Global green-bond issuance could rise by over 50% to about $500-$550 billion in 2021 following a robust first quarter with strong demand, sustained low yields and supportive Government policies, including the Biden administration’s clean-energy focus and China’s updated green-bond principles driving growth. Net-zero emissions targets may accelerate issuance from the two countries, a new report published by Bloomberg Intelligence (BI) says.
Green-bond supply totalled about $152 billion in Q1, states BI, with Governments contributing about $49 billion and financials close to $46 billion. If the growth trend extends, the tally may reach $500-$550 billion this year, rising over 50% vs. 2020.
The Q1 total was the highest for 10 years, with every corporate sector except communications and consumer staples seeing quarter-over-quarter growth. Total corporate, Governmental, asset-backed securities, and municipal green bond sales rose 186% compared to the previous yearas record low interest rates and pent-up demand for ESG debt increased green capital spending.
March alone saw over $74 billion in green-bond deals, notes BI, with Governmental entities dominating issuance including Italy, France, China Development Bank, German state bank KfW and the European Investment Bank.
Simone Andrews, BI ESG Analyst, said: “US dollar green-bond issuance could accelerate under the Biden administration in 2021, as we anticipate his $2.25 trillion infrastructure plan may speed up US green capital spending.
“Biden is set to rejoin the Paris Climate Agreement targeting net-zero emissions by 2050, which would mean heavy investments in infrastructure, transit, the power sector and green buildings, requiring green bond financing. Euro-denominated green debt represented about half of green-bond sales in 1Q, followed by U.S.-dollar sales of 21%. The U.S. green-bond supply totalled about $21 billion at Q1’s end, about a 100% increase from a year earlier.“
BI warns, however, that the lack of a standardised criteria by those who verify green-labelled bonds may lead to heightened concerns of “greenwashing,” weakening investor confidence.
While 89% of green corporate and sovereign debt issued in Q1 was verified by an external provider, there are growing concerns that, despite the “green” marketing, proceeds won’t go toward environmental projects or that the issuer itself isn’t actually reducing its environmental footprint over time. In March 2020, the European Commission Technical Expert Group published a usability guide to establish a unified green-bond standard and require accreditation of external providers. A legislative proposal may come in 2021.
China’s Green Sales Could Accelerate After Five-Year Low
About $32 billion, or 45%, of China’s green debt matures this year, leaving it with ample room for net new issuance of Yuan-denominated bonds, says BI in line with the nation’s pledge to be carbon neutral by 2060.
“Unless new issuance picks up, it could create an undersupply of emerging market green debt. The supply of Chinese green bonds plunged to $13.8 billion in 2020, or a 49% decline compared to the prior year, as borrowers focused on working capital needs given the pandemic,” adds Simone Andrews, BI ESG Analyst.
“Chinese green corporate bonds’ weighted average maturity of 1.66 years with a weighted fixed coupon of 3.83% suggests the deals tend to be shorter than the broader corporate green market, which has a weighted average year of 7.08.”