The green bond market reached several significant milestones in the third quarter of 2017. September set a record with USD 16.4 bn of issuance, and the market rushed past last year’s total of USD 97 bn, before crossing the symbolic USD 100 bn mark, and rising to USD 110 bn by the second week of October. September issuance was strikingly higher (131%) than 2016 Year-over-Year (YoY), boosting 3Q17 issuance by 36% YoY. A healthy pipeline of announced deals remained for October or later.
As described in the previous edition published in August, market activity appeared calmer in July due to a smoothing out of the very serrated Chinese issuance patterns that characterized 2016, but Chinese activity was already approaching 90% of 2016 levels at the time of this writing.
Total cumulative green bond issuance had already broken the USD 300 bn mark in August, and stood at USD 338 bn by the second week of October, with the total number of individual green bond issuers surpassing the 500 level.
The market continues its trend of geographic and sectoral diversification, with 38 jurisdictions featuring green bond issuance in 2017. Three regions account for over half of issuance, with the U.S. retaining its top spot in the ranking (USD 25.4 bn of issuance). Uniquely among other regions, the American green bond market in 2017 is dominated by green securitizations and municipal bonds, which account for 81% of issuance. China (USD 19 bn) swapped ranking places with France during September (USD 17 bn). Mexico had been absent from the market in 2017 but returned dramatically, with USD 4 bn of new green bonds.
Drivers of this activity and geographic dispersion can be attributed to elevated green infrastructure investment demand underpinned by an increasingly broad complement and confluence of enablers, alongside increasing appetite from institutional investors. The last edition discussed the future of mobility – and its electrification – which continued to represent a vivid case study in how these factors are converging as China followed the U.K., France and others with ambitions to phase-out the internal combustion engine. We welcome analysis from SEB’s Arvid Böhm on these issues as they relate to the Nordics, as well as from SEB’s Kristoffer Nielsen on Norway as a case study.
SEB maintains its 2017 year-end green bond market potential issuance figures at USD 125 bn in a baseline scenario, with upside potential for issuance to rise to USD 150 bn. SEB’s scenario analysis for the green bond market is revised with forward projection ranges of USD 135-159 bn of issuance in 2017. Securitizations (ABS & MBS) have surged by 222% YoY, to USD 15 bn, most importantly from U.S.-based issuer Fannie Mae. Issuance from government agencies jumped 127% YoY to USD 12.4 bn. Sub-sovereign issuance including from municipalities and regions rose since Q2, now up 23% YoY. New analysis on the emerging market universe of opportunities is provided.
On the whole, the corporate green bond sector has been a beehive of activity, up 36% YoY to USD 50 bn, driven by a 131% rise in corporate non-financial issuance, standing at USD 32.6 bn. The corporate financial sector, fell off by -24% at the close of 3Q to USD 17 bn. However, financials rushed into 4Q with renewed vim and vigor on the back of the Industrial and Commercial Bank of China (ICBC) inaugural ‘One Belt One Road (OBOR) Green Climate Bond’.
Climate & Sustainable Finance Review
Guest contributors welcomed in this issue:
Asian Development Bank: A Concept for Leveraging Blended Finance for Green Development;
Kommunalbanken Norway: KBN’s green bonds and the Norwegian green bond market;
Nordic Public Sector Issuers: To launch joint position paper on impact reporting.