Green Bonds issuance goes through the roof

M Ramesh Chennai | Updated on October 31, 2019

The world seems to have been bitten by the ‘green bond bug’. It was only in June that global green bond issuance reached a milestone of $100 billion -- the fastest hundred billion ever.

But, in just four months, the greens have dashed past the next milestone, with another $100 billion worth of bonds being issued.

Green bonds are debt instruments, the proceeds of which are used for green projects such as wind and solar energy plants or projects meant to reduce greenhouse gas emissions.

While green bonds do not necessarily offer better pricing — which is based on the timing of the issue and rating of the issuer — they are becoming more popular because many investors are gradually paring their investments in fossil fuel companies and shifting to green projects. For example, the world’s largest sovereign (government-owned) fund, the Norwegian Pension Fund Global, which manages a trillion dollars, has decided to pull out of fossil fuel companies, and has been reducing its investments in coal and oil companies.

Trends in green issuance

There are two notable trends in green bond issuance. First, most (a third) of the moneys raised go towards energy projects. This is followed by low carbon buildings (30 per cent) and low carbon transport (20 per cent). Chinese and Japanese companies, and the US housing finance company, Fannie Mae, are major green bond issuers.

The second trend is that governments are borrowing through this source. The biggest issuer is the Dutch State Treasury Agency, part of the Dutch Ministry of Finance, which raised $6.66 billion in May. The French and Polish governments also figure among the top ten issuers, raising $2.7 billion and $2.2 billion respectively.

Sean Kidney, CEO of Climate Bonds Initiative, a not-for-profit body which works towards mobilising climate finance and tracks green bond issuance, has pitched for the Indian government to go for a sovereign borrowing through a rupee denominated green bond issuance. “Imagine the catalytic effect if India’s first sovereign bond for international investors was in rupees and green!” Kidney told BusinessLine. “Pricing advantage, publicity to underline the government’s great work on renewables, railways, water,” he said, adding that India could get the better of China, which is yet to do a sovereign green bond issue.

Pick-up in Indian issuance

Indian entities are slowing warming up to green bonds. In the first half of the year, there were just two issues, from Adani Green ($500 m) and Greenko ($950 m), and these were the first offerings after a gap of nine months.

However, after June, Indian issues seem to have gathered steam. Adani Green and Azure Power raised $362 million and $350 million respectively, while ReNew Power has picked up $90 million in recent months.

Published on October 31, 2019

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