Global green bond issuance is set to grow by around 60% to USD 250 billion in 2018, far exceeding the record USD 155 billion of green bonds issued last year, according to the latest assessment of Moody’s Investors Services.
The report says that increasing awareness among issuers and other market players about the potential benefits of green bonds such as investor diversification and showing a commitment to sustainability is expected to further drive this growth.
The sectors that have traditionally played a large role in green bond issuance such as financial and non-financial corporates – representing 36% of total green bond issuance in 2017 – will continue to lead green bonds toward an upward trajectory. Additionally, new players in the market such as emerging market issuers, sovereigns and municipalities are expected to see considerable growth in green bond issuance in 2018.
"Developed market corporates and banks will remain active issuers," according to Matt Kuchtyak, an analyst at Moody's and the lead author of the report. "Emerging market issuers, sovereigns, municipals and green securitizations will also provide important engines of growth."
In addition to promoting sustainability policies, green bond issuance demonstrates a government’s commitment to carbon emission reduction under the Paris Agreement, which aims to reduce limit the rise in temperatures in order to avoid the worst impacts of climate change. Investing in green and climate smart development projects is key to achieving the goals of the Agreement.
Moody's projects that Sovereign green bond transactions will see a major upturn in the year ahead, including potential financings from the governments of Indonesia (Baa3 positive) and Belgium (Aa3 stable). Some sovereigns, particularly in emerging markets, such as Nigeria (B2 stable; GB1) may also look to green bonds as an attractive means to finance large-scale climate adaptation investments.
Moody's also projects municipal green bond issuance, in both the US and abroad, to hit record heights in 2018.
"The public sector is at the forefront of combating climate change, coping with environmental shocks and addressing critical infrastructure needs," says Kuchtyak. "We anticipate green bonds will increasingly serve as a relevant financing tool for these obligations."
Despite some challenges for emerging market green bond financings, the report highlights strong prospects for growth in issuance, which is expected to be supported primarily by China and India, as well as other economies with governments implementing green finance policies. Multilateral agencies will also play a pivotal role in supporting the development of emerging market green bonds, notes the report.
The relevant press release from Moody’s Investors Services is here.