Global green bond issuance fell 30% to US$31.6bil in the third quarter ended Sept 30, 2018 from the US$45.2bil in the second quarter (Q2, 2018), says Moody’s Investor Service.
The rating agency said on Wednesday following US$14.5bil of green bond issuance in July, there was a significant slowdown in August and September with just US$5.8bil and US$11.3bil issued, respectively.
The Q3 issuance failed to sustain the momentum gained after modest first-quarter issuance of US$32.8bil. Third-quarter issuance also fell 18% from the US$38.5bil issued in Q3 2017. For the nine month period, total volume was US$109.6bil – roughly in line with the previous corresponding period’s US$110.1bil.
“At this rate, the market remains below the pace needed to achieve our revised full-year forecast of US$175bil to US$200bil. Although 2018 issuance is flat compared with 2017, interest in green bonds remains strong, and green bonds as a share of global bond issuance increased slightly for the first three quarters of 2018,” it said.
Moody’s says two factors potentially limiting growth in green bonds in 2018 are general bond market conditions and the growth of other labeled bonds.
According to Dealogic, global aggregate bond issuance (across corporates, financials, sovereigns, supranationals and agencies (SSAs) and asset/mortgage-backed securities) was down approximately 5% in the first three quarters of the year, potentially contributing to flat green bond issuance.
Based on global market data from Dealogic and green bond market data from the Climate Bonds Initiative, Moody’s calculate that green bond issuance represented a 2.1% share of global issuance in the first three quarters of 2018, up slightly from 2.0% during the same period of 2017.
“Although this statistic highlights that the market is not expanding this year to the extent that we initially believed it would, it indicates that interest in the market is at least holding, as green bonds were just 1.1% of total issuance in the first three quarters of 2016,” it said.
Moody’s said in addition, it continues to observe increases in the issuance of social, sustainability and other labeled bonds. Since the beginning of 2017, social and sustainability bond issuance has traced higher as issuers increasingly seek to expand their issuance to support a broader sustainability agenda.
According to Dealogic, a combined US$22bil of social and sustainability bonds were brought to market in the first nine months of the year, an 82% increase over the first nine months of 2017.
“While these are still small markets, we expect them to grow over time and potentially shift some issuance away from the green bond market, as issuers observe social benefits in some of the environmentally friendly projects they are financing,” it said.
Moody’s also does not expect the current stagnation of the green bond market in 2018 to represent a long-term trend.
“Based on our discussions with green bond market participants, current market slowness is merely a blip on the radar, and long-term interest in the market remains strong and growing. Given the relatively small size and immaturity of the market, slower growth in 2018 may not yet be indicative of an extended period of slow market growth,” it said.
Financial corporates led all sectors with $24.8 billion, or 23%, of green bond issuance in the first three quarters of 2018, up significantly from 11% of total issuance in the first three quarters of 2017.
Asset-backed security (ABS) green debt, primarily fueled by issuance of green mortgage-backed securities by the Federal National Mortgage Association (Fannie Mae, Aaa stable), remained strong at 17% of total issuance in the first three quarters of 2018, down slightly from the leading 23% share during the same period of 2017. Non-financial corporates remained strong issuers, while green bonds from local governments, government-backed entities and development banks declined noticeably.
Source The Star