Report: climate bonds enter mainstream, reaching $502bn

The sums invested in bonds related to climate change have rapidly grown in the last year, a new report shows. The investment vehicle is entering the mainstream and becoming an increasingly popular choice for investors with the market now standing at an estimated $502.6 billion (£293.6bn).

The report – Bonds and Climate Change: The state of the market in 2014 – was prepared by the Climate Bonds Initiative and commissioned by HSBC. It noted that compared to when the first edition of the annual report was published in 2012, the green and climate bonds landscape is “unrecognisable”.

It states, “Three years ago, labelled green bonds were a niche market pioneered by a handful of development banks. In the past year, however, labelled green bonds have entered the spotlight with $11 billion (£6.4) issued in 2013 (over three times the issuance of any previous years) and $18.5 billion (£10.8bn) issued up to 10 June in 2014.

“The issuer has also expanded beyond development banks to include corporates and municipalities. The green bonds era has begun.”

The labelled green bond market stood at just $7 billion (£4bn) in the last edition of the report, but it now stands at $35 billion (£20.4bn), with strong growth continuing throughout the beginning of 2014.

The broader  “climate-themed universe” is an indicator of where future bonds might be labelled, the report explains. The amount of bonds linked to climate change solutions stands as $502.6 billion (£293.6bn), compared to last year’s estimate of $346 billion (£202bn), with transport being particularly dominant.

Sean Kidney, CEO of the Climate Bonds Initiative, said, “Investors are concerned about climate change. This report shows how they can invest in climate bonds without risk. The investment opportunities we find are safe and secure investment grade bonds. This is a dull green market – just how pension funds and insurance funds like it.”

Despite the progress made, the report adds there is still a long way to go if the International Energy Agency’s projections of the capital flow needed to address dangerous climate change is to be met.

The report identifies electricity utilities, auto manufacturers, bank lending and asset finance, and water utilities as emerging trends.

Co-author of the report, Bridget Boulle added, “In the coming year we will see growth in labelled green bonds from municipalities, cities and corporate issuers. We expect increasing demand from investors signed up to the Principles for Responsible Investment and the Global Investor Coalition on Climate Change.”

HSBC has previously forecast that green bond issuance would more than double this year to a global record of $25 billion (£14.6bn). Insurance firm Zurich has also identified opportunities within the market and doubled its commitment to green bonds as a result.

Photo: bernadg via Flickr

Further reading:

Working group to provide investors with new standard for low-carbon transport bonds

Green bond investment forecasted to double in 2014

Campaigners call for clarity in Green Bond Principles

US firm launches $100m green bonds for low-carbon investment

Zurich backs responsible investment and doubles green bond commitment