Seen as a key way to raise capital for new low-carbon projects, green bonds are on the rise and set for a record breaking year according to a major financial firm.
Moody’s reports that this year’s issuance of green bonds could approach $100 billion globally, bringing the sector within striking distance of doubling bonds issuance in one year – an increase previously took nine years.
The New York City-based firm points out that these developments are reinforcing the momentum of “a trend to acknowledge and address climate change,” also pointing to the surprising speed at with which the Paris Agreement on climate change was ratified.
“The volume for the third quarter pushed green bond issuance for the first nine months of the year to $63.2 billion, an increase of 132 per cent from the $27.2 billion issued a year ago,” said Henry Shilling, a senior vice president at Moody’s.
“Moreover, volume for the first nine months also strongly eclipsed the total of $42.4 billion issued during all of 2015, which was previously the record for annual green bond issuance,” Shilling said.
Although the renewable energy and energy efficiency sectors still benefit from green bonds, Moody’s says a shift has occurred over the last three months, with renewables and efficiency now accounting for less than 50 per cent of all green bond investments.
By contrast, investment in clean transportation, waste management, sustainable waste management and clean water and drinking water ticked up drastically.
Overall, green bonds are expected to keep exceeding expectations. “Should the issuance levels seen in the third quarter be sustained through the end of the year, which is likely, given early issuance indicators during the first three weeks of the fourth quarter, the global market stands ready to achieve well over $80 billion in issuance and may approach $100 billion for the year,” says Shilling.
Investing in sustainable infrastructure is “key to meeting the Paris Agreement,” said Felipe Calderón, former president of Mexico and chair of the Global Commission on the Economy and Climate earlier this month.
The world’s existing infrastructure – spanning sectors such as energy, public transport, buildings, water supply and sanitation – is estimated to be responsible for 60 per cent of the world’s greenhouse gas emissions.
China led the green bonds field with 44 per cent of global issuance according to Moody’s, marking a return of the pattern observed in the first quarter of 2016. For cities in emerging economies, a flourishing green bond market can offer much-needed access to low-cost capital and finance sustainable infrastructure.
Mexico City, for example, hopes to issue its first green bond with support from Climate-KIC, the EU’s public-private climate innovation partnership. Climate-KIC is testing out new ways to finance sustainable infrastructure through its Low Carbon City Lab.
“It all depends on whether we get financing right, only then will capital fully shift in the low-carbon direction,” said Calderón.
— South Pole Group (@southpolegroup) October 12, 2016
Find out more about unlocking the climate action potential of cities, visit Climate-KIC’s Low Carbon City Lab.