Climate Bonds Initiative (CBI) recently issued its 2020 edition of the global State of the Market Report. This report describes the shape and size of the green, social and sustainability (GSS) themed debt market up to the end of 2020.
GSS instruments issued during year 2020 totalized near US$ 700bn worth, showing a 95% growth rate compared to 2019 figures. While green remains the dominant theme (41% of total issuance), the social and sustainability themes grew dramatically and achieved higher volumes than all previous years combined. The amount of debt issued under the sustainability theme multiplied by 2.3 times compared to 2019. The social bond market exploded in 2020, recording a more than 10-fold increase (1017%) year-on-year, the sharpest annual growth in any theme since the inception of the GSS debt market.
Europe is home to the world’s largest GSS bond market, which has developed with the strong leadership of the European Union (EU). Despite making up a relatively small portion of the world’s volume, Latin America & Caribbean (LAC) continued its GSS debt market development during year 2020:
• LAC Green Market. The region exhibited close to 65% growth compared to the prior year, reaching US$ 7.9bn in 2020. More than half of the total originated from Chile, including four sovereign bonds worth a total of US$ 3.8bn (of which US$ 2.2bn were issued in EUR and the residual in US$).
• LAC Sustainable Market. LAC was the only region without record yearly issuance in sustainable theme. Its US$ 888m volume only made up 1% of total 2020 figures and came from a single deal; however, this was a sovereign SDG-labelled bond from Mexico, therefore marking a crucial step in developing the GSS bond market at both country and regional level.
• LAC Social Market. It is worth mentioning that all of the first sovereign social bonds that came to the market in 2020 were from Latin America. Ecuador and Guatemala issued two and three deals respectively in the first half of the year, and Chile two deals in the second half.
o Ecuador pioneered the sovereign social bond, with a US$ 400m debut in January 2020. The proceeds of the bond were earmarked to provide mortgages to low- and middle-income individuals at preferential rates giving homes to up to 24,000 families. The deal was supported by a US$ 300m guarantee from the Inter-American Development Bank (IDB), enhancing the appeal for international investors, and reducing the borrowing costs for Ecuador.
o Chile brought a two-tranche deal split between 8- and 13-year tenors with a cumulative volume of CLP1.6tn (US$ 2bn), raising funds for projects that support households, education, essential health services as well as programmes to prevent and/ or alleviate the effects derived from COVID-19 amongst others. Sovereign issuance plays a crucial role in developing local markets as they can serve as benchmarks and a blueprint for other organizations.
Post-pandemic recovery spending linked to GSS expenditures encourages crowding in of such investment by introducing more projects into the real economy. Yet the cumulative US$ 1.7tn of GSS debt described in the report remains a small fraction of the global US$ 100tn bond worldwide market. While policy and investor actions may set the pace towards the vital 2020s milestone of US$ 1tn in annual green investment, channeling sufficient finance to tackle the climate emergency still remains a challenge.
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