Global 'green bonds' market touching US$600bn

The latest report on the so-called green bond market, prepared by the Climate Bonds Initiative with the backing of HSBC, has been in soft release over the last couple of weeks, with the report launched in London earlier this week.

"Bonds and Climate Change: The State of the Market in 2015" shows that the market for green bonds, which includes 'climate-aligned bonds', has increased to almost US$600 billion by volume.

For the purposes of this report, climate-aligned bonds are both labelled green bonds (with defined use of proceeds to be allocated to specific projects such as renewable energy generation) and unlabelled bonds issued by "climate-aligned entities", such as Eurofina, the Swiss specialist financier of railways (that is, climate change mitigation, as rail transport is less carbon intensive for hauling freight and people than other large volume options).

The report's authors made the point that emerging market issuance of climate-aligned bonds shows great potential. Emerging market growth has indeed seen new issuers kicking off some green bond trades of their own. Outside of China, India is leading the way, with Yes Bank and Export-Import Bank of India among early issuers.

China's policymakers are aiming to grow a large green bond market, with 14 per cent of issuance last year.

Climate-aligned bonds are denominated in 37 different currencies. Chinese yuan (CNY) denominated bonds account for the equivalent of almost US$200 billion of the total market, due to Chinese rail and hydro bonds. Other currencies represented include US dollars (US$125 billion), euros (US$111 billion) and sterling (US$52 billion).

Further, a large proportion of the bonds have tenors over ten years. This reflects the length of climate projects - in particular long dated rail bonds.

The report featured three large wind project bonds as examples of renewable energy project finance via bonds, including the dual currency (USD and AUD) dual-tranche A$200 million Hallett Hill in South Australia. This project has 34 wind turbines, with joint placement agents BNP Paribas and National Australia Bank tapping the US private placement market, leading NAB to claim bragging rights as "the country's largest debt financier of renewable energy projects."

The report noted Australia's position in the past financial year as the tenth largest issuer of climate-aligned bonds, but failed to mention the emerging political hostility towards renewables, in favour of coal fired power at the Federal government level.