Green bond issuance could exceed $50 bln

Moody’s said that global issuance of green bonds could surpass $50 bln in 2016, exceeding the $42.4 bln recorded in 2015, which was also the highest level for such bonds since they first appeared in 2007.

“We expect the momentum from the UN Conference on Climate Change (COP21) as well as the signing of the Paris Agreement scheduled this April to likely motivate additional and repeat issuance of green bonds,” said Henry Shilling, a Moody’s Senior Vice President.

“In this favourable environment, even after more recent bond market headwinds, and assuming a resumption of the growth rates seen in 2012-14, issuance could exceed $50 bln by a significant margin,” said Shilling.

“While volume growth in 2015 had slowed to 16%, it had exhibited gains of 158% in 2012; 255% in 2013; and 233% in 2014.”

Moody’s said that further support for issuance in 2015 will come from continuing institutional, high net worth and retail investor appetite for green bonds.

The rating agency also said that regulatory encouragement to issue and invest in green bonds along with the presence of newly issued guidelines for such bonds in China and India will bolster issuance as well.

In particular, China’s green bond market could potentially expand more rapidly than internationally designated green bonds in 2016 due to central bank policy support and incentives announced for financial institutions issuers in the form of collateral eligibility, relending and interest subsidies — terms which are generally not available in other countries.

Early in 2016, green bonds from non-financial corporations received a boost with proposed guidelines by the Chinese National Development and Reform Commission (NDRC).

Looking back on 2015, Moody’s noted that 105 distinct issuers came to market with 197 transactions, averaging $215 mln. Of the total of $42.4 bln issued, financial institutions were the largest single issuer in terms of type of institution, accounting for about $17 bln, or 40%.

Global issuance for green bonds spiked in Q4 2015, bolstered by active issuance from financial institutions in November just ahead of the start of COP21, reaching $15.2 bln, the highest quarterly figure for the year.