Institutional Finance Update: Green Bond Issuance Exceeds USD 200 Billion

In October, we saw a record high for the green market with green bond and loan issuance surpassing USD 200 billion. Several green bonds were issued to support the private sector in developing countries, poverty alleviation and sustainable development, including through innovative finance to attract institutional investors. Reports welcomed progress made by countries in growing their green bond markets, but were also critical of continued financing of new, non-renewable power as incompatible with the Paris Agreement on climate change. UN Secretary-General António Guterres called for “no new coal plants by 2020” during the Association of Southeast Asian Nations (ASEAN)-UN Summit. This Update informs of these and other developments over the last month.

Green Bond Issuance Surpasses USD 200 Billion

Green bond and loan issuance for 2019 surpassed a new record of USD 200 billion in October, setting the stage for the annual issuance to meet the Climate Bonds Initiative (CPI) forecast range for the year of between USD 230-250 billion. CPI reports that:

The US leads 2019 national rankings to date, followed by France, China, Germany, the Netherlands, Sweden, Spain, Japan, Italy and Canada;

Energy dominates overall use of proceeds at 33%, followed by low-carbon buildings at 29%, low-carbon transport at 20%, water at 9%, and waste and land use each at 3%; and

Climate Bonds Certified bonds and loans for 2019 are “almost a fifth of the market” at around 19% (USD 37.5 billion) of volume via issuers demonstrating international market best practice.

To better track global climate finance flows, in October, CPI published a brief proposing a dashboard to measure the nature and speed of shifts in private capital in response to climate change.

In related news, the International Finance Corporation (IFC)-facilitated Sustainable Banking Network, comprised of 38 member countries representing USD 43 trillion, or 85% of emerging market banking assets, released its second Global Progress Report. Its findings show that: 14 countries are actively growing their green bond markets; 22 countries have adopted national sustainable finance policies and voluntary principles; and financial institutions globally are increasing innovation to green their lending portfolios.

IFC USD 2 Billion Bond to Support Poverty Alleviation, Climate-smart Business

The IFC, a member of the World Bank Group, issued a global, USD-denominated five-year benchmark bond, raising USD 2 billion to support the private sector in developing countries. The bond will support poverty alleviation and the UN SDGs, with focus on women entrepreneurs, infrastructure and climate-smart business.

A recent CPI report titled, ‘Energizing Finance: Understanding the Landscape 2019,’ focuses more specifically on SDG 7, which aims to ensure access to affordable, reliable, sustainable and modern energy for all. This is seen by many as a condition for economic development, poverty alleviation (SDG 1) and reducing inequalities (SDG 10). Yet, as the CPI report underscores, investment in both electricity access and clean cooking, for example, continues to remain firmly below the estimated need to close the energy access gap. The report is critical of the ongoing reliance on investment in fossil fuels as a way to support energy access, a trend CPI underscores as incompatible with the Paris Agreement, the SDGs and responsible investment.

IFC Launches Inaugural Green ‘N-Bond’

The IFC launched a Euro-denominated green bond, raising EUR 20 million for climate-smart investments, including renewable energy, green buildings, sustainable forestry and energy efficiency. By using the ‘N-Bond’ format, an old German practice and debt instrument, the IFC is mobilizing innovative finance and attracting institutional investors, including in Germany, to meet the SDGs. An N-Bond, or “name bond,” is a registered note. It requires a physical certificate issued in the name of the investor, which evidences an obligation of the issuer and is made out in the name of the creditor. N-Bonds are not actively traded, but are attractive for certain accounting advantages.

IDB Issues USD 40 Million+ Climate Action Bond

The Inter-American Development Bank (IDB) issued an MXN-denominated climate bond, in line with its sustainable development bond program. Distributed by Okasan Securities from Japan, proceeds of the bond will fund IDB projects in Latin America and the Caribbean (LAC). The issuance comes in two parts: one in the amount of MXN 395 million, with 3.5 years maturity and fixed 5.64% coupon payments; and the other in the amount of MXN 444 million, with 7 years maturity and a zero coupon.

Partnerships for Sustainable Investment

ASEAN leaders discussed cooperation in countering climate change and realizing the SDGs during the 10th ASEAN-UN Summit, which convened under the theme, ‘Advancing Partnership for Sustainability,’ in Bangkok on 3 November. In a statement, UN Secretary-General António Guterres emphasized the region’s vulnerability to climate change, and stressed the need to ensure “no new coal plants by 2020.”

Guterres also underlined that developed countries must fulfill their commitment to provide USD 100 billion a year from public and private sources by 2020 for mitigation and adaptation in developing countries. Counting towards this collective climate finance goal is funding support to the Green Climate Fund (GCF). The GCF replenishment conference in Paris in October resulted in pledges from 27 countries to replenish the Fund by USD 9.78 billion for the next four years.

Ahead of the Summit, the UN Economic and Social Commission for Asia and the Pacific (ESCAP) held a Climate Finance and Sustainable Investing Conference in Hong Kong. Among other issues, discussions focused on promoting climate-resilient investment to support the SDGs and scale the Asia-Pacific’s green capital market.

Meanwhile, the African Development Bank (AfDB) reported an historic USD 115 billion increase from its shareholders, signaling endorsement of the Bank’s climate change strategy.

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The SDG Knowledge Hub publishes monthly climate finance updates, which largely focus on multilateral financing and cover, inter alia, mitigation and adaptation project financing news and lessons, institutional events and news, and latest developments in carbon markets and pricing. Past climate finance updates can be found under the tags: Finance Update: Climate Change; and Finance Update: Sustainable Energy.