AMSTERDAM: Global green bond sales are heading for another record year as a flurry of September deals, including Germany's debut sovereign issue, have roused the market from a coronavirus-induced lull.
Green issues, which source financing for environmentally beneficial expenditures, are crucial to the growing pool of money dedicated to investing sustainably. Sales slumped when the COVID-19 pandemic erupted but are now back on track.
Worth around US$700 billion worldwide, the market's prospects were boosted this year by the European Union's €750 billion coronavirus recovery fund. Around a third of it should be financed by green debt, European Commission president Ursula von der Leyen said on Wednesday.
Issuance of EU green debt, which may eventually double the global green bond universe, is yet to start but year-to-date issuance by other borrowers has reached US$150 billion, topping that raised by this point last year, according to data from Dealogic.
Most notable was Germany's debut green bond, the first step towards establishing a pricing reference point for regional borrowers which should entice more borrowers into the market.
Other big names hitting green markets in September were Sweden, JPMorgan and Daimler. On Wednesday, Volkswagen saw big demand for its green deal despite being tainted by an old emissions cheating scandal.
Joshua Kendall, head of responsible investment research and stewardship at Insight Investment, expects green issuance to surpass the 2019 record of US$206 billion – unless the pandemic slows markets again. Another forecast, by ratings agency Moody's, says full-year issuance could hit as much as US$225 billion.
"Companies are recognising that they had to, maybe, hold off on their plans, but I don't think there was any concern that it would be a permanent change or an adjustment," Kendall said.
"The (green) bond market is fairly resilient and companies are very committed to this issue."
STILL A WAY TO GO
Despite its fast paced growth, the green bond market only accounted for 3.5 per cent of last year's total global bond issuance of US$7.15 trillion, according to the Bank for International Settlement.
And the lead green debt enjoyed over the other two main avenues of sustainable fundraising – social bonds and sustainable bonds, a blend of green and social – has been eroded this year.
That's because the coronavirus outbreak has spurred a rise in social bond sales, many earmarked to fund coronavirus-related spending.
Social bonds account for 21 per cent of all sustainable issuance this year, versus 6 per cent in 2019, while the share of green bonds has declined to 62 per cent, down from 79 per cent last year, Dealogic data up to Sep 10 show.
Finnish public sector lender MuniFin and French agency Caisse d'Amortissement de la Dette Sociale are among those to have issued social bonds in September.
"As we're normalising to the COVID economy, I don't think green is going anywhere," said Trisha Taneja, head of ESG advisory at Deutsche Bank, one of the banks which managed the German sale.
"I think social will simultaneously rise, but not at the expense of green."