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Green bond issuance hit a record high in the third quarter of this year, demonstrating booming investor demand for ethically labelled fixed income instruments.
According to new figures from credit-rating agency Moody’s, nearly $95bn of green bonds were issued globally in the first three-quarters of this year — up 49 per cent year on year — with full-year volumes set to top $120bn for the first time.
In the three months to end-September, green bond issuance totalled $32.7bn, topping the $32.2bn raised in the second quarter of the year, to set a new record.
Eighty-three issuers brought 111 transactions to market with average transaction size increasing 6 per cent quarter on quarter to $295m.
Matthew Kuchtyak, a Moody’s analyst, said there was “sustained global momentum” in the green bond market, including growing issuance in emerging markets.
The biggest share of this year’s new issuance went to China and France with 18 per cent each of the £95bn total, Moody’s found. The US was placed third with 12 per cent.
Countries that have ratified the Paris climate agreement will need to spend $5.3tn to meet their agreed commitments, according to research published by rating agency Standard & Poor’s earlier this week.
These growing environmental costs will need to be financed by private investors, S&P said, but warned that the markets may struggle to keep up.
S&P global ratings analyst Jessica Williams said: “We do not foresee issuance growing at a pace necessary to cover the costs stipulated by countries’ [Paris climate agreement] contributions . . .
“[And] it is very unlikely that governments would be willing, or able, to risk deteriorating their creditworthiness by stretching their budgets and debt burdens to fund the implementation costs.”
As a result, supranational organisations and multilateral development banks would need to fill the gap, S&P said.
A number of different competing standards have emerged for what constitutes a green bond, with investors increasingly relying on independent certification to differentiate between financing for projects that will make an environmental difference and those whose claims are merely “greenwash”.
The broader category of “social” bonds has also seen rapid growth in recent years with finance being raised in the capital markets to pay for housing, clean water, education and healthcare projects that have traditionally been funded by governments’ aid budgets.
On Wednesday, investors bought $300m of bonds issued to finance vaccinations in developing economies by the International Finance Facility for Immunisation, which was launched in 2006 and is backed by nine governments, led by the UK and France.
It has to date issued $5.7bn-worth of paper, Wednesday’s three-year debt deal is its first bond issue for a year.
The IFFI is one of a number of supranational organisations that have in recent years become some of the most innovative social bond issuers.
In another example, the World Bank — which first pioneered green bonds a decade ago — earlier this year issued the first bond to finance pandemic disease alleviation efforts.
Such developments illustrate a growing interest among fixed income investors in ethical questions, which some market observers compare with the shareholder activism that has been common in the equity markets for decades.