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Green bond market tops $500 billion in 2021: Climate Bonds Initiative

21 April 2022 Amena Saiyid

Green debt issued for use in clean energy, building, and transportation initiatives dominated the $1.1 trillion sustainable bonds market in 2021, topping the half-trillion mark for the first time since UK-based Climate Bonds Initiative (CBI) began tracking it in 2007.

Taking advantage of low global interest rates and buoyed by national net-zero pledges for decarbonization, sovereign nations, banks, and companies issued $522.7 billion in green debt, a 73% increase over the prior year, according to CBI's Sustainable Debt Global State of the Market 2021 report released 21 April.

However, some analysts caution that the growth spurt green bond markets enjoyed in 2021 may not necessarily carry over into 2022 due to market volatility driven by the war in Ukraine and higher global interest rates.

CBI has been tracking green bonds that align with its definition of "green" since the European Investment Bank first issued this type of debt in 2007.

Green bonds are issued typically to fund large-scale, capital-intensive, green infrastructure projects such as energy efficiency, transit, or renewable power that result in positive environmental outcomes, including climate benefits.

Chart, treemap chartDescription automatically generated

Source: Climate Bonds Initiative

More green financing needed

CBI CEO Sean Kidney said the trillion dollars issued across sustainable markets suggest that "capital is beginning to shift at scale—but more is needed."

"The unprecedented times in which we live call for unprecedented levels of action. Failure to affect immediate redress in the environmental merits of global finance implicates market actors as accessories to irreversible climate catastrophe," Kidney added.

Towards the end of December, the green bond market was hurtling towards the half-trillion-dollar mark with $443 billion in debt issuance. But that was a month after world leaders met at the UN's COP26 meeting on climate change in Glasgow, Scotland, and pledged to decarbonize their economies.

In the runup to COP26, the green bond market saw a flurry of activity with investors looking to capitalize on low interest rates, while demonstrating their commitment to clean energy technologies. CBI data shows almost $86 billion of green debt was issued in September alone.

CBI data show developed economies dominated green investments in 2021, with Europe "the most prolific region," recording $265 billion in green debt, mostly from banks and sovereign nations. The Asia-Pacific region followed in second place with $129.5 billion in green debt.

No African countries issued green bonds last year, which CBI attributed to their focus on recovering from pandemic-induced lockdowns.

Companies taking the lead in green bonds

Countries as well as companies are increasingly using or evaluating green bonds as viable financial instruments for raising capital for climate and cleantech solutions that align with their net-zero goals.

In terms of issuers, companies led the way with $140.6 billion, followed by banks with $135 million, and sovereign nations with $72.8 billion.

Among corporate issuers, China Three Gorges Corporation, a state-owned power company, issued the most bonds, 18 that were priced at a combined $7.2 billion. Spanish company Iberdrola issued three bonds priced in total at $3.3 billion, including one issued in November to finance renewable projects in Poland and Australia.

Ford Motor Company debuted in the arena in November with a 10-year, $2.5 billion unsecured green bond to fund investments in its growing battery electric vehicle (EV) portfolio including the Mach-E, F-150 Lightning, and E-Transit models. The automobile company floated a bond a day after it announced plans to launch a sustainable investing framework to drive greater penetration of EVs and clean manufacturing.

Banks, which had issued just $55 billion in green debt in 2020, rebounded in 2021 with 17% of the holdings from 31 Chinese banks and 16% from German banks. A $6.5 billion bond issued by China Development Bank and $4.5 billion bond from ICPC counted as the largest issuance in this sector.

Among the sovereign debt issuers, Italy, the UK, Serbia, South Korea, and Spain entered the sovereign green bond market for the first time.

Oversubscribed sovereign bonds

The UK was the largest sovereign green bond issuer across the globe in 2021 with a pair of bonds worth a combined £16 billion ($21.9 billion), followed by Italy with a $10.1 billion bond. Spain issued a $5.1 billion green bond, Serbia issued one for $1.2 billion and South Korea for $800 million, according to CBI.

The sale of the UK's first "green gilt" of £10 billion ($13.6 billion), attracted an order book of over £100 billion ($137 billion), which CBI said was a record high among green sovereign bonds. The UK's second green bond resulted in an order book exceeding £74 billion ($102 billion), it added.

Oversubscription remains the defining feature of green and sustainable bond markets, Peter Gardett, executive director of climate and cleantech at S&P Global Commodity Insights, said. "While the level of green premium for both corporate and sovereign issuances over legacy debt segments remains inconsistent, underwriters consistently report significantly greater oversubscription among investors for high-quality green or sustainable bonds than for other types of instruments," he said.


While CBI's Kidney expects the green bond market to exceed the trillion-dollar mark in 2022, other analysts aren't as optimistic.

In a 20 April note, the International Institute of Finance (IIF) noted that higher borrowing costs and heightened geopolitical tensions were weighing heavily on investors' minds. As a result, bond issuance linked to environmental, social and governance (ESG) factors slowed in the first quarter of 2022.

Specifically, the IIF said green bond debt issuance dropped to around $110 billion in the first quarter of 2022, which it said was the "slowest volume" seen since the final quarter of 2020, most prominently in the government sector.

While Italy, France, and the US saw the largest declines in sovereign issuance activity, emerging markets saw an increase, largely driven by Chinese government-owned banks and corporations. In contrast, the IIF said corporate issuance remained at par with 2021 levels.

Posted 21 April 2022 by Amena Saiyid, Senior Climate and Energy Research Analyst

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.


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