Moody’s Investors Service says that global green bond issuance will reach another record in 2017, and could even rise to USD206 billion, following an increase of 120% to USD93.4 billion in 2016, reflecting strong China-based issuances and momentum from the Paris Climate agreement.
“Other drivers behind the rise in 2016 and the expected increase in 2017 include geographic expansion; and the rise in issuers, issue types, structures and investment vehicles, including a continuing significant contribution by China, based on its climate commitments and its ambitious renewable energy development agenda,” says Henry Shilling, a Moody’s Senior Vice President.
“The market could also be buoyed by public sector measures globally to stimulate green bonds via tax incentives, or similar approaches; and further debate and advances around harmonized reporting and disclosure, including impact,” adds Shilling.
Moody’s conclusions were contained in its just-released sector in-depth, “Record Year for Green Bond Likely to Be Eclipsed Again in 2017”.
Moody’s expectation of an issuance total of USD206 billion in 2017 is based on the assumption of another rise of 120% this year, while at least seven other countries have announced, or are reported to be considering, sovereign green bond issuance.
Lead among them is France, which reportedly may issue as much as Euro 11 billion by year-end and has begun to market a Euro 2.5 billion green bond that will be issued by the end of January. Other potential sovereign green bond issuers include Bangladesh, China, Luxembourg, Morocco, Nigeria and Sweden.
The expansion of green bond types and structures will likely continue in 2017; for example, we could see money market securities in the form of short-term commercial paper, preferred stock, and a variety of structured as well as securitized transactions.
Looking back at 2016, Moody’s notes that green bond issuance increased every quarter, culminating in a record USD30.2 billion in the fourth quarter. Furthermore, Chinese issuance — including from China-based banks and corporates — stayed dominant, accounting for about 41% of volume in the fourth quarter and 35% for the full year.
During the year, the use of the proceeds from green bond issuance remained well diversified. Allocations to renewable energy and energy efficiency projects continued to lead the way in the fourth quarter and full year, both at just over 50%. Climate-change adaption rose to 11% in the quarter versus 7% in the previous three-month period.
The number of issuers and transactions increased in the fourth quarter and full year, while the average transaction size decreased. There were 76 unique issuers with 99 transactions, averaging $305 million in the fourth quarter, and 313 transactions from 162 issuers, averaging $299 million, in 2016. Financial institutions led in both periods, while almost all Moody’s-rated offerings continued to be investment grade.
In addition, green bonds slightly outperformed non-green bonds in the fourth quarter, though they trailed for the full year. Green bond returns were down 2.3% during the last three months of 2016, slightly better than all investment-grade bonds. For the full year, green bonds registered a 2.9% gain versus 3.3% for investment-grade bonds.
Subscribers can read the full report at http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1054801.