The global green finance market enjoyed another impressive year in 2018, as record levels of sustainable debt were issued on the back of solid growth from the green bonds sector and the emergence of a number of new products.
That is the conclusion of a new analysis from analyst firm Bloomberg New Energy Finance (BNEF), which shows overall issuance of sustainable debt products surged 26 per cent to $247bn last year. Green bonds issuance reached $182.2bn in 2018, while the fledgling sustainability-linked loans market grew rapidly to reach $36.4bn.
BNEF said there were encouraging signs the market was starting to diversify and innovate in response to growing customer demand. “The focus of the market has historically been on green bonds, which were first used by European banks around 2007 to finance clean energy projects and have since also been issued by governments and a wide range of industrial businesses,” the firm noted. “While green bonds continue to make up the largest part of the market, attention is now shifting to a broader range of sustainable bonds and loans.”
2018 marked a relatively quiet year for green bonds, with the market growing just five per cent year-on-year – a sharp slowdown on the 68 per cent growth seen in 2017. However, demand for sustainability-linked loans – loans where pricing mechanisms are linked to the sustainability performance of the borrower – soared 677 per cent.
“More investors in debt markets are demanding dual social and green benefits, and more investors are demanding customized sustainability options,” said Dan Shurey, head of green and sustainable finance at BNEF. “The markets are responding, with new products emerging such as green loans, green commercial paper and sustainability-linked loans. This helped to make 2018 the seventh consecutive year of record issuance in sustainable finance since the green bond market began.”
However, with experts warning green investment levels need to continue to grow rapidly throughout the 2020s in order to meet global targets set by the Paris Agreement and UN Sustainable Development Goals, observers will be hoping the green bond market accelerates again during 2019.
There are signs the market should return to strong growth this year with Nordic bank SEB recently predicting a number of new policy measures will help drive an increase in sovereign and corporate green bond issuances following a period of “healthy consolidation” during 2018.
BNEF noted that Hong Kong and Japan established programs to incentivize market growth in 2018, while the European Commission made progress to create a green bond standard.
Aiman Mallah, sustainable finance research analyst at BNEF, said the green sovereign debt market enjoyed an impressive 2018 and observers remain optimistic the sector will continue to enjoy solid long term growth.
“Green sovereign debt hit $17.6bn in 2018 – a 64 per cent increase from 2017, thanks to inaugural issuance from countries like Belgium and Ireland, as well as further taps on the French sovereign bond,” Mallah said. “These governments are raising the debt to meet national and international environmental goals, particularly on climate change mitigation and adaptation.”
Private sector banks are also stepping up their green loan activity and BNEF’s latest market update comes just days after Bloomberg published its inaugural Green Loans League Table for Europe, the Middle East, and Africa.
BNP Paribas topped the list with a market share of 12.8 per cent – an increase of 9.2 per cent from 2017 as deal volumes hit $1.2bn.
Banco Santander came second with a market share of 10.5 per cent and deal volume of $986m and ING Group completed the top three, commanding a market share of 7.1 per cent with a deal volume of $668m.
Source: Business Green