Green bond issuance on track to almost double in 2021, market estimates suggest

Green buildings

A flood of green bonds could drive annual issuance to almost double last year’s level in 2021, as governments and businesses sharpen their focus on “building back better” and transitioning to low-carbon economies in the aftermath of the coronavirus pandemic.

The Climate Bonds Initiative finds that 2020 was a record for the green bond market, with issuance topping USD269.5 billion as a strong rebound in the second half of the year nudged the total just higher than the previous record of USD266.5 billion in 2019.

The 2020 figure is the highest since market inception and maintains the trend of nine consecutive years of increased green market growth, with green bonds, loans and sukuk instruments originating from 53 countries.

“The impact of Covid-19 in 2020 proved a huge economic and social negative. In that context, the resilience of green finance markets led to a record year of issuance at USD269.5bn issuance, albeit a small increase over 2019. 2021 may enable a sustained resurgence,” writes Climate Bonds Initiative in a note.

Climate Bonds Initiative, which sets standards for green issuers, foresees a tenth consecutive year of growth in 2021, with global green bonds, loans and sukuk ranging between USD400 billion and USD450 billion for the year. 

Other market estimates include those from NN Investment Partners, which predicts a EUR300 billion green bond market by the end of 2021, and HSBC, which believes strong growth in Asia will propel the market up to USD360 billion. 

Nordic financial services firm SEB, which together with the World Bank developed the green bond concept in 2008, believes the green bond market is “moving towards” USD500 billion. 

“In a year of both stress and ongoing tests, one could easily imagine that finance would go to safe havens, but the world has gone sustainable,” says Christopher Flensborg, Head of Climate and Sustainable Finance at SEB.

“The green bond market has just passed USD1 trillion since inception and we expect next year’s issuance to be close to USD500 billion in a single year. With added growth from new sustainable loan types, 2021 could see more than USD1 trillion raised for sustainability-labelled financing.”

Growth in 2021 will be driven by a number of themes, including the return of “green multilateralism” as the US commits to action on climate change under President Joe Biden, according to Climate Bonds Initiative. 

Biden is likely to push climate higher on the agenda at G7, G7+, G20, OECD, in addition to rejoining the Paris Agreement. 

Climate Bonds Initiative believes this could also open up “the opportunity for a new climate triple-axis to slowly develop between China, EU and US as the world’s largest economic blocs align on the fundamental mid-century goal of zero-carbon”.

In 2020, the US led green bond issuance with USD51.1 billion, followed by Germany and France in second and third, with China coming in fourth with USD17.2 billion.

2021’s crop of sovereign green bonds could come from Bhutan, Brazil, Canada, Colombia, Cote d’Ivoire, Denmark, Ghana, Italy, Kenya, Peru, Spain, the United Kingdom, Uzbekistan and Vietnam, according to Climate Bonds Initiative.

The UK has announced plans to sell its first green government bond in 2021, as the country prepares to host the United Nations climate conference.

The supranational EU recovery fund could also be a “pivotal influence” with up to EUR250 billion of the recovery fund expected to be in green bonds, though the Climate Bonds Initiative notes that this issuance is “likely to extend past 2021”.

The theme of transition to low-carbon industries appears likely to grow in the minds of institutional investors, policymakers, and market participants. 

Sustainability is becoming more embedded in investment and financial market infrastructure under the influence of the EU Green Taxonomy and increased central bank and financial regulations across jurisdictions. The taxonomy is expected to improve the quality of the green bonds market by setting definitions for what economic activities will qualify as ‘sustainable’ or ‘green’. 

Climate Bonds Initiative adds that social and sustainability bonds are expected to deliver another USD250 billion to USD300 billion of issuance.