Expanding the green bond universe
Record growth in the market for first half of 2019 is a positive sign but there is still more room to grow, especially in Asia
Supported by a strong second quarter in 2019, the global green bond market looks set to achieve another milestone as it is predicted to surpass US$200 billion in total issuance for the year.
That’s according to Moody’s Investors Service which recently reported that the green bond market in the first half of this year was 47% higher in total issuance compared to the same period last year partly due to the efforts of European issuers such as the Government of the Netherlands which executed its debut green bond in May. The green bond growth contrasts with overall global bond issuance, which experienced a 1.9% decline in the first half of 2019 compared to 2018.
While on an upward trajectory, the green bond market still has more room to grow as it currently represents just around 3% of the overall fixed-income market, according to Moody’s Investors Service data. With most green proceeds having traditionally been used specifically for renewable energy projects, there is an opportunity for proceeds to be used for broader purposes such as construction or the refurbishment of buildings to be sustainable.
This in turn can expand the potential list of green bond issuers beyond energy companies and financial institutions. In Asia, several issuers have made their debut in the green bond market in support of green buildings.
Singapore’s City Developments Limited (CDL) issued the city state’s first green bond to upgrade the firm’s Republic Plaza building, while in neighboring Malaysia, one of the first few green sukuks (Islamic bond) was PNB Merdeka Venture’s 2 billion Malaysia ringgit (US$480 million) issue which will be used in the construction of the LEED (Leadership in Energy and Environmental Design) certified PNB 118 tower.
And it’s not only single buildings that can leverage green bonds. More recently in Australia, QIC Global Real Estate, which is a REIT (real estate investment trust), tapped the green bond market for A$300 million (US$203.34 million) to have proceeds be distributed among its mall assets with the goal of reducing greenhouse gas emissions.
Following the annual meeting of the Green Bond Principles and Social Bond Principles earlier this summer, there is a greater focus now not only on the harmonization of sustainable standards across the financial industry but also on establishing clarity on project categories. For green buildings, this means a wider varietyof projects could be eligible for sustainable financing such as reducing carbon emissions or enhancing energy efficiency.
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