A Shanghai launch for report on bonds and climate change as China leads as largest country of issuance in 2016
In Shanghai today the Climate Bonds Initiative, an international investor-focused not-for-profit, will launch a report on the state of the market of ‘green’ bonds. The launch venue of the Chinese version of its report bears testimony to that fact that, to date in 2016, China is the largest country of issuance.
China Railway Corporation (the largest issuer with $194 billion) dominates unlabeled issuance, highlighting the significance of green bonds within the transport sector. This demonstrates the continuing importance such bonds will play in raising finance for low-carbon transportation, says the report.
Climate Bonds Initiative describes its annual flagship report, now in its fifth year as “the only global analysis of the climate-aligned bond universe.” ‘Bonds and Climate Change: State of the Market in 2016’ discovers and quantifies those bonds that are being used to finance low carbon and climate resilient infrastructure; this includes bonds that are labeled as green as well as bonds that are financing climate solutions but do not carry a label.
The climate-aligned bonds universe, it says, now stands at $694 billion outstanding, representing a jump of $96 billion (16 percent) on the 2015 figure. This total is made up of unlabeled climate-aligned bonds at $576 billion and labeled green bonds at $118 billion. It collaborated with entities in China including the Shanghai Stock Exchange to help identify the unlabeled domestic bonds.
The $96 billion increase on 2015 includes $94 billion in new bonds from existing issuers, plus $85 billion from new issuers. Some $83 billion in matured bonds and issuers that no longer meet the climate-aligned criteria has been deducted, says the report.
The climate aligned universe is made up of over 3,590 bonds from 780 individual issuers across transport, energy, buildings and industry, water, waste and pollution and agriculture and forestry. They were issued between January 2005 and May 2016.
China leads the top 10 countries for such bonds with $246 billion in total issuance (36 percent), followed by the United States ($136 billion or 16 percent), France ($64 billion) and the United Kingdom ($62 billion). Both France and the U.K. hold about 9 percent of such bonds.
Low carbon transport was the largest single sector, accounting for $464 billion (67 percent) of the total climate aligned universe, followed by clean energy at $130 billion (19 percent). The remaining $97 billion (14 percent) is drawn from Building and Industry, Agriculture and Forestry, Waste and Pollution, Water or Multi-Sector bonds. The Climate Bonds Initiative report calls this “a small but welcome indication towards more diversity in issuance.”
“The report reflects the growing weight of Chinese green bond development and its global implications for markets and institutional investors. China is steadily progressing its green finance systems. This alignment of bond market activity with low emissions growth, climate and environmental goals will provide enormous opportunities for global investors,” says Sean Kidney, CEO Climate Bonds.
“Green bond based capital to fund infrastructure and environment based projects are now an established model. As countries like China look to turn their INDC commitments into climate plans, the priority for international policy makers and regulators is to further develop and harmonize financial frameworks. This will assist the rapid and sustainable flow of global investment into climate resilient transport, greening cities, clean energy, environmental improvement, water and energy efficiency projects,” he adds.
Investors take note: 78 percent of the climate-aligned bond universe is investment grade, and the majority of bonds have tenors of 10 years or more, says the report. The majority are also government-backed.
In terms of currencies in the climate-aligned bond universe, China’s renminbi (RMB) is the dominant currency with 35 percent of the total amount outstanding. It is followed by the U.S. dollar (24 percent) and the Euro (16 percent).
Dina Medland is an independent writer, editor and commentator with a strong focus on issues around corporate governance, ethics, the workings of the boardroom and sustainable business. She is on the team of contributors to @ForbesEurope and is an ex-Financial Times staff member who has been a regular contributor in recent years. Further details about her background and a portfolio of work – including her commercially sponsored blog ‘Board Talk’ are available on her website http://www.dinamedland.com