New York, July 26, 2017 — While market growth slowed, global green bond issuance achieved a new record during the second quarter, Moody’s Investors Service says in a new report. Second quarter (Q2) volumes were supported by a record number of individual issuers, as opposed to the first quarter when the record green bond from the Government of France bolstered issuance.
In the second quarter, global green bond issuance totaled $32.2 billion amid 85 individual issuers and an average transaction size of $278 million. However, the growth rate in the market slowed, with 24% growth during the past four quarters compared with 170% growth the previous four quarters.
“We still don’t see any material pricing advantages between green bonds and non-green bonds,” Moody’s Analyst Matthew Kuchtyak said.
“The increased volume is easily being absorbed, same as with non-green bonds. But the depth of the green bond investor pool has yet to be tested, and we think it’s very deep and growing deeper by the month. When the fixed income markets see some volatility, we think the benefits of the green bonds will become more transparent.”
In the period, issuers brought 116 transactions to market, a significant uptick from 82 in the first quarter. However, transaction size decreased to $278 million versus $360 million in the prior quarter.
Moody’s says Chinese issuers brought $6.8 billion of green bonds to market in the second quarter, accounting for 21% of issuance globally. The United States came in second with 18% ($5.8 billion), the Netherlands with 11% ($3.6 billion), Germany with 10% ($3.2 billion) and supranational issuers with 9% ($2.9 billion) of new deals.
“Financial institutions account for the bulk of quarterly issuance,” Kuchtyak says. “Corporates led the way in the first quarter with nearly 28% of global issuance, but financial institutions led in the second quarter with nearly $13 billion of issuance. This represented over 40% of global volumes, up from 18% in the first quarter.”
In June, the executive committee of the Green Bond Principles unveiled a number of important changes and updates, which Moody’s believes will assist potential issuers the ability to better identify projects and provide greater clarity on the use of green bond proceeds and overall sustainability objectives.
Total green bond volumes of $61.7 billion for the first six months of the year represent a 66% increase over the first half of 2016, positioning the market to achieve $120 billion in issuance for the full year. Despite continued strong issuance, the growth rate has slowed, with 24% growth during the past four quarters compared with 170% growth in the previous four quarters.
» Issuance in the second quarter achieved with record number of issuers. Whereas the first quarter was bolstered by France’s record €7 billion sovereign green bond, strong volume in the second quarter was supported by a record 85 individual issuers, with an average transaction size of $278 million.
» Chinese issuers and global financial institutions regain green bond issuance dominance. China and financial institutions led in the second quarter with 21% and 40% of issuance, respectively. Nevertheless, Chinese green bond issuance continues to lag, when compared with the breakout year witnessed in 2016.
» The number of green bonds receiving an external review continues to rise, including among US-based issuers.Seventy-three percent of total transactions and 55% of US-based transactions received an external review in the second quarter. The prevalence of external reviews will persist as investors seek greater market standardization and enhanced green credentials.
» Updates to the Green Bond Principles (GBP) and the introduction of the Social Bond Principles (SBP) will strengthen market growth and development. Updates to the GBP will help potential issuers better identify projects and provide greater clarity on the use of green bond proceeds and overall sustainability objectives. Meanwhile, the launch of the SBP will facilitate development of the nascent social bond market.
» The US decision to withdraw from the Paris climate agreement will not materially derail global efforts to reduce carbon emissions or momentum in the green bond market. Given the economic factors driving the move to clean energy, as well as the commitment from US state and local governments, universities, corporations and other countries, the global decarbonization drive will continue despite less supportive US federal policies.
» Regional green bond standardization efforts continue to grow. Standard-setting will encourage growth in green bond issuance in markets such as India and China.