Global green bond market set to hit record US$1t by end-2022: research

THE global green bond market will double in size to reach a record-breaking milestone of US$1 trillion by the end of next year - with US$5 trillion now the new target for 2025 - says Climate Bonds Initiative chief executive officer, Sean Kidney.

This, as green bond issuance reached a half-year record of US$227.8 billion in the first half of 2021, after totalling US$297 billion in the whole of 2020.

"The green finance revolution is underway with a powerful beginning to a pivotal decade for climate action. These figures show the tremendous potential for acceleration in the market for this and following years. Reaching the vital milestone of the first US$1 trillion in annual green investment opens a green window in global capex (capital expenditure) flows against 2030 targets," Kidney said.

"But the climate crisis grows. It's time to lift our sights and aim higher. US$5 trillion in annual green investment by 2025 must be the new mark for policymakers and global finance to achieve."

"Capital allocation towards clean energy, resilient infrastructure, green transport, buildings and sustainable agriculture needs to accelerate into the multiple trillions, every year, rippling through both developed and emerging economies," he said.

Such a growth in climate finance has been deemed critical to the world achieving its aspirations to reduce global warming and mitigate climate change; such goals were set out in the Paris Agreement of 2015, in which 196 countries agreed to limit global warming to between 1.5 and 2 degrees Celsius, compared to pre-industrial levels, by cutting their greenhouse-gas emissions until they reach net-zero emissions by 2050.

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Climate Bonds Initiative's forecast comes on the back of a market survey it conducted in late October, in which it received 353 responses from corporates, asset owners, asset and investment managers, development banks, regulators, ratings and verification service providers.

The fourth quarter of 2022 was selected by the largest group of respondents (25 per cent) as the quarter when green bond investment would pass US$1 trillion for the first time in a single year. Quarter 4 of 2023 (13 per cent), Quarter 2 of 2023 (12 per cent) and Quarter 3 of 2023 (10 per cent) were the next most popular responses.

Climate Bonds Initiative's own research also showed that the first half of this year was a record-breaking half-year for green bonds. It said that total volumes for labelled green, social and sustainability bonds, sustainability-linked bonds and transition bonds reached nearly half a trillion (S$496.1 billion) in the six-month period.

It said that green bonds have been growing at a rate of 49 per cent in the 5 preceding years before 2021, and that its analysis suggests that the green bond market annual issuance could exceed the US$1 trillion mark by 2023, even if its growth rate slows.

It also said that US issuers constituted the largest share of issuance by volume (17 per cent or US$37.6 billion) and number of deals (495). Germany placed second with 13 per cent or US$28.5 billion and 102 deals, while France and China took the third and fourth spots, with similar volumes (US$22.8 billion and US$22.0 billion, respectively, each representing 10 per cent of issuance) but a different number of deals (20 and 92, respectively).

Singapore was in 13th place, in between Norway and the United Kingdom.

Further impetus for the growth of the green bond market is expected to come from COP26 - the United Nations (UN) climate conference scheduled to start on Sunday (Oct 31).

Krista Tukiainen, head of research and reporting at Climate Bonds Initiative, said: "We expect a stream of COP26 timed commitments from the financial sector, more sovereign green issuance and an acceleration of policy measures, including the EU (European Union) bond programme, will all drive market growth towards a record 2021 and strong start in the first half of 2022."

The Climate Bonds Initiative is an investor-focused not-for-profit organisation that promotes large-scale investment in the low-carbon economy.

READ MORE: What should investors expect from COP26?