The Climate Bonds Initiative launched the 5th annual ‘Bonds and Climate Change: State of the Market in 2016’ (SotM) report. Commissioned by HSBC this flagship report is the only global analysis of the climate-aligned bond universe. The report calculates the climate-aligned bonds universe now stands at $694bn outstanding (up $94bn from 2015) – comprised of $576bn of unlabelled climate-aligned bonds at and $118bn of labelled green bonds. This $694bn includes bonds that are labelled as green as well as bonds that are financing climate solutions but do not carry a label. Together, these bonds make up the ‘climate-aligned bond universe’.
3,590 Bonds Analysed from 780 Issuers
The 2016 report analysed data drawn from a pool of over 3,590 bonds from 780 individual issuers across transport, energy, buildings and industry, water, waste and pollution and agriculture and forestry.
Low carbon transport was the largest single sector, ($464bn/67%) followed by clean energy at ($130bn19%). The remaining $97bn (14%) is drawn from Building and Industry, Agriculture and Forestry, Waste and Pollution, Water or Multi-Sector bonds; a small but welcome pointer towards more diversity in issuance.
The Chinese RMB is the dominant currency (at 35%) – this is due to the inclusion of large entities such as China Railway Corp which is the largest issuer in our research followed by the US dollar (24%) and the Euro (16%).
78% of the universe is investment grade with AA-rated bonds more.
Country Specific Findings
China is the largest country of issuance with $246bn outstanding followed by the US ($136bn) then the United Kingdom and France ($62bn/ 9% & $64bn/ 9% respectively).
Unlabelled issuance is dominated by China Railway Corporation- the largest issuer with $194bn outstanding.
We collaborated with the CCDC, CECEP, NAFMII and Shanghai Stock Exchange which helped to identify more unlabelled domestic bonds.
USA is the second largest country of issuance (At 16%, of the total). Burlington North Santa Fe is the largest issuer from within the USA, making up 17% of USA issuance alone.
The year, we undertook additional research on the US muni bond market which led us to discover $20.6bn of unlabelled climate-aligned bonds. Together with the $9.7bn of labelled green muni bonds, US bonds amount to $30.3bn, 27% of total climate-aligned bond issuance out of the USA.
The Last Word – The Climate Opportunity
While a $694bn universe is encouraging, it is small in the context of what is required to remain within a 2-degree scenario. According to the International Energy Agency (IEA), cumulative investment of $53tn is required by 2035 in the energy sector alone. New Climate Economy estimates that $93tn of investment is required across the whole economy by 2030.
To put this in context, the global bond market currently stands at approximately $90tn. The bond market is therefore an essential tool to finance the transition to a low carbon economy. The growing green bond market will continue to be an important part of this transition but it is not the whole picture – there are a range of unlabelled climate investment opportunities in the bond market which are captured in this report.
A full copy of annual ‘Bonds and Climate Change: State of the Market in 2016’ can be downloaded here. Versions in Chinese and Portuguese will be avaliable soon.
The ‘Bonds and Climate Change: State of the Market in 2016’ report is kindly sponsored by HSBC.
