Moody's: green bonds could top $50bn this year on post-COP21 surge

A report from global ratings agency Moody’s suggests that there could be more than $50 billion in green bonds issued this year as the world builds on the momentum generated at last December’s COP21 UN Summit on climate change.

The summit, which produced the Paris Agreement compelling more than 190 nations to work towards restricting the global temperature increase to below 1.5 degrees C, is likely to motivate record levels of green bond investments this year as companies and governments adopt clean energy strategies, cut carbon use and increase the share of renewable energy.

Moody’s senior VP, Henry Shilling, remarked that the favorable environment post-COP21, allied to the types of growth rates seen between 2012-2014, will prove too strong for the headwinds that have recently slowed bond markets.

"Green bonds issuance could exceed $50 billion by a significant margin," Shilling said. "While volume growth in 2015 had slowed to 16%, it had exhibited gains of 158% in 2012, 255% in 2013, and 233% in 2014."

Buoyed by near-universal accord on the Paris Agreement, high net-worth, institutional and retail investor appetite for green bonds will grow this year, added Shilling, while regulatory encouragement in large markets such as China and India – both of which have pledged ambitious aims on tackling climate change – will have an equally beneficial impact.

In China, the National Development and Reform Commission (NDRC) has proposed guidelines for non-financial corporations to invest in green bonds, which include favorable conditions in regards to interest subsidies, collateral eligibility and relending. This support, unavailable in many other countries, will be a boon to green bonds in 2016.

Momentum was already building in the fourth and final quarter of 2015, when a spike in green bond investment was recorded, reaching $15.2 billion just prior to the COP21 talks. Overall in 2015, there were 105 distinct issuers bringing 197 transactions to market, with the average transaction standing at $215 million.

In total, $42.5 billion in green bonds were issued in 2015, with financial institutions accounting for roughly 40% of that figure.