economies.”

Nick Robins, co-director of the UNEP Inquiry, said: “Building green bond markets will help policy makers, regulators and public financial institutions meet their infrastructure investment needs, capital market development aims, and targets for climate action and environmental protection.

“The potential opportunity of the green bond market has caught policy makers’ attention around the world - including in China, India, Brazil, Mexico and the EU. For example, China’s central bank has published a range of ambitious policy proposals for green bonds, with official green bond guidelines currently under development. In the EU, supporting green bond standards is included in Capital Markets Action Plan.”

Alison Harwood, Global Practice Manager, Finance and Markets Practice, World Bank Group, said: “The climate agenda is clearly a critical one for emerging market countries as is building bond markets to support rising demand for long term finance in strategic sectors, particularly infrastructure. Given these overlapping goals, actions to develop green and broader bond markets can be done in tandem.

“Policymakers should take into account steps needed to facilitate bond financing for green infrastructure as regulatory and other measures are put in place to enhance overall bond market growth - serving the ends of both agendas simultaneously.”

Recommendations for public sector action to scale green bond markets are divided into three categories – with the application and mix depending on country and macroeconomic context and policy priorities:

• Fundamental actions: establishing a green project pipeline; strengthening local bond markets; strategic public green bond issuance and developing green standards.

• Proven Support Tools: strategic public green bond investment; credit enhancement; tax incentives and developing instruments to aggregate assets and structure risks.

• Innovative Additions: adjusting risk weightings for green investment and preferencing green investments in central bank operations.

A full version of the Guide will be launched in November 2015 in time for the UN climate change conference in Paris. The project will also feed into an OECD report on green bonds, to be launched in 2017.

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