Climate bonds market to hit a new benchmark in 2018

The climate bonds market is expected to hit a new benchmark this year, according to a new report by HSBC.

The report predicts continued strong growth of up to 50 per cent year-on-year in the global green bonds market, as it passed the US$100 billion ($127 billion) issuance mark for the first time in 2017.

Green bonds, also known as climate bonds, are a segment of financial instruments issued by companies looking to demonstrate their ethical and social responsibility credentials. They are often issued for major renewable energy infrastructure projects, constructing low-carbon residential buildings.

“Over US$120 billion of green bonds were issued in 2017, according to the Climate Bonds Initiative, with various estimates for [bonds issued in] 2018 ranging between US$130 and US$180 billion,” the HSBC report said.

This is similar to expectations of around US$160 billion, made in Canadian TD Securities’ recent investor notes.

This high performance for the climate bonds space is possible, if the market continues its current trajectory, having already increased by 48 per cent from US$81 billion in 2016.

To date, Belgium has already announced it will issue a sovereign green bond of between 3 to 5 billion Euros ($4.5 billion to $7.6 billion) this year.

HSBC head of global banking, , Hamish Kelly, told Fairfax Media there are a number of factors behind this aggressive growth.

“We’re seeing innovation and diversification of bonds on the supply side, such as clean tech, or low-emissions,” he said.

“We’re also seeing positive drivers on the demand side as more companies look to enter this market.”

Stakeholder expectation will also play a role.

“We’ll see corporates and financial institutions feeling pressure to develop their green credentials,” he said.

Mr Kelly believes this strong growth rate will continue in 2019.

In , the Clean Energy Finance Corporation has invested more than $2 billion in capital to support renewable energy projects.

CEFC executive director for investments, Richard Lovell, told Fairfax Media the market will only trend upwards.

“It’s a combination of two things: supply and demand, they are coming to people’s attention more now,” he said.

Mr Lovell said continued strong growth is unsurprising given rising interest globally and the shift towards more renewable energy and green infrastructure projects, adding that the global green bond market is almost self-sustaining.

“The growth rate has been both strong and stable, there are pretty large numbers globally and we’re at the point where the market is starting to become self-sustaining,” he said.

While the market is currently small in , with only a relatively limited cross-section of investors, Mr Lovell believes it will become more diverse in the coming years, ranging from large institutional investors and corporates to smaller mum and dad investors.

In 2017, had seven major green bonds, valued at US$2.563 billion, three of which were carried out in n dollars.

Mr Kelly said with a large base of Asian investors buyers of n dollar financial products, this will aid the growth of ‘s green bonds market.

Despite this growth, transparency and verifying green credentials remains an issue.

Mr Kelly said there had been concerns about green washing and poor quality bonds coming to market, but that this is now being overcome.

“There is a strong mitigant around that due to stronger monitoring and verification,” he said, adding that the market continues to improve transparency.

Stockland was the first n corporation to issue a green bond, but NAB was the first n bank to enter the space, launching its first green bonds in 2014. It was also the first n bank to launch an offshore green bond, issuing a bond of around $700 million in March 2017.

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