A Unique Milestone
According to the Climate Bonds Initiative, the issuance of Green Bonds reached USD 1 trillion cumulatively. This makes green bonds part of a highly select group in the market, where these amounts were thus far only associated with for instance the big tech companies’ valuation. What’s even more impressive is the cumulative progression (or better put) acceleration of this market. The CBI’s graph shows a sleeping market until 2015, after which record level issuance became an annual feast.
What sparked this growth of almost biblical proportions? First and foremost, sustainability has moved into mainstream finance. Five or so years ago this realm was (at least by some) still considered niche or at least a market segment in which profits were hard to come by. What a chance if one considers the investment mandates shifting to green, and combined with pressure for financial institutions to wean themselves off fossil fuel lending.
“Despite the best efforts of market groups (…) the expecations of some investors do not necessarily match the actual product.”
Looking a bit closer at the numbers, there is also growth in diversity. Green bonds, initially associated with fighting climate change, has become the label for a market encompassing social impact, and sustainable bonds of many forms and sizes. The use of proceeds has expanded beyond energy to buildings, transport and water to name a few. And yes, sovereigns and development finance institutions continue to play a major part, but the suite of issuers has expanded beyond the usual suspects, with mainstream banks rolling out gender bonds and bonds for socially deprived areas.
Is it all good news then? Despite the best efforts of market groups such as ICMA to standardise the terms, the expectations of some investors do not necessarily match the actual product. Much work remains to clarify, warn and bring those on board who are yet to cross the bridge.