Report: Global Climate Bonds Market Doubles As Investors Demand Low-Carbon Finance

Report: Global Climate Bonds Market Doubles As Investors Demand Low-Carbon Finance

2013-09-11 22:26:19.117 GMT

By Andrea Vittorio
(BNA) — Bonds and Climate Change
Key Development: The global climate bonds market doubled
from 2011 to 2012 to reach $346 billion as investors demanded
more low-carbon finance, a new report says.
What’s Next: The Climate Bonds Initiative expects further
interest in climate bonds from multilateral, municipal and
corporate issuers.
The global climate bonds market doubled from 2011 to 2012 to
reach $346 billion as investors demanded more low-carbon finance,
according to a new report from the Climate Bonds Initiative.
In 2011, climate-related bonds for government, finance and
industry totaled $174 billion, the report said.
Sean Kidney, chief executive officer and co-founder of the
not-for-profit Climate Bonds Initiative, said such quick growth
in the climate bonds market is “absolutely imperative” to achieve
the levels of investment needed to avoid catastrophic climate
change.
There is “an opportunity for growing a large market that
will contribute towards changing the world,” Kidney said Sept. 11
during a launch event for the report.
The report, “Bonds and Climate Change: The State of the
Market in 2013,” was commissioned by HSBC’s Climate Change Centre
of Excellence. Only bonds that had been issued since 2005 and
remained outstanding on March 1, 2013, were included in the
analysis.
The report said $74 billion in new climate-themed bonds were
issued in 2012, up 25 percent from 2011.
But about $10 trillion in cumulative capital investments
will be required globally between 2010 and 2020 to drive
low-carbon energy alone, $6 trillion of which is likely to be in
the form of bank loans and bonds, according to HSBC estimates.

Bonds for Transport

Three-quarters, or $263 billion, of the climate-related
bonds analyzed in the report focused on low-carbon
transportation, while the energy and finance sectors accounted
for the next largest shares at $41 billion and $32 billion,
respectively.
Among low-carbon transportation bonds, rail has remained the
dominant technology because it is a “very mature industry,”
Bridget Boulle, program manager at the Climate Bonds Initiative,
said. Boulle said she hopes to see more bonds issued in the
future for electric vehicles and biofuels.
Climate bonds related to energy targeted nuclear power, at
about 32 percent of 2012’s total, as well as wind, solar,
hydropower and other renewables, according to the report.
Boulle said 2012 was also a “big year” for green-labeled
financial institution bonds, including $2.5 billion in new bonds
issued by multilateral development banks. The International
Finance Corp., the private sector lending arm of the World Bank,
led the green-labeled bond market in 2012 with $1.78 billion in
investment, according to the report.

Water-Related Bonds

One area that “has proved to be a really tricky one for us
to find bonds” is water, Boulle said.
The report noted a greater appreciation, particularly in the
U.K., of the need for investment in water-related climate
adaptation efforts, such as flood protection or water
infrastructure. But it could not identify any bonds that were
directly linked to the sustainable use of water resources.
For “tricky areas like water,” developing standards for the
definition of a climate bond will be important, Kidney said. The
Climate Bonds Initiative is working to establish a set of
technical criteria and a certification system for bonds that
contribute to a low-carbon, climate-resilient economy.
Looking ahead, Kidney said he expects further interest in
climate bonds from multilateral, municipal and corporate issuers.
“Public sector support in the form of policy guarantees, tax
incentives and credit enhancements” also will be essential for
meeting international climate change targets, the report said.
Investors are entering an important two-year period for the
climate agenda as they try to position themselves ahead of the
effort by 2015 to develop a global climate change treaty, Nick
Robins, director of HSBC’s Climate Change Centre of Excellence,
said (139 DEN A-5, 7/19/13).
“What makes this agenda so exciting is that bonds will be
critical for that,” Robins said.
To contact the reporter on this story: Andrea Vittorio in
Washington at [email protected]
To contact the editor responsible for this story: John
Sullivan at [email protected]

For More Information

The report, “Bonds and Climate Change: The State of the
Market in 2013,” is available at
http://www.climatebonds.net/files/Bonds_Climate_Change_2013_A3.pdf.

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Daily Environment Report
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