2019 has been a record year for the green bond market. More than USD 215bn of new issuance - including monthly records in September and October - have taken the overall market volume to USD 690bn. That's impressive growth considering new issuance was less than USD 50bn in 2015.
The first green bonds were issued more than a decade ago by development banks, but the market has taken off in recent years as sustainable investing has become increasingly important to investors. In 2014, the first edition of the Green Bond Principles (GBP; voluntary guidelines issued by the International Capital Market Association) helped accelerate issuance. A green bond is essentially a regular bond (i.e. typically offers the same yield and similar performance) that adheres to the GBP.
"Green bonds offer a way to connect sustainable investors with issuers pursuing projects that contribute to environmental sustainability, resulting in better access to long-term project financing," explain Thomas Wacker, CIO Head Credit & Fixed Income, and CIO analyst Michael Bolliger. "Major types of green projects are renewable energy, green buildings, clean transportation, and water & wastewater management."
Utilities, banks and public agencies are the largest issuers of green bonds. This year, more than half of new issuance has come from corporations. CIO notes that, in September and October, 24 issuers under its coverage launched 36 new green bonds, with highlights including Banco Santander issuing its first green bond, Chinese banks adding USD 5.7bn, and Portuguese utility EDP issuing its third green bond.
In turn, stock exchanges are responding to the market's increasing importance. "The Euronext exchange has launched a dedicated green bond segment, consolidating information on over 200 green bonds listed on six national Euronext exchanges," note Wacker and Bolliger.
Policymakers, too, acknowledge the role green bonds can play. Recently, European Central Bank (ECB) President Christine Lagarde confirmed that the institution could direct its asset purchases toward green bonds once regulators agree on a common framework for sustainable finance.
Investors with a focus on sustainability can gain access to the green bond market via individual bonds (see the CIO Bond Top List and Emerging Markets Bond List for specific recommendations) as well as via a growing range of diversified investment products.
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