Today the Climate Bonds Initiative published its fifth annual analysis of the climate-aligned bond universe. The report, Bonds and Climate Change: that State of the Market in 2016, finds and measures bonds that being used to fund low carbon and climate resilient infrastructure. The report studies green bonds and bonds that are financing climate solutions but do not have an official label.
The report’s key findings include:
- The climate-aligned bonds universe now stands at $694bn outstanding – A jump of $96bn (16%) from the 2015 figure. This total is comprised of unlabelled climate-aligned bonds at $576bn and labelled green bonds at $118bn.
- The universe is made up of over 3,590 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.
- 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%).
- 78% of the universe is investment grade; the majority of bonds have tenors of 10 years or more; the majority are also government-backed.
- The $96bn increase on 2015 includes $94bn in new bonds from existing issuers, plus $85bn from new issuers minus $83bn of matured bonds and issuers that no longer meet our climate-aligned criteria.
- Low carbon transport was the largest single sector, accounting for $464bn (67%) of the total climate aligned universe, followed by clean energy at $130bn (19%).
- The remaining $97bn (14%) is drawn from Building and Industry, Agriculture and Forestry, Waste and Pollution, Water or Multi-Sector bonds; a small but welcome pointer towards more diversity in issuance.
During the research phase of the report, we analysed 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.
- World First Bond To Protect Forests And Deepen Carbon-Credit Markets Welcomed By London Stock Exchange
- NTPC To Lead On Brown To Green Bond Financing
- BoC Lists A Green Bond On The Luxembourg Stock Exchange (LuxSE) As First Chinese Bank To Do So
- Farm-Scale Wind Farms Set for Scotland and Wales
- Good Energy Launch Renewable Share Offer
Zoe Knight, Managing Director of Climate Change Centre of Excellence at HSBC, said: “The growth in size and depth of both the climate aligned and labelled 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.”
Sean Kidney, Climate Bonds CEO, said: “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.”
Country Specific Findings: China & USA
China leads the top 10 countries for climate aligned bonds with $246bn of total issuance (36%) followed by the US ($136bn/16%) then the United Kingdom and France ($62bn 9% & $64bn 9% respectively).
Unlabelled 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.
Our collaboration with entities such as the CCDC, CECEP, NAFMII and Shanghai Stock Exchange has helped to identify more unlabelled domestic bonds
At 16%, the USA is the second largest country of issuance. Burlington North Santa Fe is the largest issuer from within the USA, making up 17% of USA issuance alone. While issuers in the Energy theme tend to be much smaller, they are also 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 labelled as green bonds. USA-based issuers continue to drive the green labelled bond market, the USA being the largest single issuing country to date of labelled green bonds.