Few would have predicted 2020 would prove another bumper year for sustainable investment. Despite a Covid-19-hit rough ride for many industries, it appears investors still have a healthy appetite for green bonds and other sustainable debt instruments.
Market intelligence firm BloombergNEF (BNEF) has tracked green bond volume since their first appearance in 2007. The debt instrument has grown in popularity every year, including this year, and the market passed the $1 trillion mark last month.
The $200 billion of green bonds issued in the year to date is 12% higher than the volume in the first nine months of last year. With BloombergNEF having tracked $270 billion of green bonds in 2019, figures earlier this year indicated a fall in the volume of green debt issued but September appears to have proved pivotal as it brought $50 billion of new bonds. The German government issued €6.5 billion ($7.66 billion) in sovereign bonds last month, according to BloombergNEF, and the Swedish government and French utility Électricité de France (EDF) issued green bonds with a combined value of $5 billion.
“For much of this year, green bond issuance has lagged behind 2019,” said BNEF sustainable finance analyst Mallory Rutigliano. “But the bumper month in September, with more than $50 billion issued, offers hope of a possible boom in the last quarter of the year.”
And green bonds weren't the only sustainable debt instrument fancied by investors. Though such bonds were the first to catch investor interest in 2007, they now account for only 47% of global ‘sustainable' debt financing. The combined issued volume of green bonds, social bonds, sustainability-linked loans and green loans surpassed $2 trillion this year.
“The integration of environmental, social and governance criteria has never been more important for investors than in 2020,” said BNEF sustainable finance associate Maia Godemer. “We've seen this reflected in the debt market and it is not only likely that these varieties of financing will grow in volumes in coming years, but we will see further innovation. One driver is likely to be increasing pressure to standardize rules around green bonds, particularly in Europe.”
BloombergNEF said it classified as sustainable debt financing, green bonds, green loans, social bonds and sustainability bonds which follow use-of-proceeds requirements set by the International Capital Market Association (ICMA) and the Loan Market Association (LMA), as well as all sustainability-linked bonds and loans which follow the guidelines set by those organizations.
Green bonds and other sustainable debt financing instruments aim to match investors seeking sustainability projects with borrowers who want to finance them. The proceeds must be used on projects linked to the relevant aim of the funding instrument, such as decarbonization or social justice.
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