Brazil
EditionBonds andClimate Change
The state of the Market

2017

AN $895 billion
climate-aligned
bonds
universe

Prepared by Climate Bonds Initiative

Commissioned by HSBC

Sponsored by IDB
Translation & ‘Spotlight on
Brazil’September
Content Partner
Bonds and Climate Change www.climatebonds.net
2017 1

An $895bn climate-aligned universe
The 6th annual State of the Market Report, commissioned by HSBC, identifies an $895bn universe of‘climate-aligned bonds’ financing low carbon and climate resilient assets or projects. This is an increase of$201bn on the 2016 climate-aligned bond universe.
This report reviews how bonds are being
used to finance a transition to a low carbon
global economy. It includes an analysis of thegrowing global ‘green bond’ market but also
goes beyond the green label.
It sizes and analyses the ‘climate-aligned
bond’ universe comprised both of labelledgreen bonds (use of proceeds defined andlabelled as green) as well as a much larger
set of bonds issued by entities enabling a low
carbon economy but are not labelled green.

Summary figures
This year we found a universe of $895bn
climate-aligned bonds outstanding which ismade up of 3,493 bonds from 1,128 issuers
across seven climate themes. It includes$221bn of labelled green bonds.
The $201bn increase on last year is from:• $138bn new bonds from existing issuers• Plus: $84bn from new climate-aligned
issuers

labelled green bond market growth. Labelledgreen bonds are primarily issued by diversified
companies whereas the unlabelled portion of
the climate-aligned universe is mostly pureplay issuers. The labelling of green bonds
is therefore essential to shift fixed income
investment towards climate change solutions.

Building resilient cities
This year’s report focuses on the role ofcities, sovereigns and sub-sovereigns inmeeting the targets outlined in the Paris
Climate Agreement.
Historically, bonds have been used bysovereign and sub-sovereign entities to ﬁnancenational infrastructure, energy, transport, urban
water and sewer systems.In the next decade,bonds will need to be used as a tool to ﬁnancelow carbon, climate resilient infrastructure.
Green bonds will be a vital tool in helping
cities and sovereign authorities to raise thefinance required to meet climate targets.
More on pages 10-15.

• Plus: $60bn green bonds from new issuers Institutional investors play a
crucial role
• Minus: $81bn matured bonds or issuersthat have been removed

While $895bn provides a good picture ofcurrent climate-aligned investment in the bondmarket, it does not show the full potential for“Cities today are home to about
half the global population but
represent almost two-thirdsof global energy demand and
70% of carbon emissions fromthe energy sector, so they must
play a leading role if COP21
commitments are to be achieved”
IEA Executive Director Fatih Birol

Methodology
To find unlabelled climate-aligned bonds,
we screened Bloomberg and Thomson
Reuters issuer data and reviewed over
1,700 issuers to identify those with over
95% of revenue derived from climatealigned assets. We also added renewableenergy project bonds and domestic
Chinese bonds from the ChinaBond China

According to the International Energy Agency(IEA), cumulative investment of $53tn isrequired by 2035 in the energy sector alone
to avoid dangerous climate change. New
Climate Economy estimates that up to $93tn
of investment is required across the whole
economy by 20301. The global bond market
currently stands at approximately $90tn2.
At the 2015 COP21 in Paris, 188 Parties
presented their national plans to keep
global temperature rise this century below
2 degrees Celsius. These plans will requirea mixture of public and private sector
capital – including the $100tn institutional
investor sector. At the same COP,
institutional investors representing $11.2tn

Climate Aligned Bond Index (an index that
Climate Bonds Initiative provides datafor). Thus, most of the unlabelled issuers
are pure-play green companies (pure-playcompanies derive all of their revenue from aparticular source, in this case all revenue isderived from climate solutions). We included
all bonds from these issuers issued after 1
Jan 2005 (the year the Kyoto Protocol was
ratified) and before 30 June 2017.

2 Bonds and Climate Change www.climatebonds.net September 2017

committed to grow a green bond market3;
and the insurance industry reiterated its
commitment to increase climate smart
investments tenfold by 2020. The Bank ofEngland’s Prudential Regulation Authority
also recommended green bonds as aclimate-related investment opportunity for
UK insurance firms4. Finally, there is growinginterest in climate-aligned investment from
PRI signatories (>1,600 to date) and otherinvestor groups. Green bonds have received
increasing recognition at G20 level in theGreen Finance Study Group (GFSG) and the
EU High-Level Expert Group (HLEG).

2˚c
A 2-degree Celsius lens
In this report, we uncover bonds that
finance investments compatible witha 2-degree transition path rather
than investments that are marginallyenvironmentally beneficial. This takes
a cue from the Paris COP21 Agreementthat all investments should be in linewith the steep emissions trajectoryneeded to achieve a rapid transition to a
sub-2-degree Celsius world.
This will require wholesale economy
and business model shifts – not justincremental improvements, but businessplanning that fundamentally addresses
both the projected growth in global energy
demand and emission reduction targets.
For the world to limit warming to lessthan 2 degrees Celsius, investment
undertaken by all sectors needs to beambitious and needs to accelerate fromthe current trajectory. The time forincremental improvements has passed.

Issuer screening is based on work
undertaken through the Climate Bonds
Standard but the process does not always
apply the full Climate Bonds Criteria due
to insufficient granularity of information
available. The Climate Bonds Standard
is continually expanding to include new
sectors and based on emerging research.
This evolution means that some issuers
drop out and others enter the database.

The$895bnclimate-aligned bond universe

Labelled green bonds:$221bnBonds labelled as ‘green’ by
the issuer and are financing
green assets and projects.
See pages 16-19.

Unlabelled ‘climatealigned’ bonds
Bonds issued by entities
enabling a low carbon
economy but are notlabelled green.

$674bnNote: $ refers to USD, unless otherwise stated

Bonds and Climate Change www.climatebonds.net September 2017 3

Overview of the $895bn climate-aligned bond universe
The growth in the climate-aligned universe is encouraging but there is headroom for a much larger market.
issuers in these sectors and partly because it
is challenging to identify pure-plays in these
themes and related sectors.

Transport is the largest theme in the universe
but has decreased as a percentage of the total
universe and now accounts for 61% (66% in2016). The change is primarily due to the large
increase in labelled green bond issuance $100bn since the 2016 report.

The Multi-sector theme now accounts for
13% of the universe – all of which is labelledgreen bonds. The sector captures green
bond issuers such as development banks
where proceeds go to a range of projects indifferent themes.

The Energy theme is the second-largest themein the universe and is primarily renewableenergy manufacturers and operators. There
are few utilities in this theme due to thediverse nature of most utilities.

Buildings and Industry, Agriculture andForestry, Water and Waste make up a small
proportion of the overall universe, accounting
for less than 7% between them. This is partly
because bonds are not frequently issued by

Sovereigns and sovereign entities make up the
majority of the universe

Transport and Energy accountfor 80% of the universe
Buildings & Industry 2%
Water 3%

Sovereign and sub-sovereign agencies
are an important part of the universe
accounting for 68% of the total amountoutstanding. This includes entities
owned by or guaranteed by the sovereignor sub-sovereign government such as
China Railway Corp and Network Railamong others.

Waste & Pollution 1%
Agriculture & Forestry 1%

600
500
400

Multi-sector
13%

300

Transport
61%$ Billions

200
Energy19%

1000Corporate

Financialcorporate

Sovereign Supranationalor sub-sov
government$389bn meet basic investment parameters
To track what proportion of the universeis available to most investors around theworld, we screened the universe using thefollowing indicators:

AAA 13.5%• Size: > $200m (85% meet filter)• Liquidity: bond has a recent ask priceAA 38%(69% meet filter)• Currency: is included in the Barclays Global
Aggregate Index (63% meet filter)

43% of the universe meet all 3 parameters a universe of $389bn outstanding. The rating
distribution of that sub-set is shown right.

Does notmeet broad
investment
parameters

This provides an idea of the types ofinvestment that many international investors
are looking for although we note that the
many fund managers will have their own
methodology and criteria in place. For
example, in the primary market, there has
been large demand for labelled green bonds
which are less than $200m in size.

4 Bonds and Climate Change www.climatebonds.net September 2017

Investable
universe$389bn

A 20%

BBB 18%Less than BBB 6.5%
No rating 4%

The main currencies are broadly similar
to the major bond market currencies,
with USD and EUR well represented. One
difference is the dominance of RMB5 andthe very limited presence of JPY. There area few reasons for this: a) RMB figures arevery large because the largest issuer in thedataset – China Railway Corp makes up
25% of the universe alone. China Railway
Corp raises the finance for China’s extensive
and rapidly-growing rail network; b) RMB
bonds have become a large proportion of thegreen bond market (which in turn makes up
a growing percentage of the total market)
while there are almost no JPY denominatedgreen bonds.

Most bonds are between $10-$100m
Labelled

40%

Unlabelled
30%

20%

Percentage

The average bond size is approximately$262m with a similar distribution ofissue sizes for both green bonds andclimate-aligned bonds. The largest numberof bonds fall into the $10-$100m bracket– a large number of municipal bonds fall
into this bracket as do corporate bonds,
particularly in emerging market currencies
where bond sizes of less than $100m
are common.

10%

0%
0-10m

10-100m

100-200m

Other
4%

RMB
32%

GBP
6%

EUR
20%
USD
26%

61% of the universe has a tenor greater than 10 years
AAA

AA

A

BBB

less than BBB

No rating

>10

5-10

<5
Years

The value of climate-aligned and green
transactions in Q2 2017 amounted
to just over $43bn while the valueof international debt capital market
transactions in the same periodamounted to $1.1tn6 putting climatealigned transactions at just under 4% of
the total volume. Growth is encouraging
but also indicates that there isheadroom for an even bigger climatealigned bond universe.

>1bn

KRW 2%
CHF 1%
AUD 1%CAD 2%
RUB 2%
INR 2%SEK 2%

A large proportion of bonds do not have acredit rating. Issuers such as China Rail Corp
have a local credit rating but no international
credit rating. For this report, only theinternational rating agencies were used.

An $895bn universe is big but how
big is this in the context of the global
bond market?

500m-1bn

RMB, USD and EUR account for the majority of issuance

The majority of issuance has tenors
in excess of 10 years, with the averagetenor of climate-aligned bonds at 11.7
years. This is similar to the average global
corporate bond tenor of just over 11 years.
Long tenors are common in state-backed
rail entities or utilities whose assets havelong lifetimes and which have the credit
rating to issue longer-dated debt. Thesebonds make up the majority of the climatealigned bond universe.

Climate-aligned bonduniverse in the global bondmarket context

200-500m

0

100

200

300

400

500

600

$ Billions
Bonds and Climate Change www.climatebonds.net September 2017 5

Across the climate themes
The following section breaks down the data into climate ‘themes’ which relate towhat is being financed rather than the industrial sector classification of the issuer– for example, Tesla is categorised as ‘Transport’ rather than Industry.

Transport•	Size: $544bn•	Number of issuers: 197•	Number of bonds: 1242
•	Largest issuer: China
	Railway Corp

Transport remains the dominanttheme in the climate-aligned
universe, with $544bn
outstanding made up primarily ofrail infrastructure.
The transport sector is the second largest
contributor to global GHG emissions –responsible for 23% of energy-related CO2
emissions7. Clean transport infrastructure
will be a vital part of the transition to a low

Water•	Size: $32bn•	Number of issuers: 204•	Number of bonds: 336•	Largest issuer: Anglian
Water

The water theme is the 4thlargest theme with $32bn
outstanding. Over a third of thisamount ($13.2bn) was issued aslabelled green bonds.
Water infrastructure is essential from bothan environmental and social perspective

Buildings & Industry•	Size: $19.5bn•	Number of issuers: 73•	Number of bonds: 142•	Largest issuer: Renovate
	America

The Buildings and Industry (B&I)
theme is small, accounting for
2% of the total universe.
It is composed primarily oflabelled green bonds financing
green buildings.

carbon economy. This will require increased
mass public transit systems such as rail andbus rapid transport and a move away fromfossil fuel vehicles.
Global megacities are driving growth inurban transit infrastructure which makes
up 12% ($64bn) of the theme. Paris’ RATP
Group, Transport for London, and New YorkMTA are the top 3 issuers. Lima Metro is oneof the few Latin American issuers.
The majority of climate-aligned bonds
are financing rail infrastructure. Thisis expected as bonds have been used tofinance rail infrastructure for decades – thetechnology is proven, offers a steady income
and is low risk - ideal for bond financing.
China Railway is the largest issuer with
$222bn outstanding. China Railway is thenational railway operator of China and has
and yet, it is very difficult to differentiate
between water infrastructure that iscontributing to a transition towards a low
carbon economy and that which is not.
As such, water-related bonds are not green
by default. Released in 2016, the Climate
Bonds Water Criteria provide specificguidance for water bonds to be certified
as ‘green’ if they deliver GHG mitigation,
promote adaptation to climate changeor facilitate increased climate resilience.
Adaptation and resilience infrastructure will
become increasingly important, particularly
for cities around the world as they adapt totemperature changes and rising sea levels.
Resilience and adaptation bonds are difficult
to identify unless they are labelled – over a

The B&I theme identifies bonds
financing energy efficiency investments
such as low carbon buildings, energy
efficient products (e.g. LED lighting)and industrial energy efficiency processes
and technology.
In practice, the majority of issuance islinked to green buildings and mostly consistsof labelled green bonds. This is because in
the energy efficiency space, the majorityof products being developed or buildings
built are from large diversified issuerswith a multitude of products – thismeans that their bonds cannot bepicked up for this report unless they arelabelled as green.

6 Bonds and Climate Change www.climatebonds.net September 2017financed the development of the 22,000km
high-speed railway network. Other large
issuers include France’s SNCF ($52.9bn), UK’s
Network Rail ($37.2bn), Burlington Northernand Santa Fe Railway ($19.1bn) and IndianRailways ($14.7bn).
Electric vehicles are niche but growing.
The dataset includes Tesla which has
issued $980m in bonds financing the
manufacture and development of electricvehicles and components. While somelarge auto manufacturers have made strong
commitments to electric and alternativefuel vehicles (e.g. Volvo), their bonds
cannot be included as‘climate-aligned’ unlessthey are labelled green
because the majority ofrevenue comes from fossil
fuel vehicles.
third of this theme is labelled green bonds.
Water bonds fit broadly into four categories:
water treatment, flood protection anddefences, conservation and restoration andgeneral climate resilience.
U.S. municipalities are leading the way
for cities globally as they look to green
bonds to finance clean water andadaptation infrastructure. U.S. municipalities
make up the majority of issuers in thetheme and have issued green bonds forwater infrastructure andflood protection. 2017
U.S. muni issuers haveincluded New York State
Environmental Facilities
and the city of Asheville.

Many green commercial real estatecompanies fall into this category such
as Vasakronan, Unibail-Rodamco andothers – they are frequent issuers oflabelled green bonds but their whole
portfolios are not yet green enough for allof their bonds to be included as climatealigned – it is therefore only their labelledgreen bonds that are part of this dataset.
Similarly, large producers
of energy efficiency
products such as
Siemens or GE are notincluded because of thediverse nature of theirrevenue sources.

Energy•	Size: $173.4bn•	Number of issuers: 501•	Number of bonds: 1197
•	Largest issuer: HydroQuébec

Energy is the second largest
theme in the climate-aligned
universe at $173.4bn outstanding.
The energy supply sector is the largest
contributor to global GHG emissions8 and,despite energy efficiency improvements, energy
demand continues to rise as global populations

Multi-sector•	Size: $112.3bn•	Number of issuers: 131•	Number of bonds: 459•	Largest issuer: European
	Investment Bank

This sector is comprised entirelyof labelled green bonds with

Forestry &Agriculture•	Size: $8.5bn•	Number of issuers: 26•	Number of bonds: 63•	Largest issuer: WestRock
Forestry and Agriculture accountfor just 1% of the climate-aligned
universe with the majority
coming from certified paper
and packaging.

Waste & Pollution
Control•	Size: $5.6bn•	Number of issuers: 33•	Number of bonds: 54•	Largest issuer: Covanta
Waste & Pollution Control is thesmallest theme in the dataset- it captures technologies andand income levels increase. To decarbonise, thesector needs to move away from carbon-basedenergy towards renewable energy generation.
The energy theme stands at $173.4bn withwind, solar and mixed renewable energy
accounting for 63% of the theme and hydroaccounting for 27%.
The majority of solar issuance has come outof the U.S. which includes some large project
finance deals such as Topaz Solar ($1.2bn) andlarge pure-plays such as Tesla-owned SolarCity.
European issuers lead the way in bonds
financing wind energy with $23bn outstanding.
The energy theme picks up a wider range
of energy generation types than is currently
eligible under the Climate Bonds Standard

proceeds financing a range of
projects in different sectors.
The majority of issuers are financial
sector issuers or development banks
such as the EIB, World Bank and others.
The development banks were early pioneersof the concept of the labelled green bond.
They continue to push the development of
the market through best practice in reportingand standards (see more on pages 16-19).

– in particular it includes nuclear power andlarge-scale hydro generation in non-tropicalareas. Both of these electricity generation
types have the potential to provide largescale and low carbon power that could meetbaseload power demands.
However, both of these power types can becontroversial and require stringent criteria
and standards in place in order for them to
be included. In the absence of such criteria,
they have been included in this report but
some may be excluded in
the future as criteria aredeveloped – between them,hydro and nuclear accountfor 36% of issuance fromthe theme.

While the exact allocation of proceeds toeach project type is not always disclosed,
we estimate, based on information available,that over half of proceeds are allocated toenergy and energy efficiency projects.
Note: no bonds in thissection have been
included in other sections
to ensure that there is no
double counting.

Agriculture, deforestation and other land
use account for about 25% of anthropogenic
GHG emissions9 and yet, its small presence
within the climate-aligned bond universe
indicates that the role that bonds will play infinancing a transition in this sector is unclear.

decrease deforestation but these are yet
to materialise at any scale. In 2016, the IFC
issued a type of forest bond for $152m10,
that gave investors the choice to receive
payments in either cash or in carbon credits
from a forest project in Kenya.

Companies within the agriculture and forestry
sector are not regular bond issuers. Those
which we identified are large sustainable
paper and timber companies, such as
WestRock, whose paper products are fully
certified by the Forest Stewardship Council.

Criteria update: In 2017, the Climate Bonds
Initiative convened a technical working group
to tackle criteria relating toland use. The first phaseof criteria will be ready foruse in late 2017.

What about forest bonds? There have beenvarious initiatives to utilise forest bonds toservices linked to recycling,
resource recovery and energy
efficient waste disposal.
Its small size is largely due to the factthat the screening process filters out large
waste management companies becauseof the diverse nature of their business which
includes some waste disposal techniques
which are not climate compatible suchas landfilling.
From a climate-perspective, the top
priority for post-consumer waste should

be reduction and recycling. However, forwaste that cannot be reduced or recycled,
modern waste-to-energy is considered to bea cleaner alternative to some other waste
disposal techniques.
The majority of bonds in this theme
are issued by companies in the waste-toenergy (WTE) sector. Whilepreviously considered to be
dirty, modern WTE plants
have become one of thecleanest high temperatureindustrial processes11.

Bonds and Climate Change www.climatebonds.net September 2017 7

Regional analysis: Spotlight on Brazil
Brazil: huge potential to be one of world’s largest green investment landscapes
Brazil’s Nationally Determined Contribution(NDC) to the Paris Agreement aims to cut
GHG emissions by 37% by 2025 and 43%
by 2030 compared to a 2005 baseline. Its
GHG reduction strategy aims to improve
efficiency by 10% in the power sector,
increase bioenergy consumption to 18% andrenewable energy to 45% of the energy mix,
restore 12m hectares of forests, halt illegal
deforestation in the Amazon and implement
sustainable transport infrastructure.
The IFC estimates that the Brazilian NDC
and other climate-smart investments will
require $1.3tn from 2016 to 2030B1 - higher
than any other country in the region.
Amidst a severe recession and fiscal
unbalance, the Federal GovernmentB2
has implemented a budget cap through aconstitutional amendment that will last for
20 years. Crowding in private capital will
therefore be essential to finance the NDC

and related infrastructure. Green bonds
have the potential to leverage the strengthsof Brazil’s key sectors and shift investment
towards a low-carbon economy.

domestic issues while Sustainalytics was
the reviewer for all international issuances.
Three green bonds received Climate Bonds
Certification: Rio Energy, Omega Energia and
CPFL Energias Renováveis SA, all directing
proceeds to wind power projects.

The Brazilian green bondmarket: an overview to date
The Brazilian green bond market is growing
rapidly. The first labelled green bond from a
Brazilian issuer was issued by food company
BRF in June 2015. A total of 9 Brazilian
green bonds have been issuedB3 amounting
to $3.67bn, five of which were issued
internationally.
The US dollar is the dominant currency,
accounting for 74% of the total outstanding.
The prevalence of external reviews has
been a positive feature of the Brazilian
market with all bonds receiving an external
review to date. SITAWI has reviewed all four

Climate-Smart Investment Potential 2016-2030
Buildings

Industrial EE

2500

$338

Waste

$195

$2,640•Omega Energia (through SPV Potami
Energia), a renewable energy developer, issued
a BRL42.4m ($13.6m) debenture to refinancethree wind farms. The final coupon of 7.38%
was lower than Fitch’s expectation of 9%. Fitch
attributed it a local rating of AA(bra).B5•$1,316
Source: IFC, 2016.

$ Billions

1000
500
0
BrazilGreen bonds are financing a range ofdifferent project types with energy
accounting for the largest proportion at 42%.
This includes CPFL Energias Renováveis, thefirst company to issue a certified Climate Bondin October 2016. Agriculture and forestry
projects account for the second highest
proportion at 24% and will likely account for
an increasing proportion of future issuancegiven the make-up of Brazil´s economy.B4
Issuance highlights include:

Transport

$791

2000
1500

Renewables

The majority of issuance has come from
corporate entities (73%). The first bank deal
was issued by the public Brazilian Development
Bank (BNDES). The other eight corporate bonds
were issued either as a note/debenture or
Agribusiness Receivables Certificates (CRA).

MexicoArgentina

Colombia

Total

Rio Energy’s first labelled green bond for
BRL111.8m ($36m) will finance a 207MW
wind complex. The interest rate was thelowest obtained by the company, indicatinga strong appetite for green investmentsfrom Brazilian investors. Fitch published an
expected local rating of AA(bra).B6

U.S. Dollar is the dominantcurrency

Issuance types

Use of proceeds

Brazilian Real 11%

CRA 8%

Transport 2%
Waste &
Pollution 8%

Adaptation
2%

Euro
15%
BNDES Note
27%

US Dollar
74%
Source: Bloomberg.

Notes/
Debentures
65%

Source: Bloomberg and CBI/SITAWI analysis.

8 Bonds and Climate Change www.climatebonds.net September 2017

Agriculture& Forestry
24%

Buildings& Industry
9%

Energy
42%

Water
13%

Source: Climate Bonds Initiative.

International Issuance

National Issuance

History of issuance to dateIssuerIssue
Date

AmountIssuedExternal
Reviewer/verifier

Climate Bonds
Certification

Proceeds

Rio Energy

May-17

BRL111.8m

SITAWI

Yes

Wind

Omega Energia

Mar-17

BRL42.4m

SITAWI

Yes

Wind

Suzano Papel e Celulose

Nov-16

BRL1bnSITAWI

BRL200m

SITAWI

CPFL Energias Renováveis Oct-16

Forestry
Yes

Wind

KlabinSep-17$500m

Sustainalytics

Mixed use: energy, energy efficiency, forestry,
agriculture, transport and adaptation

BNDES

May-17$1bn

Sustainalytics

Wind and Solar

FibriaJan-17$700m

Sustainalytics

Mixed use: forestry, conservation, waste andwater management and renewable energy

Suzano Papel e Celulose

Jul-16$500m*

Sustainalytics

Mixed use: forestry, conservation, water
management, energy efficiency andrenewable energy

BRF SA

Jun-15

EUR500m

Sustainalytics

Mixed use: Energy efficiency, GHG emission
reduction, renewable energy, water
management, waste management, material
usage and packaging efficiency and forestry*The total amount of green bonds issued presented in this report does not include the recent Suzano Papel e Celulose’s tapped amount of $200mi in Sep/2017.

•

BNDES issued a $1bn green bond listed on
the Luxembourg Green Exchange. It received
a Ba2 Moody’s rating and a 4.75% coupon,
lower than the 5.25% originally estimated.B7
Demand reached $5bn with orders from over
370 investors. Proceeds will finance windand solar projects.B8

The deal was seven times oversubscribed witha BB+ rating from Fitch and a coupon of 4.79%,
initially estimated 5.38%.B12•

Numerous developments have boosted
Brazilian Green Finance

The first-ever green CRA was issued
in November 2016 by the securitizationcompany EcoAgro. The BRL1bn ($295.3m)
issue is backed by 100% export credit
receivables from Suzano Papel e Celulose
through an export credit note (NCE). The
local rating from S&P was brAA+.B11•

Klabin, a pulp, paper and packaging company
issued a $500m green bond to finance a wide
range of forestry, energy and other projects.

Green bonds in the context of
the Brazilian bond market
As of August 31 2017, the entire bondmarket in Brazil amounts to BRL5.8tnB9($1.9tn) outstanding with over 50% ofsovereign issuance.
Overall Brazilian bond issuance in Q1 and Q2
2017 amounted to $288.4bnB10 with green
bonds accounting for 0.2% - in comparison
to the global bond market, green bonds madeup 4% of issuance in the same period. In the
short-term, we envisage the major growth
opportunity for the corporate bondmarket and possibly long-term sovereignissuances, as long as institutional law
reforms might be implemented.

The growth of issuance reflects, in part, themarket education promoted by Climate Bonds,
SITAWI, CEBDS and other local stakeholders.

•

BNDES’ BRL500m Sustainable Energy
Fund managed by Vinci Partners waslaunched in 2017 to invest in infrastructure
tax-incentivized debentures focused on low
carbon energy projects. It is expected to start
disbursement in 2018 and is likely to be a key
buyer of green bonds.

•

The $20bn Brazil-China Fundwas formed in June 2017 to financeinfrastructure, industrial, agribusiness andother projects. China will finance threequarters of projects with the remainderfrom BNDES, CAIXA and private banks.
The initiative could leverage green bonds
related to infrastructure. There may also be
opportunities to strengthen the partnership
between both countries via this agenda.

• Key industry associations havebeen promoting green bonds and local
instruments among their members, including
UNICA (sugar and ethanol), IBÁ (forestry),
ABEEólica (wind) and ABSOLAR (solar).

•

The Green Finance Council was
launched in September 2016, jointly
convened by Climate Bonds and CEBDS to
support market development in Brazil.

It consists of executive-level stakeholders
and works to address the bottlenecks toleveraging green finance in Brazil. The Green
Finance Council has proven to be a valuable
platform for driving market development
and serves as an advisory body to promote
capital market reform and financial
innovation. The Council was formallyendorsed under the Economic and Financial
Dialogue partnership between Brazil and UK.

•

Brazil’s Green Bond Guidelines werelaunched by FEBRABAN and CEBDS in
October 2016 to guide market participants inthe process of green bond issuance.

•

Also in October 2016, the Brazil Investor
Statement was signed by six major financial
institutions in Brazil. The statement was
supported by Climate Bonds, PRI and
SITAWI, and three more institutions signed
the document in June 2017, totalling BRL1.8
trillion in AUM. Based on a global declarationfrom investors at the Paris COP21 in 2015,
the Brazilian Statement reinforces the goalof creating a strong Brazilian green bondmarket and defines specific actions toachieving it.

•

A Strategic Alliance to promote anddevelop green bonds in Brazil, China, India
and Mexico was formed in December 2016
through an agreement between CEBDS
GIZ and SEB. The partnership will interact
with financial institutions, companies andinvestors, map barriers and provide technicalsupport to foster the green bonds market.
Three capacity building workshops havebeen conducted since the launch.

Bonds and Climate Change www.climatebonds.net September 2017 9

•In 2016 and 2017, Climate Bonds also
conducted investor roadshows and forums inboth London and Brazil in order to identify largescale low carbon investment opportunities.

Looking ahead: growth of theBrazilian green bonds market
The pipeline of labelled green bonds is
expanding. According to a recent report on
BNDES’ Sustainable Energy Fund, over $688m
in green bonds for wind energy generation
are expected to be issued during the second
half of 2017. The forecast is based on the
Ministry of Mines and Energy Decennial Planof Energy Expansion 2024, which has resulted
in contracted wind farms producing total
equivalent to 13,846 MW capacity in 2017 anda 24,000 MW target by 2024. The BNDES
pipeline of wind energy projects includes 19
potential green bonds. Another four bonds
are expected to fund energy projects, totalling$790m by the end of the year. Issuance frombanks, transport and general corporates isharder to predict and exceeds the figures in the2017 Forecast graph.
Research into unlabelled climate-aligned
bonds, shows that in addition to the green
bond market in Brazil, bonds are financing
climate projects that are not labelled as green.
The size of this ‘unlabelled climate-aligned’universe is at least $2.9bn outstanding– meaning that the potential green bondmarket in Brazil could exceed $6.5bn.
The unlabelled green bond data is made up
of fourteen issuers in energy and transport
sectors. Issuers include rail operator Rumo
SA and renewable energy producer CPFL,
also an issuer of a Certified Climate Bond
(post-issuance).
One sector that we have yet to find any
unlabelled climate-aligned bonds is within

agriculture and forestry – a critical sector
for Brazil. Definitions around what makes
agriculture sustainable or ‘green’ arechallenging given the complexity of thesector but it is likely to make up a large
proportion of the green bond market in Brazil
in the future (more in the next section).

Sectors for future growth
Agriculture & forestry
In 2016, Brazilian law was ammended toallow the issuance of CRAs denominatedin foreign currency. This reform has thepotential to attract international investors
and expand sources of financing for the
agricultural sector. In addition, a proposedbill is currently under discussion to allow
collaterals to be denominated in foreign
currency, providing additional legal safety
for CRA investors. In 2016, agriculture
represented 5% of Brazilian GDPB13 andfarming products represented 24% of totalexports, equivalent to $13.5bn.B14
The agricultural sector plays a key role inunderpinning Brazil’s economy as a major
contributor to the country’s exports. Brazil
is the world’s second largest agricultural
exporter, the biggest producer of sugar,
orange juice and coffee and the largest
supplier of soybeans.B15 The sector is
expected to make an increasing contribution
to meet rising global food consumption.

The sector is also helping the country towithstand the current fiscal challenges withan increase in production, underpinned
by longstanding investments in research,technological progress and efficient use ofland and labour. Yet, there are significant
negative environmental and climate impacts
associated with agricultural production
including deforestation for new farmland.
Shifting capital towards sustainableagricultural development in Brazil has huge
potential to boost production using fewer
resources. Given this, we expect to see
an increasing number of issuers from theagriculture and forestry sectors. In particular,
there is potential for “Green CRAs” and deals
from commercial banks repackaging their
low-carbon agricultural lending portfolios.
The Public Low Carbon Agriculture
Programme (ABC programme)B16 provides
low-interest loans to fund the implementationof low carbon agricultural practices andtechnologies such as restoration of degraded
forest areas and development of integrated
crop-livestock-forestry systems. However,there are some constraints to scaling up
this program such as insufficient technicalcapacity among small and medium farmers,
and access to loans involves a substantial
administrative process as rural landowners
have to be registered at CAR (Brazil’s
Environmental Registry) for that.

2017 Forecast
Green Bonds issued

Estimated Pipeline

4000$3,040

3000
2000$ Billions•

The Financial Innovation Lab, a joint
initiative to foster green finance in Brazil,
convened by Brazilian Development
Association (ABDE), CVM (Brazil’s
Securities and Exchange Commission) andInter-American Development Bank (IDB),
created three working groups in August
2017 that are discussing and proposing
investment instruments and financial
structures to crowd-in private sector capitaland optimize the use of donor funds. The
green bond working group aims to foster
green bond markets in Brazil. Some of
the initiatives under discussion include:
improving the regulatory framework,
developing self regulations, evaluating
new instruments, evaluating opportunities
for sovereign and public banks issuanceand adopting international best practices.
Climate Bonds and SITAWI are facilitators
for the green bond working group.

1000
$564

$857

0
2015

2016

2017

Source: BNDES and SITAWI.

Agribusiness Receivables Certificate (CRA)
A CRA is a debt security exclusively issued
by an agribusiness securitization company
backed by agribusiness credit rights. Thesecredit rights arise from financing operations
or loans related to agricultural production,
trading, processing or industrialization of
products, machinery or equipment. The
securitization companies structure those

10 Bonds and Climate Change www.climatebonds.net September 2017

receivables in order to issue debt securities
and distribute them to investors. CRA
operations are IOF and tax income exempt
for individual investors. BRL24.3 billion*($7.8 billion) has been issued in 2017;38% growth when compared to last year’s
figures (8 months’ window).
*As of 31st of August 2017, Source: CETIP

The CAR is a public registry systemregulating land use change, private property
environmental assets and deforestation. The
New Forest Code is a new mechanism that
may establish a regulatory culture in Brazil
and serve to attract more investors to tap theland use sector.B17

Renewable energy - Brazil has been successfully
maintaining its renewable energy mix and it is oneof the world’s leaders in clean energy. Renewableenergy in Brazil accounted for 39% ofprimary energy supply in 2014 - versus a global
average of approximately 14% (see graph below).
Bioenergy still holds a large share of
the renewable mix, mostly supported bygovernment efforts to increase domestic
biofuels production. Brazil is the world’s second
largest biofuel supplier (sugarcane-based
ethanol) with 22%; the U.S. is the largest
at 48% (maize-crop ethanol); and Europe
produces 17% of biodiesel.B18
Biofuels are complex when it comes tosustainability issues and policies should
consider increasing mandates with sustainablerequirements to strengthen standards,
certification, audit schemes, capacity building
and research investment in second and third
generations. As an example of sustainable
practice, the EU Renewable Energy Directive
does not provide financial support to projects
where biofuels have originated from lands with ahigh carbon content or with high biodiversity.B19
More recently, relevant public investments
have been reallocated to finance alternative
renewable sources - such as wind and solar.
The proportion of alternative energy within
Brazil’s energy mix is estimated to increase
from 16.2% to 27.3%B20 by 2024.
Wind power generation is small but since2009 has been thriving and by 2016 Brazil had
430 wind farms and a total capacity of 10.7
GW, the world’s 9th-largestB21.

Brazil: Share of total primaryenergy supply in 2014
Nuclear 1.3%
Geothermal/solar
wind 0.6%
Coal
5.8%
Hydro
10.7%
Oil
42.1%

Natural gas
11.8%

Biofuels/waste
27.7%
Source: IEA, 2014.

It represents 7.1% of Brazil’s electricity mix.
Brazil’s wind power’s investment potential
is estimated to reach $32bn by 2020B22
supported by BNDES loans and its BRL500m
Sustainable Energy Fund ($159.6m).
Solar energy capacity is expected to rise overthe coming years, supported by technologicalprogress and the downward trend in prices.
Solar energy currently generates only 27MW
(0.02% of the national electricity mix) but
is predicted to grow to 7GW (3.3% of theelectricity mix)B23. Solar investments are
estimated to reach $8bn by 2020.B24
Brazil’s Government has been supporting
renewable energy growth throughenergy auctions, as well as with BNDES
loans, special credit lines and its recent
Sustainable Energy Fund. Another importantdevelopment is the grid metering norm by
Brazil’s Energy Agency (ANEEL) which sets
out the general conditions to micro andmini-generation from renewable sources
accessing electricity distribution systems.

Additional cross-sectoral infrastructure
investment potential
The majority of Brazil’s population live in urban
areas and will require climate-smart investment
to support urban-infrastructure development.
It has been estimated that more than $50bn will
be directed to low-carbon buildings and $5bn
to the waste sector by 2020. Another $209bn
in green infrastructure investments will be
required in rail and roads by 2020 including
increasing the share of biofuels in nationaltransport fuel consumption and increasing
the use of energy efficient vehicles.B25
IFC estimates $6.4bn investment potential
to improve energy efficiency in Brazil’s
industrial sector by 2020. A morecomprehensive energy efficiency policy
needs to be established as Brazil’s NDCs
aims to achieve 10% savings by 2030. The
industrial sector has an enormous potential
to implement sector-specific policies. One
example is the electricity generated by
combined heat and power in the industrial
sector that is currently less than 1%.

Policy and Market GuidanceBrazil has come a long way in the last three
years on green finance directions despitedifficult economic headwinds. A domestic
green bond market is taking root, backed
by guidelines and private sector initiatives.
Reaching Brazil’s NDC goals will bepossible by strengthening and developing
new public policies and aligning Brazil’s
public resources with green priorities in
mid-term and long-term. Specific actions:
Government:

1

Establish a government green bondprogram by the Ministry of Finance to act
as demonstration issuance for potential
corporate issuers and to increase liquidity
in the Brazilian green bond market (i.e.
via publicly owned companies, exempted
partially from the fiscal budget cap).

2

Establish a green project pipeline
and planning process through relevant
ministries with clear signalling to
the private sector i.e. via Investment
partnership program – PPI.

3

Harmonise selective tax breaks, in
CRAs, CRIs, LCAs, etc., to attract domestic
institutional investors to the regular bondand the emerging green bond market.
Regulators:

4

Support stronger standards andcertification criteria that define green
assets and projects in Brazil. This will
include better standards and definitions forenergy transmission systems, bio-ethanol
and in other third generation biofuel crops.

5

Encourage more green investment
from closed and public pension funds, as well as
insurers through their respective regulations.
Public institutions:

6

Increase green bond issuancefrom public institutions - locally andinternationally - including the current
BNDES pipeline of low carbon infrastructureand sustainable land use projects.

7

Another source of potential growth lies inthree expected rail auctions announced
by the Brazilian government: North-South
Railway (possibly with an extension to Mato
Grosso), West-East Railway (with potential
connection to the North-South railway) andFerrogrão from the Midwest region (MatoGrosso) to the North (Pará). The NorthSouth railway auction is expected to occur in2018 and to raise BRL1.5bn ($479m).B26

Develop mechanisms to support
private sector issuance of green
finance products – e.g. credit guarantees
provided by BNDES.

In order to reduce Brazil’s transport
emissions, it is estimated that more than
50% of climate-smart investments will be
required for transportation.B27

Promote further market education
by knowledge sharing gained from pastissuances and stimulating innovativeissuance from new sectors.

Private sector players and industry
associations:8

Create a green bond platform
for information and negotiation tostrengthen the secondary market.

9

Bonds and Climate Change www.climatebonds.net September 2017 11

Climate-aligned bonds across the world

Gothenburg, Swedencase study page 15

Amsterdam, Netherlands
case study page 15

New York, USAcase study page 14

Medellín, Colombia
case study page 19

Country colours represent
amount of climate-aligned
bonds outstanding where:>$100bn outstanding

Lagos, Nigeria
case study page 18$10bn – $100bn outstanding<$10bn outstanding

Case study for cities that havealready issued green bonds
Case study for cities with potential forgreen bond issuance in the future
Cape Town, South Africacase study page 18

12 Bonds and Climate Change www.climatebonds.net September 2017

Tokyo, Japancase study page 17

Wuhan, China
case study page 16
Hong Kong, China
case study page 16

Mumbai, India
case study page 17

Top 10 climate-aligned bond countries
Labelled

Unlabelled

300
250
200
150

50

s
nd
rla
he
Ne
t

Ko
re
a
of
lic

ub

di
a

an
y
rm
Re
p

Ge

er
at
Fe
d
n

ss
ia

In

io
n

da
na
Ru

Un

ite

d

Ki

Ca

m
ng
do

ce
Fr
an

St
at
es
d
Un
ite

na

0

Ch
i

$ Billions

100

Bonds and Climate Change www.climatebonds.net September 2017 13

Building resilient cities: green city bond case studies
70% of global greenhouse gas emissions come from cities,
and many of the world’s most populated cities sit on coastlines, rivers and flood plains,
they are particularly vulnerable to negative impacts from a changing climate12.
Cities are central to building the low carbon
and resilient infrastructure needed to ensure
future economic growth that addresses
and adapts to climate change. Cities haveformed networks like C40 to exchange bestpractices for managing climate risks. These
platforms may play a role in achieving NDCs
and driving climate action.

Bonds are a key tool to finance climate
infrastructure in cities. Bonds, some ofwhich are labelled green, have been used bycities and related agencies to finance climate
and other infrastructure for decades. Since

Green city bonds: spotlight on
North America
The North American climate-aligned
universe stands at $184bn making it
the third largest region after AsiaPacific and Europe. It comprises
only the U.S. and Canada with the
U.S. accounting for 81% of the total.
Transport and Energy themes dominate
issuance in the region, accounting for 48%
and 30% of total climate-aligned issuancerespectively. In the transport theme, U.S. rail
entities BNSF and Union Pacific are the largest

the first labelled green city bond was issued
in 2013, over 180 labelled green city bonds
from 13 countries have come to market. This
includes bonds from cities, municipalities,
transport authorities, water utilities andmunicipal banks.

The 10 case studies below show both theprecedent and opportunities for green city
bonds. Opportunities for future green city
bonds involve expanding on the precedent ofearly adopters, and bringing in new players.
In this section, we examine climate-aligned
bond issuance and highlight case studies

while almost a third of issuance in the energy
theme comes from Canada’s Hydro Québec.
Current climate policy in the U.S. and Canada
could not be more different. The U.S. hasstated its intention to withdraw from the Paris
Agreement, one of only 3 countries to do so.
Canada, on the other hand, has made strong
statements on climate action launching the
Pan-Canadian Framework on Clean Growthand Climate Change in December 2016.
National climate policy, however, is not thewhole picture and, despite differing levels ofgovernment commitment, both countries aremaking progress on climate finance.

Green bondissuer:New York
About New York

C40 member: Yes

As one of the largest sub-sovereign bondissuers in the U.S., New York has acted
as a demonstration green bond issuer formunicipalities, large and small, aroundthe country. Other large cities such as San
Francisco and Los Angeles have followed.

Compact of Mayors Commitment: 80%
reduction in CO2 emissions by 2050

The state has shown leadership in
supporting best practice with both theMetropolitan Transportation Authority
and New York State Housing FinanceAgency issuing certified Climate Bonds
amounting to over $3.7bn and, given
infrastructure plans, potential for futureissuance is substantial.
While NY has demonstrated scale, othermunicipalities have also boosted themarket and proved investor demand forsmaller bonds.

Bond issuing powers: Yes, through the cityand through state agencies like MTA
Total bond issuance last 5 years: New Yorkis a frequent issuer with total issuance since2012 exceeding $10bn
Planned/current climate infrastructure
projects:$1.7bn subway expansion15$315m wastewater adaptation16••

Country’s NDC commitment: None
Estimated potential for green bondissuance: Significant (>$1bn p.a.)

14 Bonds and Climate Change www.climatebonds.net September 2017of the many cities that have already issued
green bonds as well as cities that may issue
in the future. Cities were chosen to illustratea wide range of geographies but are only asample of the broader market.
The potential for scale-up varies acrosscities depending on the size of the local bondmarket and infrastructure plans. In each casestudy, we estimate this potential but notethat this is not an empirical measure. For
example, green bond potential for New Yorkexceeds that of Lagos but both are important
within their respective regions.

The U.S. continues to be a leader in muni
green bonds despite the political context.
Sub-sovereigns have reinforced their climate
commitments with 13 states forming theUnited States Climate Alliance to collaborate
on climate action and adhere to the originalcommitments of the Paris Agreement. Since
2015, labelled green muni bond issuance has
increased to over $18bn as sub-sovereigns
use the bond market to finance mitigation
and resilience projects. The California State
Treasury Department has stated that labelledgreen bonds are an essential tool for meeting
a $359bn funding gap in public infrastructure
over the next 10 years.13
U.S. issuers are pioneering green
securitization, with nearly $7bn ABS bonds
outstanding in the climate-aligned universe(all labelled green). Much of this comesfrom the Property Assessed Clean Energy(PACE) legislation and financing model
driven by entities such as Renovate America
and Ygrene Works. PACE legislation allows
local governments to fund the up-front costof energy improvements which are paid backover time by the property owners.
In Canada, government agencies andsub-sovereign issuers have played a
big role in the development of the green
bond market with the Province of Ontario
and Export Development Canada (EDC)
being early issuers. In the first half of 2017,
green bond issuance ramped up with theQuebec Ministry of Finance issuing its
first green bond13 as well as regular issuers
EDC and Ontario, bringing labelled green
bond issuance to over $1.5bn in 6 months.
Alongside national policy commitments,
green bonds may play a role in the newly
formed Canadian Infrastructure Bank,
aiming to raise over C$21bn to support green
infrastructure over the next 11 years.14

Green city bonds:
spotlight on Europe
Over the next 20 years, EUR180bn
in additional annual investment will
be required to meet the EU’s 2030
climate and energy targets.17 The
biggest investment gaps relate toenergy efficiency in buildings andtransport, and are more substantial
in Central and Eastern Europe.
26 countries are represented in theEuropean climate-aligned bond datasetwith France at $92bn, the UK at $60bn andRussia at $24bn. Of these 26 countries, 18
have also issued labelled green bonds. Within
the European segment of climate-aligned
data, 59% of bonds are financing low carbon
transport solutions and 21% energy.
European cities were the first to issue greenlabelled bonds with Nordic cities (Gothenburg)and French regions (Ile de France) leading theway. 19 separate cities and city-related entities
have issued labelled green bonds in Europe.
Pioneers have included Nordic municipality
debt aggregators such as Kommunalbanken.
They enable small municipalities to access low
cost capital by issuing senior unsecured bonds
backed by a highly-rated aggregator (ownedby the sovereign government). The result ishighly-rated bonds and low cost of capital forsmall cities and municipalities.
European issuers are showing the potential
for a range of bond types to be utilised infinancing green infrastructure – the past
18 months saw the issue of the first green
Schuldschein (debt instrument), green
Pfandbrief (covered bond) and green loans.
European investors are leading demand
for green investment. There are over 15
dedicated green fixed income funds for theEuropean market. Some are dedicated tolabelled green bonds while others include
unlabelled climate-aligned bonds.
The first European Residential MortgageBacked Security (RMBS) could point togrowth of a European green securitization
market. Dutch Obvion issued the first green
RMBS, under the Climate Bonds Standard
in June 2016. The European Mortgage
Federation and European Covered Bond
Council have since launched an Energy
Efficient Mortgages Initiative20 to develop
standardised energy efficient mortgages.
In 2017, Climate Bonds teamed up with theEuropean Covered Bonds Council to form the‘EU Green Securities Committee’. The main
goal is to promote the development of a green
securities market in Europe including covered,asset-backed and senior unsecured bonds.
The members will be working closely todevelop the green debt market in Europe.

Green bondissuer:Gothenburg
About Gothenburg

C40 member: Yes

The Swedish City of Gothenburg was oneof the first cities to issue a labelled green
bond. Since their initial SEK500m ($79m)
green bond in 2013, four additional bonds
have been issued with a combined valueof over SEK5.5bn ($800m). The proceeds
have financed projects in renewableenergy, energy efficiency, public
transportation, waste management, water
treatment, and sustainable housing.

Compact of Mayors commitment.
40% reduction in CO2 emissions
from 1990 levels by 2020, and
80% reduction by 2050
55% renewables in energy mix by 203018

Future bonds could finance a range ofplanned infrastructure projects including
regional high-speed train projects andelectric buses planned for 2018-2020.

Planned/current climate infrastructure
projects
West Link public transit project19
Götaälv Bridge tram infrastructure
Municipal bus electrification
Regional high-speed train projects
Bergson 2021 green urban housing

While the city is a frequent bond issuer
and has ambitious project plans in thepipeline, the scale of green issuanceis likely to be moderate given its small
population size (approx. 500,000 people).

•••

Bond issuing powers: Yes, through theCity of Gothenburg
Total bond issuance last 5 years:>SEK30bn ($2.5bn)

•
•
•
•
•

Country’s NDC commitment:
EU Commitment – 40% reduction over1990 by 2030
Estimated potential for green bondissuance: Moderate ($100-500m p.a.)

Potential
issuer:Amsterdam
About Amsterdam

C40 member: Yes

Amsterdam has been active in innovative
green finance programmes like theAmsterdam Investment Fund and Green
Finance Lab. While the city itself cannot
issue a bond directly, municipal banks
and funding agencies in the Netherlands
issue bonds collectively for certain
infrastructure projects.

Climate commitment: Reduce CO2
emissions by 40% (1990 levels) by 2025

BNG Bank, for example, raises low
cost finance for public-sector institutions.
It could follow the precedent set by
the Nordic municipal debt aggregators.
Green bonds have been issued in thismanner by Nederlandse Waterschapsbank
for regional water authorities, this process
could be replicated by other entities
for city or municipal projects. This
could help Amsterdam finance green
infrastructure such as the planned
North-South Metro project and meetthe climate commitments of the forwardlooking city.

Planned/current climate infrastructure
projects:
IJ bicycle river bridge
EUR3.1bn North-South Metro21

Bond issuing powers: Not directly but
through municipal funding agencies orregional banks
Total bond issuance last 5 years:
None as Amsterdam••

Country’s NDC commitment: EU
Commitment – 40% reduction over 1990
by 203022
Estimated potential for green bondissuance: Moderate ($100-500m p.a.)

Bonds and Climate Change www.climatebonds.net September 2017 15

Green city bonds: spotlight on
Asia-PacificAsia-Pacific is the largest region
in the climate-aligned universe,
primarily due to issuance from
China which accounts for 82% of
the total in the region.
Rail accounts for 70% of regional issuance,
which includes the financing or refinancingof rail projects and related infrastructure.
Much of this is from China Railway Corp
which, alone, makes up over 58% of
issuance from the Asia-Pacific region
and a quarter of the entire global universe.
Taking China Railway Corp out of the dataset
puts the energy and transport themesat similar amounts outstanding – both
approximately $50bn.
China dominates, accounting for 82% of
issuance in the region, with India and theRepublic of Korea small but growing. While
China is large, the figures for the climatealigned universe are broadly in line with thatof the global debt securities market – forexample, the Chinese debt securities market
is approximately 12 times that of India23. In
the climate-aligned data, China is also 12
times that of India.
Largest issuers include China Railway Corp($222bn), Indian Railways ($14.7bn), China
Three Gorges ($13.6bn) and Korea Railroad($10.5bn). Of note, few Japanese rail issuers
have been included in the dataset – thisis because all of the main Japanese rail
operators derive a large segment of theirrevenue from retail, restaurants, hotels
and advertising, some of which is linked tostation infrastructure.
China - 90% of climate-aligned bonds were
issued by entities backed by the sovereignor sub-sovereign government. Issuancehas been bolstered by the Government’s
commitment to a green economy in China’s
13th Five Year Plan25.
A number of regulatory developments havealso taken place that are supportive of agreen financial system including the roll-out
of national Guidelines for Establishing theGreen Financial System, and the releaseof green bond guidelines from various
regulators such as People’s Bank of China(PBoC), National Development and Reform
Commission (NDRC) and China Securities
Regulatory Commission (CSRC).
We expect to see the sovereign or subsovereign issuance to continue fuelling
China’s market momentum, as more green
infrastructure projects are planned in linewith policy imperatives.

Green bondissuer:Wuhan
About Wuhan

C40 member: Yes

Wuhan is one of the largest cities in central
China with a population of over 10 million.
The municipality has put great emphasison building a low carbon city. To achieve its
carbon reduction goals, significant efforts
have been made to expand and ‘green’ themass transit system.

Climate plan:
56% GHG per unit GDP reduction
by 2020

Wuhan Metro constructs, manages andoperates the metro transit in the city, andis owned by the municipality government.
It issued China’s 1st metro green bond in
July 2016, and has become a frequent
green bond issuer with total issuance of
RMB5.5bn ($8.5bn).
As of August 2017, metro lines in Wuhan
reached 180 kilometres. It is scheduled tohave 32 lines of 1,200 kilometres by 2049,
accounting for over 55% of the city’s
public transportation. The city also has
ambitious plans to build large scale BRT
networks, introduce electric buses andcycle hire services.

•

Bond issuing powers: Yes, through local
government financing vehicle
Total bond issuance last 5 years: Morethan $5bn issued through the government
financing vehicles, and more than $4bn
issued through transportation groups
Planned/current climate infrastructure
projects:
Wuhan Metro expansion
Flood protection projects
Wuhan - Huantou Public Bicycle
Service System
Bus Rapid Transit system

•
•
•
•

Country’s NDC commitment:24
60-65% reduction in carbon
Estimated potential for green bondissuance: Significant (>$500m p.a.)

Green bondissuer:Hong Kong
About Hong Kong
Hong Kong is home to Hong Kong MTR, apioneer of financing public transit throughreal estate and the value capture model
since its inception in developing Hong
Kong’s urban metro system in 1975.
MTR, while majority owned by thegovernment, operates as a publicly-traded
company with operations around theworld. In 2016, MTR issued a $600m
green bond for service enhancements
and environmental performance
improvements26.
With a strong climate action plan, green
bonds could play a stronger role acrossother municipal functions, including in thefinancing of the planned 3-4% increase inrenewable energy sources, the expected$500m energy upgrades for municipal
buildings, or the many waste to energy
projects planned in the near-term27.

16 Bonds and Climate Change www.climatebonds.net September 2017

C40 member: Yes
Climate plan:
36% absolute reduction of carbon emissions
65-70% reduction of carbon intensity
over 2005 levels by 2030
Reduce community-wide CO2
emissions intensity by 55% per HK
dollar GDP by 2020 from 200528•••

Bond issuing powers: Yes
Total bond issuance last 5 years: Frequentbond issued - more than $35bn issued throughHong Kong SAR Government Bond Programme
Planned/current climate infrastructure
projects:
Municipal building upgrades
Renewable energy
Centralised greywater system estimatedto be completed by 2024.29•••

Country’s NDC commitment:30 [China]
60-65% reduction in carbon
Estimated potential for green bondissuance: Significant (>$1bn p.a.)India – domestic climate-aligned issuanceamounts to $21bn outstanding from 21 issuerswith Indian Railways accounting for 68%.
Labelled green bond issuance has also
grown, with $3.6bn currently outstanding- predominantly financing projects related
to renewable energy. Issuers include NTPC
which leveraged fossil fuel balanced sheets
in order to raise capital for solar and windenergy projects. Movements are also being
made to catalyse the national green bondmarket - the Indian Green Bonds Council
was formed in late 2016 and in June 2017,
the corporate regulator, Securities Exchange
Board of India (SEBI), released guidelines forlisting green bonds. The guidelines will bringgreater transparency and certainty to theIndian green bond market.
Republic of Korea – Total climate-aligned
bonds outstanding from Republic of Korea
amounts to $19.4bn from 14 issuers withthe largest two issuers Korea Railroad Corp($10.5bn) and Korea Hydro and Nuclear($6.8bn) accounting for almost 90% of thetotal. Two Korean issuers have issued labelledgreen bonds to date – Export-Import Bankof Korea and Hyundai - but no regulatoryor other major developments have takenplace yet. Given the strength of Korea’s
auto industry and electronics industry, there
could be green issuance in the future fromcar manufacturers financing zero emissions
vehicles or for manufacturers of energy
efficiency technologies, such as LED lighting.
Australia – To date, there have been 15 labelledgreen bonds amounting to $5.5bn from 12
issuers. Though a relatively small sized market,
Australia has a diverse range of green bonds,
including 13 Certified Climate Bonds from thenation’s four big banks: ANZ, CBA, NAB and
Westpac, two state governments, a listed
property company, a leading tertiary institution
and several green ABS.
Australia is a best practice example ofmarket development, driven by leadershipfrom the banks and their support for robust
standards and disclosure, the involvementof sub-sovereigns and the governmentbacked Clean Energy Finance Corp as well as
demand from local pension funds.
Only one climate-aligned issuer (Reliance Rail)was discovered during the research process.
This does not mean that bonds are not financing
green assets but that issuers are too diversified
to be picked up by the research process.
Australia has advanced regulations formeasuring and monitoring emissions frombuildings and strong growth in rooftop solar.
Future labelled issuance may emerge fromfinance, sub-sovereigns, and the property
sector given their strong presence in the green
bond market to date.

Potential
issuer:Mumbai
About Mumbai

C40 member: Yes

With nearly $1tn needed to meet
mitigation goals under India’s NDC,
much of the progress will be made in the
dynamic, growing urban centres. Mumbai
has a range of projects from waste
management to public transit that could
be financed through green bonds.

Climate commitment: Commitments toadaptation made, but not mitigation

India’s Ministry of Urban Development(MoUD) has also prioritised action
on municipal bonds under its Smart
City Mission launched in 2015, granting
a 2% interest subsidy to incentivise
municipal issuers.
The potential for green bonds fromMumbai may be significant in the longterm but in the short-term, issuance will
likely be small. Mumbai’s Brihanmumbai
Municipal Corporation has not issued abond in over 10 years. India plans to revive
its municipal bond market and 2017 saw
the first municipal bond issued since 2007
(by Pune Municipal Corp).

Bond issuing powers: Yes- throughmunicipal corporations (Brihanmumbai
Municipal Corporation) and Mumbai
MetroTotal bond issuance last 5 years: none
Planned/current climate infrastructure
projects:$136m Deonar Waste-to-Energy
Project31$344m MSDP Stage II waste
water project32$12bn Mumbai metro expansion33•••

Country’s NDC commitment: Estimated at$834bn to 203034
Potential for green bond issuance: Large
Estimated potential for scale: Small in
short-term (<$100m p.a.)

Potential
issuer:Tokyo
C40 member: Yes

About TokyoJapan is home to the world’s second
largest bond market. In February 2017,
the Tokyo Metropolitan Government(TMG) published a ‘Green Bonds
Issuance Policy’ as part of a larger
constellation of environmental goal
setting, establishing a path to a greener
city as Tokyo revamps its infrastructure
for the 2020 Olympics35.
Building on the trial run of Tokyo’s
Environmental Supporter Bond(AUD125m/$93m)36, TMG is planningon doubling last year’s issuance between
October and December of 2017, using theestablished project pipeline from 2016.
Pre-allocated projects involve
environmental measures for Olympic
facilities, carbon neutral conversions
for municipal buildings, LED street lights,
and public enterprise projects, all inthe service of achieving Tokyo’s goalof reducing GHG by 30% below 2000
levels by 2030.

Climate commitment37: Reduce
community-wide CO2 emissions by 25%
from 2000 - 2020
Bond issuing powers: Yes, Tokyo
Metropolitan Government
Total bond issuance last 5 years:
Frequent bond issuer - over $20bn issued
Planned/current climate infrastructure
projects:
Environmental measures for the venuesof the Tokyo 2020 Olympics
Conversion of lighting in Tokyo-owned
facilities and street-lighting to LED••

Country’s NDC commitment: 26% by
fiscal year (FY) 2030 compared to FY
201338Estimated potential for green bondissuance: Significant (>$1bn p.a.)

Bonds and Climate Change www.climatebonds.net September 2017 17

Green city bonds:
spotlight on Africa
Total climate-aligned bondissuance remains small in Africawith just under $3bn outstanding,over half of which is labelledgreen bond issuance.
This is not out of line with Africa’s overallbond market development which is still small– only South Africa has a bond market ofany substantial size (approximately $235bn
outstanding39) while all other markets are
smaller than $20bn outstanding.
There are four unlabelled climate-aligned
issuers in the African dataset: two projectbonds in South Africa (Touwsriver Solar
Power and Elevate Wind solar), the rail
operator of Morocco, and the Kenya
Electricity Generating Company, which ismajority hydro assets.
South Africa and Morocco - the green bondmarket remains largely undeveloped but
small changes may be on the horizon. The
City of Cape Town, City of Johannesburg,
Banque Centrale Populaire, MASEN, and
BMCE Bank have each issued labelled green
bonds within the past 3 years, increasingawareness and acting as examples for otherpotential issuers.
Kenya & Nigeria Programmes: It is likelythat the market for green bonds in Africa
will largely be developed by sovereigns. Both
Nigeria and Kenya have stated that they plan
to issue sovereign or sub-sovereign green
bonds. Rwanda has also shown interest in
issuing a green bond in the longer term.
The first African sovereign green bond is
expected from Nigeria in 2017.
Market development is high on the agenda
for Africa and there are numerous events
that will facilitate further growth. In Nigeria,
the Climate Bonds Initiative is working ona joint initiative with the Ministries of theEnvironment and Finance to advise on thesovereign green bond. In the longer term,
the goal is to develop a domestic green bondmarket in Nigeria.
In Kenya, Climate Bonds Initiative, incollaboration with the Kenyan Bankers
Association, and the Nairobi Securities
Exchange have developed green bondguidelines in line with international bestpractice. These guidelines will be finalised
following stakeholder consultation. Thereis also work ongoing to develop a pooled
vehicle, allowing the aggregation of bankloans to issue green bonds.

Green bondissuer:Cape Town
About Cape Town
Cape Town issued its first green bond in
July 2017, a ZAR1bn ($76m) Certified
Climate Bond40; the first certified
green bond for South Africa, and thesecond South African city green bondafter Johannesburg in 2014. Proceeds
are supporting transportation, energy
efficiency, wastewater, and coastal
resilience projects.
Cape Town residents are currently inthe middle of a climate crisis as 3 yearsof low rainfall has caused the worst
drought in a century41.
Cape Town is not a frequent bond issuer(previous bond in 2010) so although thisgreen bond is playing a part in achieving
the country’s NDC objective, the use of
the bond market to raise capital will likely
be small. With a defined green bondframework already in place, Cape Town
can act as an example for other cities
across the region.

C40 member: Yes, and C40 Cities Clean
Bus Declaration
Compact of Mayors commitment42:
10% city-wide energy consumption
from renewable sources by 2020
13% reduction in emissions by 2020••

Bond Issuing Powers: Yes, throughthe City of Cape Town Metropolitan
Municipality
Total bond issuance last 5 years:
1 bond ZAR1bn ($76m) labelled green
Planned/current climate infrastructure
projects:• BRT bus system extension• Coastal protection and adaptation
Country’s NDC commitment: $1.68tn
in mitigation and adaptation investment
economy-wide43
Estimated potential for green bondissuance: Small - <$100m p.a.

Potential
issuer:
Lagos
About Lagos

C40 member: Yes

Lagos is one of the world’s fastest growing
megacities, and an economic powerhousein West Africa. As a waterfront city witha unique set of planning and adaptation
challenges, Lagos could benefit
significantly from city green bond issuanceacross a number of sectors, which havebeen identified as priority areas in theLagos State Development Plan44.

Climate commitment: Lagos State
Development Plan 2012-2025 - Includes
sections on waste management projects,
wastewater, climate adaptation, but nospecific goals set.

As an example, wastewater managementand drainage infrastructure projects inthe long-term planning horizon are key
elements for increasing flood resilience,
and would be well-suited to green bonds.
The Development Plan also outlines goals
for renewable energy and public transport.

2 bonds N165bn ($548m)

The Lagos State government issued aN85.14bn ($233m) bond in August 2017
for social and built infrastructure45.

18 Bonds and Climate Change www.climatebonds.net September 2017

Bond issuing powers: Yes, Lagos Stateissues sub-sovereign bonds
Total bond issuance last 5 years:

Planned/current climate infrastructure
projects:
Wastewater management and drainage
infrastructure $712m
Renewable energy supply to 15GW
Public transport capacity increase•••

Country’s NDC commitment46: 20%
unconditional reduction over BAU
Estimated potential for green bondissuance: Small - <$100m p.a.

Green city bonds:
spotlight on Latin America
Total climate-aligned issuanceamounts to $14.5bn with Brazil
accounting for the majority($6bn) followed by Mexico($3.1bn). While total issuance issmall, it is diverse with over 40
different climate-aligned issuers
discovered.
Transport, energy and multi-sector are
the largest themes accounting for 28%,
32% and 26% respectively. In the transport
theme, all issuance financed rail or public
transport projects with the Lima Metro($1.2bn) being the largest issuer. In theenergy theme, the majority of bonds arefinancing wind energy with issuers including
Mexico’s Nacional Financiera (NaFin) as well
as La Rioja Province in Argentina. Multisector bonds are all labelled green bonds
financing multiple projects types including
the largest issuer in the region, Mexico City
Airport, and Costa Rica’s only issuer to dateBanco Nacional de Costa Rica.
Mexico City Airport is the largest issuer($2bn) but there are no dominant issuers in
the region unlike other regions. The largest
ten issuers account for only 61% of issuance.
Other large issuers include the Lima Metro(Peru), BNDES (Brazil), All America Latina
Logistica (Brazil) and Suzano Papel e
Celulose (Brazil).
Two labelled green bonds have been issued
by sub-sovereign entities to date in Latin
America – the City of Mexico (MXN1bn /$49m) and La Rioja Province in Argentina($200m).
Labelled green bond issuance has increased
to $7.5bn with $5.8bn of that issued in
the past year alone. $4.9bn was issued bycorporate entities and $2.1bn by developmentbanks. Mexico City Airport is the largest green
bond issuer in the region to date following
their $2bn green deal financing green
airport infrastructure. Green bonds havepredominantly been issued for renewableenergy projects while climate-aligned bonds
have predominantly been issued for transportand renewable energy projects.
Who will lead the region - Mexico or Brazil?
Brazil and Mexico lead Latin America in termsof population and GDP, and their local green
bond markets are at similar development
stages, offering a contemporary comparisonof green finance in the region.
Brazil ranks 5th in terms of global population(205 million), and São Paulo its largest city,
was in the top 5 of the world’s megacities in
2016, and is set to remain in the top 15 by
2030, with an estimated population of almost

Potential
issuer:Medellín
About Medellín

C40 member: Yes

Medellín has progressive urban transportsystems and the power to issue bonds. It
has a 2006-2030 plan for the Medellín
Metro which includes extensions toexisting lines as well as new lines48.

Climate commitment: Commitments toadaptation made, but not mitigation

The city’s 2016-2019 development plan
has a sustainable transport programme
which includes upgrades, extensions andmodernisation to metro, rail and other masstransport systems. It also includes a vision
for a green city which includes integrated
climate mitigation and adaptation
planning and waste management.
The Colombian Government has also
published a Roadmap for green bonds49,
which highlights the potential for municipal
bond issuance. The Roadmap identified
a portfolio of green city projects whichamounts to $24.7bn across the major cities.

Bond issuing powers: Yes, through entities
such as public utility Empresas Públicas deMedellín (EPM) owned by Medellín canissue bonds
Total bond issuance last 5 years: 14 deals
amounting to approx. $1bn
Planned/current climate infrastructure
projects:
Medellin Metro expansion
Medellin rail upgrades••

Country’s NDC commitment: COP57.8bn
will be required by 2030 to mitigate GHG
effects, accounting for an investment ofnear COP3.18bn per year.51
Estimated potential for green bondissuance: Small - <$100m p.a.

Medellín’s integrated urban renewal projectwith light rail and metro cable was funded,in part, through a green bond issued by
Agence Française de Développement.50

24 million. Mexico has a population of over
120 million, and Mexico City is projected to
be in the top ten of global megacities by 2030
with a population of over 23 million.
Both countries have created local green
bond market development councils - theBrazil Green Finance Council and Mexico’s
Advisory Council on Climate Finance. In
addition, local institutional investors havecommitted to support the growth of longterm, sustainable global markets in green
bonds. Investors with over BRL1.80tn($575bn) of assets under management(AUM) signed the ‘Brazil Green Bonds
Statement’ in 2016. In 2017, 57 Mexican
investors with MXN4tn ($225bn) AUM
signed a similar statement at the Mexican
Stock Exchange.
There has been a sharp increase in labelledgreen bonds from Brazil in 2017 partly
due to the 2016 release of green bondguidelines47 by the Brazilian Business Council
on Sustainable Development (CEBDS) andthe Brazilian Bank Federation (FEBRABAN).
Brazil’s giant development bank BNDES
announced in late 2016 the creation of a
BRL500m ($144m) green bond fund, to buy
renewable energy bonds issued domestically.
A $1bn green bond followed in May 2017.

In contrast, issuance in Mexico has emerged
from supranationals and sub-sovereigns,
including NaFin, Mexico City and theCity’s Airport Group. Due to the lack ofparticipation of the private sector, there havebeen calls for the development of guidelines
and national standards to support corporate
issuers and give confidence to investors, thatare often wary of the credibility of ‘green’
projects52.
International development banks arealso encouraging issuance in the region. In
Colombia, the IDB and IFC have supported
local banks coming to market. In Mexico, the
IDB along with the Clean Technology Fundhave been working on unlocking financefor energy efficiency projects throughsecuritisation for green bond issuance.
According to the IFC’s Climate Investment
Opportunities in Emerging Markets report,
Brazil’s climate smart investment potential
for 2016–2030 stands at $1.3tn and Mexico’s
at $791bn. Opportunities exist for green
finance development in Latin America,
however the right conditions must be
nurtured. Institutional investors have calledfor ‘strong action on climate change’ andstand ready to invest in green bonds fromthe region.

Bonds and Climate Change www.climatebonds.net September 2017 19

Labelled green bonds
2016 was another record breaking year in the labelled green bond market with labelled green bonds
amounting to $81.4bn*, an increase of almost 100% from 2015. 2017 looks set to continue this trend.
The green label is a tool to meet climate
targets by closing the gap between fundingneeds and investor demand. It is a signallingmechanism to investors – an easy way toidentify that investments are green. In thisway, the label reduces friction in the market
and enables the flow of finance from investors
to green investments.
Green bond issuance in 2017 is likely to
break new records with $57bn issued by theend of Q2. 2017 may be the year that themarket exceeds the $100bn mark.
25% of the climate-aligned universe is now
made up of labelled green bonds. This is amarked difference to the first report in 2012
where there were just $7.2bn of labelledgreen bonds - less than 5% of the universe.

Green bond market
developments
The first sovereign green bond was issued
in late 2016 making sovereign green bonds
the talk of 2017. Europe has been at theforefront of this development with Poland
being the first sovereign to issue a green
bond last December. This benchmark-sizedbond raised EUR750m and was quickly
followed in January of 2017 by France who
issued the largest green bond to date at
EUR7bn. We expect more sovereigns to issue
in the coming months and year with Nigeria,
Sweden, and Kenya all likely contenders.

Labelled

Unlabelled

1000
800
600
400

$ Billions*Only bonds labelled as green and that meet Climate Bonds
definitions are included in green bond data.

The dominance of U.S. municipalities in thisspace is particularly noteworthy given a lackof policy at the federal level. By the end ofJune 2017, 101 municipalities, cities and states
had issued green bonds, the majority of thesefrom U.S. issuers. See a more detailed analysis
of city bonds on pages 10-15.

Labelled green bonds account for a growing proportion of theclimate-aligned universe

This is encouraging – our view has always beenthat this report should showcase opportunities
for labelling and demonstrate just how big themarket could become. But for investors, there
is a value in labelling.
Since the original State of the Market
report in 2012, one primary aim has been to
demonstrate to the market that the green label
is a concept with enormous market potential.
Looking back, it’s remarkable how the labelled
universe has grown in a relatively short period.
Just four years ago, in our second report, there
were only $7.4bn of labelled green bonds
outstanding. The labelled universe is muchlarger now, and growth remains strong.

City bond issuance is taking off with cities
and sub-sovereigns increasingly turning to
the green bond market to raise finance forclimate-related projects. This has sometimes
been due to national climate policies andtargets but often in the absence of national
climate policies.

200
0
2014

2013

2016

2015

2017

Top 11 countries for labelled green bond issuance
50

40

30

20

20 Bonds and Climate Change www.climatebonds.net September 2017

il
Br
az

a
di
In

ia
tra
l
Au
s

da
na
Ca

n
ai
Sp

en
Sw
ed

s
nd
er
la

Ne

th

rm
an
y

ce

a
Ch
in

Fr
an

Ge

d

na

Un
ite

at
io
pr
an
Su

St
at
es

0

l

$ Billions

10

The labelled green bond market is growing rapidly
Sovereign

Corporate

Muni/Provincial/City

Govt agencies & State-Backed Entities

Development BankABS

Commercial Bank

Other debt instruments

100
2017
estimate

80

60

40

$ Billions

20

0
2013

2014

2015

2016

There has been an increasing diversityof structures within the last 2 years, withthe first covered bonds (Pfandbrief), thefirst green Schuldschein, and the first green
residential mortgage-backed securities(RMBS) coming to market.

with a green mandate has been a driving
force behind market growth, a key successhas been that green bonds are identicalin structure to vanilla bonds making themequally attractive to investors without agreen mandate.

Country issuance continues to be driven
by China and the major North Americanand European markets, but there has beenissuance from emerging and new markets
including India, Brazil and South Africa. In
comparison with the global bond markets,the main missing market is Japan with lessthan $3bn outstanding. With new green
bond guidelines having now been issued by
the Ministry of the Environment of Japan in
March 2017, we expect this to change.

Development banks have maintained
a strong presence and leadership rolein the market despite the fact that they
have been outgrown by corporate andsub-sovereign issuers. The EIB, KfW andWorld Bank take the top three spots in termsof total issuance to date. All three havebeen involved in pushing best practice inthe market through the Working Towards
a Harmonized Framework for Impact
reporting53 launched in 2015. Several new
players have entered this market in the past
year, including the China Development Bank
and Brazil’s BNDES.

China was the largest source of issuance in2016, and 2017 is expected to exceed that of2016. In H1 of 2017, France was the leader ofthe country table on the back of the EUR7bn($7.5bn) sovereign bond. Green bonds havebeen issued in 40 different countries andfrom all habitable continents.
Strong demand continues to drive themarket with oversubscription being thenorm. The French sovereign bond was aparticular highlight with the sovereign
initially going to market for EUR3bn andupsizing to EUR7bn, after receiving orders
in excess of EUR20bn. While it is difficult toknow whether there is an upper limit on the
demand for green product, two features arenotable: 1) numerous green bond-specificfunds and indices have been launched in
the past year which is both indicative ofstrong demand and may lead to further
demand; 2) while demand from investors

2017 YTD

Issuance from corporates and commercial
banks has grown but there’s plenty of headroom
for more. In some countries, corporates andcommercial banks make up a large proportion ofissuance – e.g. the Netherlands (69% by value)
and France (65% by value). In other countries, it
is lower – in the U.S., corporates and commercial
banks account for 56% and Germany just 20%.
External reviews in the form of second
opinions and third-party certification arevital for maintaining transparency andcredibility in a market and are recommended
by the Green Bond Principles. Over the
past few years there has been an increasein the percentage of bonds that have had
external reviews. By value, the percentage ofgreen bond issuance which has received an
external review has been steadily increasingfrom 65% in 2015, to 77% in 2016 and to
82% so far in 2017.

Largest issuers to dateAmountIssuer typeCountry

EIB$22.6bn

Development Bank

Supranational

KfW$12.8bn

Development Bank

Supranational

World Bank

$10.6bn

Development Bank

Supranational

SPD Bank$7.6bnCommercial Bank

China

Republic of France$7.6bnSovereign

FranceIberdrola$5.6bnCorporate

Spain

TenneT Holdings$5.5bnCorporate

Netherlands

EDF$5.3bnCorporate

FranceIFC$5.3bnDevelopment Bank

SupranationalEngie$5.1bnCorporate

FranceBonds and Climate Change www.climatebonds.net September 2017 21

Of the bonds that have received an external
review, Climate Bonds certification is gaining
increasing traction with Certified issuanceincreasing from just 4% of total issuance in 2015
to 9% in 2016 and 11% in 2017 year to date.

Tenor: Green bonds have shorter tenors except in EUR
Global vanilla bonds

Proceeds have been funding an increasing
range of projects, a shift from the focus on
renewable energy seen in the early stagesof the market. As the market has expanded,
there has been a growth in issuance financing
transport, buildings and water projects.
The majority of the green bond proceeds havebeen allocated to renewable energy and green
buildings projects that, combined, amount to
64% of the total. They are then followed bytransport and water which account for 14%
and 10% respectively. Waste management,
adaptation, and land use each account for 3-5%of use of proceeds. Transport and Water haveseen the largest percentage increase from lastyear’s report. One reason for this is the risingnumber of rail bonds this year in Europe aswell as from numerous U.S. transit authorities.
Volvofinans Bank issued a green bond andsimultaneously declared a direction of travel
away from combustion engine vehicles,

Climate-aligned universe

15

U.S. Dollar and Euro currencies continue
to dominate the green bond market withthe dollar accounting for 36% and the Euroat 38% of the outstanding amount. In 2017,
the Euro has been the largest currency,
accounting for 47% of issuance in Q1 andQ2 due in large part to the EUR7bn Frenchsovereign bond issued in January 2017.

12

9

6

3
Years

2016 saw Chinese green bonds take off withissuance in RMB rising from $994m in 2015
to over $23bn*. Overall, green bonds havebeen issued in 27 different currencies.

Labelled green bond0
Corporate
All currencies

Corporate
USD

Corporate
EUR

Corporate
RMB

Government &Municipals
All currencies

possibly indicating the start of a larger overall
shift in the automotive sector. The emergenceof hybrid, fuel cell, and electric vehicles maylead to more green issuance in this sector.

post-issuance reporting publicly available.
The quality of reporting is varied with more
prolific issuers likely to have better reporting
standards in place.54

Tenors are shorter than the vanilla bondmarket but there are differences acrosscurrencies. The average tenor for corporate
green bonds is 8 years compared to thevanilla bond market of approximately
11 years. There are differences acrosscurrencies - e.g. in USD, the average green
bond tenor is 1 year shorter than the average
vanilla bond but in EUR green bonds have
longer tenors than vanilla bonds.

Climate Bonds research has shown that
there is a lack of uniformity in post-issuancereporting which makes comparison difficult.
It has also shown that impact reportingis becoming more commonplace. Whileimpact reporting may be useful to investors,
complex reporting expectations may also
shy issuers away from the market. A balance,
therefore needs to be struck between
pertinent information and over burdensome
reporting expectations.

Post-issuance reporting is improving
but comparison remains challenging. For
bonds issued before April 2016, 74% have

* If Chinese labelled green bonds that do not meet Climate Bonds
definitions are included, the 2016 total is $36bn.

Green bonds use of proceeds - project types are diversifying
EnergyBuildings & Industry

Transport

Waste & Pollution Control

Forestry & Agriculture

Water

Adaptation (a sub-category of Water)

100%

80%

60%

40%

$ Billions

20%

0%
2013

2014

2015

22 Bonds and Climate Change www.climatebonds.net September 20172016

2017 YTD

How big could the green bondmarket become?
The climate-aligned bond universe detailed
in this report gives one indication that thegreen bond market could become muchlarger. But, the climate-aligned bond universe
only shows some of the potential for growthof the green bond market.

The potential for growth is much larger than the $895bn universe
Labelled green bond market = $221bn
Unlabelled climate-aligned bond from pure-plays= $674bn
Potential size of the green bondmarket from pure-play anddiversified issuers

90% of the climate-aligned bond universe
was issued by pure-play issuers, whereas
in the labelled green bond universe only 5%of issuance is made up of pure-play issuers.
The vast majority of issuance comes fromdiversified corporates, commercial banks,development banks or from cities andsub-sovereigns.

?

This means that the actual potential
for growth is much larger than the$895bn already identified. For example,
certain sectors will play an importantrole in the transition to a low carbon
economy but are under-represented in
the climate-aligned universe because of
their diversified nature. This includes but
is not limited to:

Global bond market > $90tn• Electricity utilities: will build and operate
renewable energy• Banks: will provide finance for low carbon
infrastructure• Industrial sector: will manufacture

the technology required such as windturbines, LED lighting etc.

• Auto manufacturers: will develop electricvehicles for the mass market as well as
charging infrastructure• Cities/sub-sovereigns: will plan anddevelop the infrastructure required for atransition to a low carbon economy.

First Green Sukukissued in Malaysia
In late July 2017, the first green
sukuk came to market issued by
Malaysian Tadau Energy
Sukuk are “tradable Islamic financeinstruments”, consistent with theprinciples of Shari’ah. Sukuk represent anownership in underlying assets or earnings
from those assets.
This first green sukuk follows on from anumber of incentives put in place by the
Securities Commission Malaysia (SC)through the SRI Sukuk framework topromote greater utilisation of green sukuk.

These include:• Tax deduction on the issuance costs ofgreen sukuk that have been approved by SC;• Tax incentives for green technology
activities in energy, transportation,building, waste management andsupporting services activities; and• Financing incentives under the GreenTechnology Financing Scheme with total
allocation of MYR5bn ($1.2bn) until 2022.

To be eligible for these tax deductions,issuers must ensure that proceeds raised
are used to fund eligible projects in:natural resources, renewable energy and/or energy efficiency sectors. Issuers arealso encouraged to follow international

best practice by appointing independent
experts to undertake an external review
prior to issuance.
This first green sukuk is the resultof collaboration between SC, Bank
Negara Malaysia and the World Bank,in an effort to facilitate the growth ofgreen sukuk and to introduce innovative
financial instruments to tackle
global infrastructure needs andgreen financing.55
This form of Islamic ﬁnance hastremendous potential as a climate
ﬁnance tool, because it simultaneously
taps into two fast-growing segmentsof global ﬁnancial markets: sukuk andgreen bonds.

Bonds and Climate Change www.climatebonds.net September 2017 23

The road ahead - $1 trillion by 20202017 has seen encouraging developments in the green bond market, now more needs to be done
The green bond market has grown at record
levels in 2016 and 2017 but to meet global
objectives for emissions reduction andclimate-aligned infrastructure, accelerationis required. In mid-2017 global climate
leaders, including Christiana Figueres, haveadvocated that the green bond market needs
to reach $1tn of issuance by 2020 (a morethan 10x increase on the $81bn issuanceof 2016, but still a small proportion of the
global bond market) as part of six milestones
for urgent action by 2020.
A global green finance market size of around$1trillion, would significantly boost progress
on NDCs and implementation of country
climate plans.
The latest climate science concerns
around permafrost, the albedo effect andtemperature trajectories reflect this urgency.
Rapid growth in green finance is needed now.
The Nationally Determined Contributions(NDCs) set in the Paris Agreement are afirst step for countries to benchmark theirprogress towards sustainable economic

growth that is aligned with global climate
targets. The public sector is central toenabling and scaling up green bond issuanceand investment through capital raising plansfor NDC financing that use instruments
such as green bonds. Governments all over
the world are looking for opportunities tostimulate economic growth and employment
after a decade of stagnant growth.
There is also increasing pressure on global
financial markets and institutional investors
to act on investor statements and COP
assurances by connecting capital flows
to real economy outcomes: sustainable
development, low carbon infrastructure,green technology, jobs and prosperity.
In developing countries, governments
see the chance to build more resilient anddiversified economies that support poverty
alleviation, public health improvements andsustainable urbanisation.
Low interest rates in the U.S., Europe
and Japan mean that investors are, wherepermitted, looking to increase their portfolio

allocation to higher yielding assets, some ofwhich will be in emerging market economies,
to ensure liabilities can be met. In developing
countries, green bond markets, with theiradded transparency, can attract foreign
investors to support the development of adomestic green economy. Green finance isalso increasingly associated with financial
stability and climate-related risk strategies.
It is encouraging that in countries that haveembraced this agenda, green bond policy is
now being led by financial policymakers withthe support of environmental policymakers –this is real progress.
The green bond market has beenhighlighted as the green finance tool tosteer financial sector capital towards theinvestments needed to drive steep emissions
cuts, curb pollution levels and support
sustainable development goals. The goodnews is that this is not new - governments
have, throughout history, used bonds toshift investment into areas of urgent policy
priority and fund highways, railways, water,
sewers and wars.

We need $1 Trillion a year of green issuance by 2020
ActualClimate Bonds projection to 2020

1000

800

600

400

$ Billions

200

0
2013

2014

2015

2016

24 Bonds and Climate Change www.climatebonds.net September 2017

2017

2018

2019

2020

Top 3 actions the public sector is taking in 2017

1

3

2

1. Sovereign green bonds
Green sovereign bonds are increasingly
seen as a key tool for governments to raise
capital to implement infrastructure plans inline with NDCs. Determining how to finance
NDC implementation strategies and layingout capital raising plans are the next steps
towards meeting the targets.
Besides raising capital, a sovereign green
bond can attract new investors, improve
collaboration between finance ministries
and, most importantly, provide policy
certainty within the country.
Poland and France issued the first sovereign
bonds in late 2016 and early 2017. Other
countries have stated their intention to issue
sovereign green bonds including Nigeria,
Sweden and Kenya.
Markets are usually kickstarted with higher
grade issuance and then diversification.
The sovereign is often the highest-rated
institution in the country, especially indeveloping countries with limited highquality issuers. In this way, sovereign green
bonds can kickstart a market by acting as
demonstration issuance.
They also help to provide liquidity and scale
to a market and attract other corporate
issuers as well as new investors.

2. Country-level Green Bond
Guidelines

3. International and regional
collaboration

In 2016, China was a clear example of hownational green bond guidelines can propel amarket forward.

The EU has put finance and sustainability
high on the EU policy agenda. Sustainability
is now part of the financial stability andclimate agenda. The EU High-Level Expert
Group on Sustainable Finance has madepreliminary recommendations that include
establishing a standard and label for green
bonds, and developing capital raising plans forsustainable infrastructure. Through the Expert
Group, the European Investment Bank (EIB)
is also leading efforts together with Climate
Bonds to develop a common EU taxonomy.

Here are the latest developments:• Japan’s Ministry of Environment
released green bond guidelines in March2017 which form a foundation for future
guidelines from financial regulators.
• Taiwan, the Taipei Exchange, withoversight from the Financial Supervisory
Commission issued guidelines endorsing
the Climate Bonds Standard andGreen Bond Principles (GBP) to identify
green bonds.
• Luxembourg’s Ministry of Finance has
endorsed a new green bond label scheme
launched by the independent non-profit
Luxembourg Finance Labelling Agency(LuxFLAG).
• The Johannesburg Stock Exchange in South
Africa and the Nairobi Securities Exchange
in Kenya are undergoing stakeholder
consultations for national guidelines.
• India’s Security and Exchange Board(SEBI) released new green bond guidelines
in May 2017.
Brazil, Colombia, Mexico, Nigeria and Kenya
all continue to build market capacity throughgreen bond market councils and programmes.

Additional
support tools
Apart from green
bond guidelines andincreased investment
and issuance ofgreen bonds from public sector actors(development banks, states, provinces
and municipalities, public utilities andsovereigns), more policy tools are starting
to be implemented.
Central Banks are becoming increasingly
concerned with the evaluation of climaterelated risks and their impact on financial

stability. For example, the Bank of England hasannounced a major review of banks’ exposure
to climate risks.
In China, the PBoC is exploring including
exposure to green lending in banks’ macroprudential assessment frameworks andallowing green bonds as collateral to accesscheap financing from the central bank.
The Singapore Monetary Authority isproviding financial support to new issuers
through its Green Bond Grant Scheme,
absorbing the full cost of external reviewsin an effort to scale up a consistent andattractive market in Singapore.

The EIB and People’s Bank of China (PBoC)– the regulator of 97% of the Chinese bondmarket – have launched a partnershipcommitted to looking at harmonising thebanks green bond guidelines.
The ASEAN Capital Markets Forum isdeveloping green bond guidelines that will beapplicable to all member countries.56
In July 2017, the UK Chancellor of the Exchequer
and the Finance Minister of Brazil launched
the UK-Brazil Green Finance Partnership at
the 2nd UK-Brazil Economic and Financial
Dialogue.57 London’s Green Finance Initiative
will work with the Brazilian Green FinanceCouncil, co-convened by Climate Bonds, todeliver the Partnership’s aim of environmentally
sustainable economic growth in Brazil andthe UK through green finance.58 This is agreat example of how the finance ministriesof two countries can collaborate to use green
finance to simultaneously meet economic
growth and NDC targets.

Financial support in the form of
tax incentives, widely used in otherpolicy areas such as energy, are finallyappearing on the scene for green specificinfrastructure. For more details, see thepage 19 box on the first green sukuk issued
in Malaysia.
Look out for our briefing due out later
this year for more on how Central Banks
can support the development of green
bond markets.

Bonds and Climate Change www.climatebonds.net September 2017 25

Greenium Update
In last year’s report, we published sometaster results from a wider study wewere working on green bond pricing. The
wider study was published in July 2017and analysed 62 investment grade green
bonds issued in EUR or USD from January
2016 - March 2017.
As the market is still immature witha relatively small pool of bonds being
compared, the results are mixed: someindicators show that there are differences
between green and vanilla bonds whileothers point out no discrepancy.
Overall, there is evidence to suggestthat many green bonds are under-priced
at issuance. We are not able to say
whether this market behaviour will persist,
but this could point towards tighter pricing
in the future. For the time being, this data
should allay concerns among investors
about longer term underperformance bygreen bonds.

Green bonds behaved
differently:• Spread performance compared to acorresponding broad market bond index:
seven days after announcement date,
70% of green bonds had tightened morethan their corresponding index, 71% after
28 days. This suggests that green bonds
within our sample perform better than themarket within the first 28 calendar days.
• USD corporate green bonds priced on
average 22.2bps tighter than Initial Price
Talk (IPT) when compared to corporate
vanilla bonds (16 to 17bps) issued during
the same period.
• Green bonds tend to attract a broader
range of investors including those withgreen or ESG-focused mandates.

Green bonds behaved in line:• Average oversubscription of green
bonds is 3 times. Oversubscriptionof 3-4 times is not unusual in thecorporate bond market.
• EUR corporate green bonds in our
sample price on average 13.4bps tighter
than IPT. This is within the normal rangeof 13-14bps for vanilla bonds over thesame period.
• Spread performance: 70% of green
bonds had tighter spreads 7 days after
announcement date, 63% 28 days after.
Bonds often tighten in the immediate
secondary market.
• Some green bonds in the sample priced
inside their own credit curves, somepriced on their own credit curves, andsome priced outside their own credit
curves. This is broadly comparable tovanilla bonds.

Want to know more?

Want to know more about green city bonds?

Check out our latest reports:

Check out our guides:

Green Bond Pricing in thePrimary Market - Is There a
Greenium?
Anecdotal evidence hassuggested that green bonds
are heavily oversubscribed
and may price tighter
than expected. This report
explores the data to discoverwhether or not this ishappening.

Post-issuance Reporting in
the Green Bond Market
This is Climate Bonds
Initiative’s first study on
post-issuance reporting ofgreen bonds.
To date, there has been very
little collated information onwhether or not reporting ishappening and the qualityof information that isbeing provided. This reportattempts to fill this gap.

26 Bonds and Climate Change www.climatebonds.net September 2017

How to Issue a Green Muni
Bond provides guidance
specific to U.S. cities andother public entities that issue
municipal bonds.
It describes the state of themarket, the benefits of issuinggreen bonds, how the market
defines what is green and thesteps cities need to take toaccess this growing market.

How to Issue a Green City
Bond is relevant to issuers in
all part of the world.
Published on behalf of
the International Green
City Bonds Coalition, this4-page document provides
an overview of how green
bonds can be issued tofinance climate-aligned urban
infrastructure. It includes asummary of Green City Bonds
issued, what types of projects
can be financed and a stepby-step guide for issuers.

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ever! Plenty of certified deals; Firsts from Australia, Brazil, Colombia, México,
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(2017). Road Map: Actions for Setting a Green Bond Market in Colombia. E3Ecología, Economía y Ética, Metrix Finanzas, PwC-UK & Climate Bonds Initiative. [online] Available at https://cdkn.org/wp-content/uploads/2017/07/
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53. African Development Bank, Agence Française de Développement,
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Finance Corporation, Kreditanstalt für Wiederaufbau, Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden, Nordic Investment
Bank. (2015). Green Bonds – Working Towards a Harmonized Framework
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54. Boulle, B., Camille Frandon-Martinez, C., & Meng, A.X. (2017). Postissuance Reporting in the Green Bond Market. Climate Bonds Initiative.
[online] Available at https://www.climatebonds.net/files/files/
UoP_FINAL_120717.pdf
55. Securities Commission Malaysia & Malaysia Islamic FinanceMarketplace. (2017). Malaysia’s First Green Sukuk under SC’s
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post_archive/malaysias-first-green-sukuk-under-scs-sustainableresponsible-investment-sukuk-framework/
56. SEC Malaysia & ACMF. (2017). The ASEAN Capital Markets Forum
Collaborates with International Capital Markets Association to Introduce
ASEAN Green Bond Standards. ACMF. [online] Available at http://www.
theacmf.org/ACMF/upload/13march2017.pdf.
57. Finance Minister of Brazil & Chancellor of the Exchequer. (2017).
Joint Statement by the Finance Minister of Brazil and the Chancellor of
the Exchequer at the 2nd UK-Brazil Economic and Financial Dialogue held
in Brasília on 31 July 2017. Ministério da Fazenda [online] Available at
http://www.fazenda.gov.br/noticias/2017/julho/brasil-e-reino-unidorealizam-dialogo-sobre-economia-e-investimentos/joint-statement-bythe-finance-minister-of-brazil-and-the-chancellor-of-the-exchequer
58. Climate Bonds Initiative. (2017). Chancellor of the Exchequer
launches UK – Brazil Green Finance Partnership in São Paulo. [online]
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59. Figueres, C., Schellnhuber, H.J., Whiteman, G., Rockström, J., Hobley,A., & Rahmstorf, S. (2017). Three Years to Safeguard Our Climate.
Nature, 28 June. [online] Available at https://www.nature.com/news/
three-years-to-safeguard-our-climate-1.22201
B1. IFC (2016). Climate Investment Opportunities in Emerging Markets.
An IFC Analysis
B2. Brazil Federal Government (2016) Available at http://www.planalto.
gov.br/ccivil_03/constituicao/emendas/emc/emc95.htm
B3. This report only includes labelled green bonds issued until
15/09/2017
B4. Bloomberg
B5. Fitch Ratings
B6. Fitch Ratings
B7. Bloomberg, LGX & Valor International (2017) BNDES returns tomarket with $1bn issue of green bonds Available at www.valor.com.br/international/news/4955130/bndes-returns-market-1bn-issue-greenbonds
B8. BNDES (2017) BNDES capta US$ 1 bi em green bonds no mercado
internacional. Available at www.bndes.gov.br/wps/portal/site/home/
imprensa/noticias/conteudo/bndes%20capta%20us$%201%20bi%20
em%20green%20bonds%20no%20mercado%20internacional
B9. Anbima (2017) Available at http://www.anbima.com.br
B10. Suzano Papel & Celulose (2017)
B11. Anbima (2017) Available at http://www.anbima.com.br
B12. Klabin & Valor Econômico (2017). Klabin capta com bônus ‘verde’
US$ 500 milhões. Available at www.valor.com.br/financas/5116772/
klabin-capta-com-bonus-verde-us-500-milhoes
B13. The ‘Spotlight on Brazil’ section includes all bonds in the
climate-aligned universe until 15/09/2017. The rest of the report only
includes issuances until 31/07/2017.
B14. World Bank (2017) Available at http://www.worldbank.org
B15. MDIC (2017) Available at http://www.mdic.gov.br
B16. OCDE-FAO (2015)
B17. MAPA (2016). The scheme was launched in 2010, and since thenaround BRL13bn in 28,500 loans to rural producers have been given
B18. Baffes. J. (2013). A Framework for Analyzing the Interplay Among
Food, Fuels, and Biofuels
B19. FAO (2012). Policy Instruments to Promote Good Practices in
Bioenergy Feedstock Production
B20. MME/EPE (2016) Available at http://www.mme.gov.br
B21. Abeeolica, Aneel, GWEC (2016) Available at http://www.abeeolica.
org.br
B22. IFC (2016). Climate Investment Opportunities in Emerging Markets.
An IFC Analysis
B23. MME/EPE (2016) Available at http://www.mme.gov.br
B24. IFC (2016). Climate Investment Opportunities in Emerging Markets.
An IFC Analysis
B25. ibid
B26. Reuters (2017) Leilão de concessão da ferrovia Norte-Sul deve acontecer em fevereiro de 2018. Available at http://br.reuters.com/article/
domesticNews/idBRKBN1942JN-OBRDN
B27. IFC (2016). Climate Investment Opportunities in Emerging Markets.
An IFC Analysis+© Published by the Climate Bonds Initiative September 2017 in association with HSBC Climate Change Centre of Excellence.
This report was prepared by the Climate Bonds Initiative.
Lead Author: Bridget Boulle
Co-Authors: Alan Meng, Camille Frandon-Martinez, Rory McAvinue, Aneil Triparthy, Diletta Giuliani and Christian Elliott.
Input from the Climate Bonds Team.
Portuguese translation by SITAWI (Beatriz Ferrari e Beatriz Maciel, with supervision of Gustavo Pimentel).
‘Spotlight on Brazil’ section co-authored by Ana Lygia Monferrario (Climate Bonds Iniiative) and Débora Masulo (SITAWI), with supervision of
Bridget Boulle (Climate Bonds Iniiative) and Gustavo Pimentel (SITAWI).
Design: Godfrey Design
Disclaimer: The information contained in this communication does not constitute investment advice in any form and the Climate Bonds Initiative is not an investment adviser. Any reference to a financial organisation or debt
instrument or investment product is for information purposes only. Links to external websites are for information purposes only. The Climate Bonds Initiative accepts no responsibility for content on external websites. The Climate
Bonds Initiative is not endorsing, recommending or advising on the financial merits or otherwise of any debt instrument or investment product and no information within this communication should be taken as such, nor should any
information in this communication be relied upon in making any investment decision. Certification under the Climate Bond Standard only reflects the climate attributes of the use of proceeds of a designated debt instrument. It does
not reflect the credit worthiness of the designated debt instrument, nor its compliance with national or international laws. A decision to invest in anything is solely yours. The Climate Bonds Initiative accepts no liability of any kind,
for any investment an individual or organisation makes, nor for any investment made by third parties on behalf of an individual or organisation, based in whole or in part on any information contained within this, or any other Climate
Bonds Initiative public communication.

Bonds and Climate Change www.climatebonds.net September 2017 27

The $1 Trillion by 2020 Target
Green bonds for climate solutions“Governments, private banks
and lenders such as the WorldBank need to issue many more
‘green bonds’ to finance climatemitigation efforts. This would
create an annual market that,by 2020, processes more than
10 times the $81 billion of bonds
issued in 2016.”
Christiana Figueres

28 June 2017, Nature Magazine59

Prepared by Climate Bonds Initiative.

www.climatebonds.net

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28 Bonds and Climate Change www.climatebonds.net September 2017