Tracking the green bond market8th Dec 2019
Climate change has been widely acknowledged as one of the greatest long-term challenges facing humanity. In their monthly report to member countries this October, the United Nations warned that the world has 12 years to avert catastrophic climate damage, and countries needed to get their financing in order.
One of the main ways of doing this is by investing in green bonds. Although there is no standard definition of green bonds, they are generally regarded as any bonds the proceeds of which directly fund sustainable and environmentally proactive projects.
The global economy has already sold about $89 billion of green bonds from January to July 2019, and the amount is expected to reach in excess of $200 billion by the end of the year. It might not quite have hit the trillion target, but it certainly is slow but steady progress from the $133 billion that was spent in 2018 and the $128 billion in 2017.
The majority of developed countries have already taken advantage of the green bond market, having incorporated it into their existing climate investment strategies. Netherlands, for example, entered a $6.7 billion deal earlier this year, representing the first sovereign green bond ever sold by a triple-A rated country. For institutions with the largest number of green bonds, like the European Investment Bank, for example, economies of scale come into play.
In other parts of the world, emerging markets in Asia have also been active in issuing green bonds, with China being the largest, followed closely by Singapore and Japan. In fact, figures from Bloomberg show that about 39% of green issuance in the first five months of 2019 came from countries other than China, France, America, Germany, the Netherlands and Sweden.
The story is a lot different in places like Latin America, the Caribbean and Africa. Despite being most vulnerable to the effects of climate change, political instability, stagnating economies and an ongoing reliance on fossil fuels have meant that the green bonds market in some of these regions has not even taken off.
South Africa is bucking the trend and quickly establishing itself as one of the leading countries with regard to the growth of the green bond market. The country issued its first municipal green bond in Johannesburg in 2014 (worth R1.5 billion) and a second in Cape Town (worth R1 billion) in 2017. The latter was also the first in the country to be listed on the JSE green segment.
Since then, this effective tool has helped accelerate several success stories, like that of GrowthPoint Properties, who in 2018 became the country’s first real estate company to issue a green bond on the JSE of R1 billion, and Nedbank, who were the first bank in the country to issue green bonds of more than R5 billion earlier this year.
It is fair to say that green bonds are more than just a nifty marketing gimmick but are here for good. Investing in cleaner, greener and kinder projects benefits us all, and investors, governments and insurers are finally waking up to this idea.