KUALA LUMPUR: Global green bond issuance is expected to grow about 60 per cent to US$250 billion this year, Moody's Investors Service said, adding that the growth would far exceed the record US$155 billion issued in 2017, attributed to several emerging trends.
"Developed market corporates and banks will remain active issuers," said Matt Kuchtyak, an analyst at Moody's and the lead author of the report titled: Global green bond issuance set to eclipse US$250 billion in 2018.
He indicated that emerging market issuers, sovereigns, municipals and green securitisations would provide important engines of growth.
Moody's also expects sectors that have traditionally played a large role in green bond issuance growth to maintain those roles in 2018.
Financial and non-financial corporates would continue to be significant green bond issuers, which represented 36 per cent of total green bond issuance in 2017.
“Organic market growth will result from greater awareness among issuers and other market participants of the potential benefits of green bond issuance, including investor diversification and demonstrating a commitment to sustainability.”
The report noted new players in the market such as emerging market issuers, sovereigns and municipalities should see significant growth in green bond issuance in 2018.
The rating agency expects additional momentum in sovereign green bond transactions in the year ahead, including potential financings from the governments of Indonesia and Belgium.
In addition to promoting sustainability policies, green bond issuance provides a strong signal of a government's commitment to carbon emission reduction under the Paris Agreement.
“Some sovereigns, particularly in emerging markets, such as Nigeria may also look to green bonds as an attractive means to finance large-scale climate adaptation investments.
“While challenges remain for emerging market green bond financings, Moody's sees strong prospects for growth in issuance.”
It said aggregate growth will be supported primarily by China and India, as well as other economies with governments implementing green finance policies.
Moody’s said multilateral agencies will also play a pivotal role in supporting the development of emerging market green bonds.
The agency also projects municipal green bond issuance, in both the US and abroad, to hit record heights in 2018.
“The public sector is at the forefront of combating climate change, coping with environmental shocks and addressing critical infrastructure needs,” said Kuchtyak.
He anticipated green bonds will increasingly serve as a relevant financing tool for these obligations.
On the demand side, Moody's expects institutional investors would continue to seek to integrate sustainability into their asset allocation and risk management practices.
“Reflecting the broader trend toward sustainable investing, the combined assets of dedicated green bond funds reached close to US$2 billion in the third quarter (Q3) of 2017, up from just US$500 million in November 2015.
According to the report, the lack of a universally-applied global green bond standard did not pose material challenges for green bond market growth.
Moody’s expects proliferation in green bond standards and taxonomie to continue in 2018 as regulatory bodies across the globe influence market development and practices.