Green Bonds Highlights 2016

June this year will mark a decade since the very first green bond
was issued by the European Investment Bank (EIB).
2016 has shown how far the market has developed, with annual
issuance aligned with international definitions reaching a record
USD81bn, equivalent to approximately USD9.2m raised every hour!
The big numbers

92% – growth on 2015 making
2016 the most prolific year to date

USD11.8bn– November
issuance, the largest month on record

24 – number of countries with green
bond issuers

The green bond market 2012-2016••••••80Commercial Bank
Corporate
Asset-backed security (ABS)Sub-sovereign/Municipal
Development BankSovereign

60

40

27% – proportion of Chinese
241 – number of labelled green

20bonds issued (median size USD133.7m)>90 – number of new issuers>50 – number of repeat issuers
USD4.3bn – largest single

green bond ever issued from the Bankof Communications (China)

1st – Poland became the first issuerof a sovereign green bondLargest issuers
Sovereign: Poland
Sub-sovereign:
New York MTA02012

2013

2014

2016 issuance was almostdouble that of 20151
2016 was a record-breaking year by all
metrics - the largest year of issuance todate, the largest single month, the largest
number of new issuers... the list goes on.
We note that the above figures donot include bonds that do not meetinternational definitions of green (e.g.
reduced-emissions coal, large hydro andgrid connection projects not linked torenewable energy or also referred to as“excluded bonds”2). Including these bonds
brings total 2016 issuance to USD92bn.

Development Bank: EIB

The market is diversifying

Corporate: Iberdrola

2016 was the year the market matured withbonds from an increasing number of countries,bond types, issuer types, ratings and of useof proceeds. We have seen innovation in thetypes of bonds issued: green covered bonds(which has a dual recourse structure), the firstgreen residential mortgage-backed security(RMBS) from Obvion and the first Green
Schuldschein (Nordex).

Commercial Bank:
Shanghai Pudong
Development Bank
ABS: Toyota

2015

2016

China is the big story
Green debt raised by Chinese entities
rose from less than USD1bn in 2015 (8thplace) to over USD23bn (1st place) in 2016,accounting for more than a quarter of the2016 total3. This follows increasing awarenessof environmental issues in China which has
been followed through to policy and financial
decision-making.

Cities and municipalities are
joining the market
As cities look to play a role in country NDCs,
green bonds have become an increasingly
viable form of finance with issuance fromcities and municipalities growing from just
USD4bn in 2014 (10%) to USD10.5bn (13%)
in 2016. While US municipalities continue
to dominate the sub-sovereign space, green
municipals and city bonds have come fromall around the world, including Mexico,
Sweden and Australia. Nordic municipality
debt aggregators were important players,
enabling small municipalities access to lowcost capital through the bond market despite
their small size.

Issued (USDbn)

issuers

There was a broad range
Green bond issuance by regionof use of proceeds in 2016
Waste Management 6%Agriculture andForestry 2%
Adaptation 6%

USDbn issued30

AfricaEuropeNorth America
SupranationalsAsia
Latin America
Oceania

252015

Energy38%

Water14%

Transport16%

105

Building &Industry18%0200720082009

2010

2011

A broad range of use of proceeds Other emerging nations
are starting to leverage green
In 2016, green bonds use of proceeds wasmore equally split between the 7 sectors,
debt financing
reflecting a maturing of the market. Whilethe largest category remained Energy (a totalof USD31bn investment in 2016), its sharedecreased from 52% in 2015 to 38% in 2016.
Conversely, investment in Water grew from
9% to 14%. Both Transport and Buildings &Industry increased their share by 2%. This isa welcome indication that the green transition
is taking place across all sectors.

The first sovereign bond wasissued in 2016
Poland issued its debut green sovereign bondof EUR750m in December 2016 and we expect
much more in 2017. France has already issued
an impressive EUR7bn green sovereign bondin January 2017 - the year of the Rooster, is ita coincidence? There are also plans for green
sovereign bonds from Morocco and Nigeria.
As governments seek to implement Nationally
Determined Contributions (NDCs), sovereign
green bonds are a logical financing option.

We have seen new players coming
to the market from Poland,Costa Rica (Banco Nacional de Costa Rica),
Philippines (AP Renewables),Morocco (MASEN, BMCE Bank),
Colombia (Bancolombia),
Latvia (Latvenergo), Brazil (Suzano),
Mexico (Mexico City Airport Trust,
Mexico City, Nacional Financiera),
India (Axis Bank, Greenko, Hero Future
Energy, NTPC, PNB Housing Finance,Renew Power) and of course, China4.
Emerging markets are the future!

Demand continues tooutstrip supply
Investors with and without a green mandate
are showing interest in the market, withoversubscription commonplace. Pricing
remains tight in both the primary andsecondary market indicating that there is still
plenty of unmet demand for green product.

20122013

2014

2015

Standards are developing
In order to adapt to the demands of the fastgrowing green bond market, a new version of
the Climate Bonds Standard (Version 2.1) has
been published. The additions included theexpansion of the range of debt instrumentsthat can now be certified under the Standard(such as Yieldcos and Sukuk) as well as a
Programmatic Certification option that will
streamline the verification process for regularissuers with large portfolios of eligible assets.
In 2016 new Sector Criteria (Transport,Geothermal and Water) were finalised.
In 2017, Land Use, Bioenergy, Hydropowerand Marine Criteria will be released. There
will be expanded Buildings Criteria andexpanded Water Criteria.
We also saw increasing demand for green
ratings, with Moody’s and S&P both publishingmethodologies for rating green impact.
National green bond issuance guidelines
became more common in 2016, with India,
Brazil and Morocco following the Chinese
lead of 2015.

Context for 2017

Three things to watch for in 2017

Green bonds have been a shining light, in what was otherwise ayear of pretty bad news for climate.

1. More issuance from sovereign and sub-sovereign issuers
as governments try to mobilise green investment and support
market liquidity.

As 2016 came to a close, global sea ice cover was at record lows andCO2 levels at Muana Loa passed 400ppm. It was the hottest year onrecord, according to both NASA & NOAA. The wider context is grim.
The green bond market needs to grow, at speed. HSBC’s
preliminary estimate for 2017 ranges up to USD120bn, Moody’s
is around USD200bn and our forecast is that 2017 green bondissuance will reach USD150bn.

2016

2. Policy developments will push green finance even further as
the G20 nations prioritise climate action. This will also encourage
greater harmonisation of green bond guidelines across markets.
3. Over-subscription of green bonds and tight pricing will remain
and as a result, we expect to see more issuers from lower rating
bands coming to market.

Written by the Climate Bonds Initiative Markets Team, © January 2017.
1. The figures in this roundup do not consider Chinese bonds which only meet the PBoC’s green definitions (but only those aligned with international definitions), unless stated otherwise.
2.We note that the proportion of assets financed by Chinese issuers which do not comply with international definitions is small compared to the overall issuance.
3. China’s share goes up to 39% if the ‘excluded’ bonds are accounted for.
4. Agricultural Development Bank of China, BAIC Motors, Bank of China, Bank of Communications, Bank of Qingdao, Bank of Urumqi, Beijing Enterprises, CECEP, Century Concord Wind Power, China Datang, China Industrial Bank, DunAn Holding,Export-Import Bank of China, Guangdong Huaxing Bank, Huaneng Renewables, Jiangsu Nantong Rural Bank, Poten Environment, Shanghai Pudong Development Bank, Wuhan Metro, Wuxi Communication Industry Group, Xinjiang Goldwind.
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