BONDS AND
CLIMATE CHANGE

THE STATE OF THE MARKET2018

WAT E R

ND USELUTI

WA S T E

A $1.45
TRILLION
CLIMATEALIGNED
BONDS
UNIVERSE*

LDINGS

POL

ON
NTROL

BUI

N

D

CO

A

LA

TR A N S P O RT

EN E R GY*Including USD389bn of green bonds

Prepared by Climate Bonds Initiative.

Commissioned by HSBC.

Bonds and Climate Change www.climatebonds.net September 2018

1

Report Guide
About this report

2. Issuer screening

The first part of this report presents thefindings of Climate Bonds Initiative’s
research of climate-aligned issuers,
conducted between April and June 2018. It
identifies issuers who generate at least 75%of their revenues from ‘green’ business: lowcarbon transport, clean energy, sustainable
water and wastewater management, lowcarbon buildings and built environment,sustainable forestry and agriculture, as wellas waste management and recycling.

In the second phase, issuers were excluded if:

The second part of the report looks at thediversity of bond structures used in the green
bond market. Features on different bond andsecuritisation types provide commentary on
issuers and future prospects.
It also includes an update on green bondpolicy covering 2017 and 2018, as well as asummary of the green bond pricing research
conducted by Climate Bonds Initiative.

Research methodology
This report identifies and analyses a universeof climate-aligned bonds, defined as:• bonds from issuers that derive > 95%
of revenues from ‘green’ business lines(fully-aligned)• bonds from issuers that derive 75-95%
of revenue from ‘green’ business lines(strongly-aligned)• labelled green bonds
To identify aligned issuers and bonds, thefollowing process was undertaken:
1. Issuer-level researchCompanies were first identified by industry
sub-sector and key words, or throughprevious climate-aligned issuer lists.
Issuers were considered for inclusion if they
derived at least 75% of revenue from ‘green’
business lines in at least one of 6 climate
themes: clean energy, low-carbon transport,
water management, low-carbon buildings,
waste management and sustainable land use.
Information on issuer revenues and debt
outstanding was obtained from Bloomberg,Thomson Reuters EIKON and company
websites (particularly annual accounts),
and cross checked against other sources,
including FTSE Russell Green Revenues.
Notes: Where deemed appropriate, special
purpose vehicles and subsidiaries were
aggregated under corporate groupings.
Both publicly listed and private issuers wereconsidered for inclusion.

• they had no debt outstanding, according toBloomberg and/or Thomson Reuters EIKON,• had been acquired or• there was insufficient revenue information
to determine the share of ‘green’ revenues.
3. Bond research and data processing
In phase 3, we collated and analysed all
bonds outstanding from issuers that passed
the screens in phase 1 and phase 2. We
further screened bond issuance data by:• Issue date: bonds were only included ifthey were issued after 1 January 2005 andbefore the end of Q2 2018.
• Maturity: bonds were removed if they had
matured, been called or otherwise repaid,or had a 2018 maturity date.
Other data notes:
All 2018 figures are for H1 2018.
For fully-aligned issuers, the full volume
of outstanding bonds is climate-aligned.
For strongly-aligned issuers, we used a pro
rata amount outstanding per bond that
corresponds to the percentage of ‘green’
revenues. For example, if 80% of revenue isclimate-aligned, for each bond we used 80%of the amount outstanding for all charts andfigures. Consequently, this report refers toand analyses ‘aligned outstanding’ bonds
rather than to total amount outstanding.
If an issuer is fully- or strongly-aligned andhas also issued a labelled green bond, then to
avoid double counting:• their green bonds are attributed in full togreen bond figures, and• all remaining outstanding bonds are
attributed to either fully-aligned figures (infull) or strongly-aligned figures (on a pro
rata basis) as per the issuer’s alignment.
Note that many green bond issuers haveless than 75% of revenue derived from green
business lines and are therefore neither
fully nor strongly-aligned. Unlabelled bonds
from these issuers are hence excluded fromaligned outstanding volumes.
Issuer screening is based on the Climate Bonds
Taxonomy (see p30) and the Climate Bonds
Standard and Criteria but the screening
process does not apply the full Climate Bonds
Sector Criteria due to insufficient granularity of
information available. Therefore, it is possiblethat some climate-aligned bonds would notmeet the full Climate Bonds Standard.

Bonds and Climate Change www.climatebonds.net September 2018

Table of contents
PART 1:
CLIMATE-ALIGNED BONDS
3 The climate-aligned bond universe
4 Introduction
5 General overview
10 Sector analysis
11 Low-carbon transport
13 Clean energy
15 Water management
17 Low-carbon buildings
19 Sustainable land use
20 Waste management

PART 2:
GREEN BOND FOCUS
22 Green bonds – diversity of bondstructures
28 Green bonds policy update
30 Spotlight: Green bond pricing

Climate Bonds Initiative
The Climate Bonds Initiative is aninternational investor-focused not-forprofit organisation working to mobilise
the USD100tn bond market for climatechange solutions.
The mission focus is to help drive
down the cost of capital for large-scale
climate and infrastructure projects
and to support governments seeking
increased capital markets investment tomeet climate goals.
The Climate Bonds Initiative carries out
market analysis, policy research, market
development; advises governments andregulators; and administers a global
green bond certification scheme.
Climate Bonds Partners range frominvestors representing USD14tn ofassets under management and theworld’s leading investment banks togovernments like Switzerland and France.
The Climate Bonds Initiative is the leadpartner in the Green Infrastructure
Investment Coalition. Sean Kidney,
Climate Bonds Initiative’s CEO, is amember of the European Commission’sTechnical Expert Group (TEG) on
Sustainable Finance (see p28).

2

The climate-aligned bond universe

The$1.45tn
climate-aligned bond universe

Strongly-aligned
climate issuers$314bnLabelled
green bonds$389bnFully-aligned
climate issuers$497bnFully-aligned
US Muni issuers$250bnAll amounts represent aligned outstanding bond volume.

Bonds and Climate Change www.climatebonds.net September 20183

INTRODUCTION

Climate-aligned bond universe: 869 issuers with
USD1.2tn outstanding (excluding US Muni fully-aligned issuers)
Fully-aligned: 342 issuers with USD497bn outstanding
Strongly-aligned: 82 issuers with USD314bn aligned
outstanding
Green bonds: 498 issuers, of which 52 fully- or stronglyaligned, with USD389bn outstanding
The Climate Bonds Initiative has been
researching investment opportunities inbonds financing climate-aligned assets since2012. The climate and investment backdrop
has changed dramatically over the past
6 years. The labelled green bond market
has taken off and with it, the focus of thisresearch has expanded.
Previous reports identified issuers whose
revenues are derived almost entirely from‘green’ business activities (>95%). Outstanding
bonds of these issuers, sometimes referred toas ‘pure-plays’, plus labelled green bonds werecollectively defined as ‘climate-aligned bonds’.

What’s new in 2018?
This year we have expanded the scope
to include issuers who are strongly
climate-aligned, i.e. ones that derive atleast 75% of their revenues from ‘green’
business lines. This is to capture companies
transitioning to ‘green’ and to take into
account the fact that as ‘pure-play’ issuers
grow, their revenue streams tend to diversify.
This approach seeks to highlight as many
issuers raising funds for green assets andprojects as possible including labelled green
bonds and unlabelled bonds from climatealigned issuers.

Sustainable Development Goals (SDGs)
have been included for the first time inthis report. We identified six SDGs where
increased green investment provide direct
benefits: SDG 6, 7, 9, 11, 13 and 15. However,climate mitigation measures, adaptationand the development of climate-resilient
infrastructure and buildings underpin theachievement of all 17 SDGs. To highlight thelinks, sector headings use related SDG icons.
More in depth green bond coverage has
been provided on green bond structures,
policy updates and public sector
developments, as well as green bond pricing.
This can be found on pages 22-30.
The 2018 research identified 869 issuers:
342 fully-aligned, 82 strongly-aligned and
498 green bond issuers.

Quick guide to terminology used in this report
Green bonds: Bonds issued inorder to raise finance for climatechange solutions and labelled as green
by the issuer. They can be issued bygovernments, banks, municipalities or
corporations and can be applied to any
debt format, including private placement,
securitisation, covered bond and sukuk.
Green bonds are only included in this report
and the Climate Bonds database if at least
95% of proceeds are dedicated to green
assets aligned with the Climate Bonds
Taxonomy and if sufficient information on
the financed projects is available.
Fully-aligned climate issuers:
Bond issuers that derive >95%
of revenues from climate-aligned assets
and green business lines. These are also
referred to as ‘fully-aligned’ issuers.
Fully-aligned US Muni issuers: Municipal
bond issuers from the United States, inparticular dedicated authorities, agencies,
departments and similar divisions with morethan 95% of their revenue derived fromclimate-aligned water, transport, waste, land
use and renewable energy operations.

Climate Bonds conducted a separate scoping
exercise. Outstanding bonds from theseissuers are not included in the report analysis
except in the overall climate-aligned universe
figure of USD1.45tn. Labelled green bonds
from these issuers (USD14bn) have beentaken out of the USD264bn outstanding to
avoid double counting. The USD250bn fullyaligned amount outstanding of US climatealigned municipal bonds has been provided
as an indication of the market size.
Strongly-aligned climate issuers:
Bond issuers where 75%-95% ofrevenues are derived from climate-aligned
assets and green business lines. For bonds
from strongly-aligned issuers, we analyseda pro rata amount corresponding to green
revenue rather than the full outstanding value.
Climate-aligned bond universe:
the term is used to describe
the full universe of aligned
outstanding bonds - i.e. from fullyaligned issuers, strongly-aligned issuers andgreen bond issuers.
The term aligned outstanding bonds
underscores the fact that this report does

Bonds and Climate Change www.climatebonds.net September 2018

not analyse the full outstanding volume
of bonds from strongly-aligned issuers(see definition of strongly-aligned
climate issuers). For simplicity, ‘aligned
outstanding’ bonds is always implied
throughout the report although the term is
not always used in full.
Certified Climate Bonds: Issuers cancertify bonds or loans under the Climate
Bonds Standard. Certification confirmsthat the bond is aligned to the Paris
Agreement and to keeping global warming
under 2°C. Many of the bonds in thisreport may be eligible for Certification
but have not yet been certified unlessotherwise stated.
Climate Bonds Taxonomy: The Climate
Bonds Initiative uses the Climate Bonds
Taxonomy to define ‘green’ assets andprojects. The Taxonomy features eightbroad categories: energy, transport, water,buildings, land use & marine resources,industry, waste and ICT. The Taxonomy isused as a framework for selecting issuers
for this report.
A summary can be found on page 30.

4GENERAL OVERVIEW OF THE CLIMATE-ALIGNED UNIVERSE

A climate-aligned bond universe of USD1.45tn
Fully-aligned

Strongly-aligned

Green bondEurope has the highest volume of outstanding
climate-aligned bonds
Number of bonds
2400

800
400
200
0
2014

2015

2016

2017

2018

This year’s research has identified USD1.2tn of aligned outstanding
bonds from fully- and strongly-aligned issuers and green bonds(excluding bonds from US Muni fully-aligned issuers).
342 fully-aligned issuers with USD497bn of outstanding
bond volume and 2,105 outstanding bonds, issued from2005 to end Q2 2018. Fully-aligned issuers account for
41% of the climate-aligned bond universe.
82 strongly-aligned issuers with USD314bn of outstanding
bond volume accounting for 26% of the climate-aligned
bond universe. The outstanding debt of these issuers isscaled down in proportion to the share of green revenues, e.g. if 80%
revenues are ‘green’, then 80% of its outstanding debt is used.
498 green bond issuers with USD389bn of outstanding
bond volume accounting for 32%. As a result of recordbreaking green bond issuance in 2017, there is a USD72bn
increase in green bonds outstanding from 2017.
52 issuers of labelled green bonds are also fully- or strongly-aligned
issuers. The remaining 446 green bond issuers have less than 75%
of revenue derived from ‘green’ business lines and are therefore notconsidered as fully or strongly-aligned issuers.
Separate research was conducted on fully-aligned US Muni agencies
where USD250bn of unlabelled bonds was identified (see p7). This
USD250bn is only included in the overall climate-aligned figure of
USD1.45tn but not in the rest of the report analysis. Labelled green
bonds from US Munis are included in green bond figures.

China tops country rankings
200
150
100

400

1600

1519

1418

800

200
216
0
Europe156

210Number of Bonds

600

2013

AsiaNorth Global Latin
AfricaPacific America
America

Europe
0%

20

40

60

80

100

Europe’s USD509bn climate-aligned bond market is composedof USD291bn in bonds issued by fully-aligned issuers, USD145bn
of labelled green bonds and USD73bn of bonds issued by stronglyaligned issuers.
France, the UK and Germany are the top 3 countries with
USD175bn, USD96bn and USD52bn of aligned outstanding bonds.
The figures aggregate green bonds and bonds from fully- andstrongly-aligned issuers.
• France has the largest volume of labelled green bonds (USD44bn)
and bonds from strongly-aligned issuers (USD58bn).
• The UK is the top market globally for issuance from fully-aligned
issuers with 253 fully-aligned issuers from various sectors
contributing USD91bn to the climate-aligned bond universe.
Asia-Pacific
0%

20

40

60

80

100

Issuance from strongly-aligned issuers dominates the Asia-Pacificregion. Chinese volumes are by far the largest in the region both forissuance from strongly-aligned issuers (USD189bn) and green bonds(USD55bn) and represent 20 times and 8 times, respectively, of therelevant second largest market. India, South Korea, Japan and Australia
are the next largest markets. USD14bn comes from ASEAN countries.
North America

50

0%

U
Ge K
rm
an
y
Ca
na
da
I
n
So
ut dia
hK
or
ea
Ru
ss
ia
Au
st
ria

0

Ch
in
a
US
A
Fr
an
ce

USD Billions

2400

600

1000

USD Billions outstanding

USD Billions outstanding

1200

China tops the country rankings of climate-aligned bonds, primarily
due to high volumes in the strongly-aligned category. The UK has
the highest volume of outstanding bonds from fully-aligned issuers,
followed by the USA and France. India, South Korea, Russia andAustria make the overall Top 10 thanks to fully-aligned issuers.

Bonds and Climate Change www.climatebonds.net September 2018

20

40

60

80

100

North America ranks third overall, but the volume of bonds fromfully-aligned issuers is 19% more than Asia-Pacific’s and the total
number of outstanding climate-aligned bonds reached 2,400.
Fannie Mae’s green MBS and US municipal green bond issuance have been
driving the region’s growth. At USD193bn, the US climate-aligned bonduniverse is over 4.5 times larger than Canada’s. Canada’s contribution
to overall volumes is primarily from the fully-aligned issuer category,whereas US issuance includes a significant amount of green bonds.

5

EUR, USD and CNY remain the major currencies

5 to 10 year tenors are most common
Fully-aligned

CAD 2%CNY
22%

Up to 5Y

KRW 2%Other
17%

RUB 2%

5-10Y

SEK 2%

10-20YCHF 1%

EUR
26%

Over 20Y

Others 6%

EUR denominated bonds account for 26% of the overall universe with
USD316bn outstanding and are closely followed by USD denominatedbonds (USD314bn). However, the largest amount of labelled green
bonds outstanding is denominated in USD.
The share of CNY-denominated bonds has fallen to 22% of theclimate-aligned universe, down from 32% in the 2017 reportbecause the universe is larger and includes more green bonds. JPY
is still under-represented compared to its presence in the overall
global bond market.

Investment grade bonds account for 84% of theoutstanding climate-aligned universe
AAA

AA

A

Green bond

INR 2%

GBP
9%

USD
26%

Strongly-aligned

BBB

BB

B

Perpetual
0
100
200
300
USD Billions, aligned outstanding amount

400

Most labelled green bonds have tenors under 10 years. Over half
the outstanding bonds with a tenor under 5 years are labelled green
bonds. This proportion drops as the bond tenor increases: labelledgreen bonds make up 22% of bonds with a tenor exceeding 20 years.
Outstanding bonds from fully-aligned issuers tend to be longerdated. They account for 53% of aligned outstanding bonds withtenors exceeding 20 years. This is consistent with previous findingsthat fully-aligned issuers, such as rail entities usually have longer
construction and operation periods and often issue long-term debt.

Large issues contribute over 60% of volume

NR

100
Up to 50m

2%

23%
16%

50-20m80

250-500m

4%500m-1bn

Other
16%

60

Over 1bn

10%

22%
23%

40

100

20

80
%

60
40

Bonds

20
%

0

0
Fullyaligned

Stronglyaligned

Green
bond

Almost a quarter of the universe is AAA-rated by international and/or local credit rating agencies and 84% of the USD1.2tn universe isinvestment grade. Non-investment grade bonds make up only 5%(the pie chart figures are rounded). The remaining 10% is not rated.
Labelled green bonds have the most evenly distributed ratings.
Strongly-aligned issuers make up the largest proportion of the AAA
rating band (63%) while bonds from fully-aligned issuers dominate
the AA rating (67%).

Sum of USD
Amount Aligned

Some 700 bonds have aligned outstanding amounts of USD500m
or more (60% of the aligned universe). The remaining outstanding
volume is made up of approximately 5,000 bonds. This reflects thelarge number of private and smaller issuers identified.
A big contributor to volumes is China Railway, the largest
single issuer with USD172bn of aligned outstanding volume(see the Transport section). The second largest issuer is Electricite
de France SA with USD53.6bn aligned outstanding in the stronglyaligned category and USD5.3bn of green bonds (see the Clean
Energy section).

China Railway (strongly-aligned) is the largest issuer in the universeand has a AAA rating from local rating agencies.

As a cross check for publicly-listed companies, we used data fromthe FTSE Russell Green Revenues Model. USD61bn of climate-aligned
outstanding bond volume for fully-aligned issuers, and USD23bn forstrongly-aligned issuers, relates to companies on this list.

Bonds and Climate Change www.climatebonds.net September 20186

Climate-aligned bonds are an indicator of labelledgreen bond growth potential

The green label is an important tool to financegreen assets and projects

The universe of bonds from fully-aligned and strongly-aligned issuers
highlighted throughout this report indicates that there is huge
potential for the growth of the green bond market.

While the unlabelled climate-aligned figures are for the global
growth of climate finance, the green bond label is and will remain
an essential tool within the fixed income space for both investors
and issuers.

In the first year of publishing this report, there was no overlap
between labelled green bond issuance and fully-aligned issuers. Thisis changing as more issuers with green business lines are discovering
the value in the green bond label.
Below are various examples of how fully- and strongly-aligned issuers
have capitalised on their green bond issuance.
Fully-aligned issuers who have issued green bonds (42 issuers,
representing USD16.5bn outstanding)• An interesting feature of CGN Wind Energy’s green bonds(CNY1bn issued in September 2017 and June 2018) is that thesehave been their first perpetual bonds ever issued.
• Landsvirkjun’s debut green bond was their first deal issued on the
US private placement market.
• Nordex’s EUR550m green bond deal issued in 2016 was their very
first Schuldschein.
• Indian Railway Finance Corp’s green bond is one of the rare deals
issued in USD currency by the issuer (most bonds were issued inrupees). We observed the same for Korea Water Resources Corp:
their USD denominated green bond is one of the few deals in thiscurrency (the majority of bonds is in KRW).
Strongly-aligned issuers who have issued green bonds(10 issuers, representing USD8.3bn outstanding)• Verbund AG, a repeat Austrian issuer, placed a EUR100m
digital green Schuldschein in April 2018. It was the first issuance of
this type to be fully executed digitally using blockchain technology.

Opportunities for fully-aligned entities to issue
green bonds exist all across the world

80

200

70

175

125

40

100

1200

93
74

75

68
45

50

10

25

0

0

Water
USD170bn

800
Waste
USD8bn

UK
US
A
Fr
an
ce
Ch
in
C a
Ru anass da
ianF
Ge ed.
rm
an
y
In
di
A a
So ustut riahKorea

USD Billions

20

We honed in on specialised agencies with more than 95% of
their revenue derived from climate-aligned sectors (fully-aligned
issuers) and identified 1,436 issuers. At USD170bn, water accounts
for 64% of the identified bond universe and includes 1,141 issuers.
Transport comes in second with USD78.5bn outstanding (30%),
with the remaining 6% (USD18.5bn) split between waste,energy and land use. More information on this study can befound at https://www.climatebonds.net/resources/reports.

150

140 13950

30

In July 2018, Climate Bonds Initiative conducted a scoping
exercise and identified USD250bn of outstanding bonds from
specialised US municipal issuers, which are climate-aligned, but
not labelled ‘green’, and USD14bn of green bonds issued by 23of the agencies.

Bonds and Climate Change www.climatebonds.net September 2018

Number of issuers

60

The climate-aligned research conducted for this report screened
public and private entities across the globe. We did not,however, include US municipal agencies in the analysis of fullyor strongly-aligned issuers as their issuance volume can skew
figures significantly.

218 225

Number of Bonds

90

250

244

A different kind of fully-aligned issuer: US
municipal agencies

Water is the largest climate-aligned theme forfully-aligned US municipal issuers

Number of bonds
228

For investors, the label enables easy identification of green fixedincome products as well as enhanced transparency of the projects
being financed and their impact.

Refinancing needs from fully-aligned US Municipal issuers offer
an opportunity to label bonds and consolidate US municipals’
position in the green bond market.

Top 10 fully-aligned issuer countries
100 253

For issuers, it can provide much-needed finance for low-carbon
assets while also signalling sustainability aspirations and enabling
access to a wider investor base.

400
EnergyUSD2.6bn
0

Land use
USD4.8bn

Transport
USD78.5bn

The chart above includes USD14bn of outstanding labelled green bonds
issued by fully-aligned US Muni issuers.

7

Climate-aligned issuance across the world
Climate-aligned issuance*>25bn
10-25bn
1-10bn<1bn
0* Includes outstanding unlabelledbonds from fully- and stronglyaligned issuers and green bondissuance. Excludes fully-aligned US
Muni issuance referred to on p7.

Green bond issuance>25bn
10-25bn
1-10bn<1bn
0Number ofbonds

Number ofissuers

RegionOutstandingaligned (USD)21

12

Africa1,298m8

8338,073m

1,519

312

Asia-Pacific

84,455m251

162

Europe509,444m

1,418

309

Europe145,343m

397

153

Global

43,050m

216

10Global

43,050m

216

10Latin America

15,891m

156

50

Latin America

6,171m23

20

North America

241,308m

2400

229

North America

108,134m

1999

145

RegionOutstandingaligned (USD)

Africa1,646mAsia-PacificBonds and Climate Change www.climatebonds.net September 2018

Number ofbonds

Number ofissuers8

Fully climate-aligned issuance>25bn
10-25bn
1-10bn<1bn0Strongly climate-aligned issuance>25bn
10-25bn
1-10bn<1bn
0RegionOutstandingaligned (USD)

72

Africa69m

6

2

89,638m

763

110

Asia-Pacific

213,990m

505

40Europe291,192m

895

134Europe72,908m

126

22

Global0m

00Global0m

00Latin America

8,270m116

28

Latin America

1,451m17

2

North America

107,194m

324

68

North America

25,980m

77

16

Outstandingaligned (USD)

Africa279m

Asia-Pacific

Number ofbonds

Number ofbonds

Number ofissuers

RegionBonds and Climate Change www.climatebonds.net September 2018

Number ofissuers

9

SECTOR ANALYSIS

Transport retains top spot for allocations, but its
share in the climate-aligned universe is falling
Waste
Land use
Water
Buildings

Adaptation
Industry

100
80
60

Multi-sector40

Latin America
Global2013 2014 2015 2016 2017 2018
At USD532bn outstanding, transport is the largest theme in the
climate-aligned universe. Its annual outstanding share in the universe
has decreased from 61% in 2013 to 30% in H1 2018. In part, this reflects
market trends such as increased multi-sector and buildings-related
green bond issuance. In part, it also reflects our expanded screening
methodology which has picked up more issuers from other sectors.

Transport tops the climate-aligned universe

North America
Asia-Pacific

Water
8%
Multi-sector
15%

Transport
44%

Energy23%
The multi-sector theme comprises primarily green bonds. Out of
the USD179bn outstanding aligned amount, energy has the largest
allocation at 34%, followed by buildings (21%), transport (17%) andwater (11%).

Over 40% of investment grade bonds come fromthe transport sector

0

200

400

600

In Asia-Pacific, climate-aligned bonds from the transport theme total
USD241bn outstanding. Chinese bonds account for the bulk of theamount, but transport is also a large theme in Europe (USD207bn),with France and the UK in the lead for issuance.
At USD147bn, energy ranks second in terms of European deals andoutstanding bonds from France represent the highest volume, wellahead of other European nations.

Largest number of issuers is in Energy

Share

Bonds

Bond
issuers

Theme

Amount(USDbn)Energy

271

23%

292

1,139

Multi-sector

179

15%

177

600

Transport

532

44%

131

1,361

Buildings

72

6%

102

1,843

Water

101

8%

89

564

Land use

37

3%

50

166

Waste

7

1%

26

55

<1%

2

2

100%

869

5,730

Referencecase studies
0.04
Other
1,199

Total

Water and transport bonds tend to be longer dated

Transport

Up to 5Y

EnergyMulti-sector

5-10Y

10-20YOver 20Y

Perpetual

N/A

80

100

Waste

Water

Land use

Buildings
Land use

Buildings

IG

Waste
Industry
Adaptation
USD Billions

USD Billions

Energy has the highest number of climate-aligned issuers of all
sectors analysed (292) while the Buildings sector has the largest
number of bonds outstanding at 1,843.

Land Use 3%
Buildings 6%

Waste 1%
Adaptation &Industry <0.01%

Land Use
Waste
Buildings
Industry
Adaptation

EuropeTransport

0

Transport
EnergyMulti-sector
Water

AfricaEnergy20%

Asia-Pacific has largest volume of transport issuance

Water

Non-IG

Multi-sector

NR

EnergyTransport

0

200

400

600

0%

20

40

60

Energy and multi-sector issuers combined account for 30% ofinvestment grade deals. We note that it is possible that some of the debt
identified as unrated is rated by local agencies but this is not reflected on
Bloomberg and Thomson Reuters EIKON or the debt is privately rated.

Outstanding water and transport bonds tend to be long-dated (10Yor longer tenors), while multi-sector issuers, which include primarily
banks and government, tend to issue shorter deals (up to 5 years).
Energy has the highest outstanding amount of perpetual bonds.

Bonds and Climate Change www.climatebonds.net September 201810

Low-carbon transport
Transport remains the largest climate sector

96% of outstanding bonds are investment grade

With USD532bn outstanding, transport makes up 44% of the overall
climate-aligned universe. As the second largest contributor to global
GHG emissions, the transport sector contributes 30% of man-madeCO2 emissions in developed countries and about 23% of total manmade emissions worldwide.1 There is widespread agreement that
we need to reduce CO2 emissions from transport by at least 50% by
2050 at the latest. Effective measures include the transition to low
emission transport and EV technology innovation. Asia-Pacific is thebiggest region for climate-aligned bonds issuance in the transport
sector, followed by Europe.

Asia-Pacific tops the list by volume and bonds
USD amount outstanding
300

600
400

USD Billions

257

100

200
16

0
AsiaPacific

EuropeNorth
Latin
America America

100Number of Bonds

460
200

AfricaStrongly-aligned

Green bond

Outstanding (USD Billions)

600

Green bond

AAA
AA
A
BBB
<=BB
NR
50

100

150

AAA-rated bonds are dominated by strongly-aligned issuers while
fully-aligned issuers make up 82% of the AA-rated band.

CNY and EUR deals account for almost 60% of
outstanding debt
USD
18%

INR 3%

GBP
9%
RUB 3%EUR
22%

CHF 2%
JPY 2%

Other 12%KRW 1%

Others 4%

CNY
36%

400
200

200

Almost three-quarters of aligned outstanding bonds are rated A orabove and 96% are investment grade. This is primarily due to the factthat transport sector issuers are typically government agencies orcompanies backed by government. Examples include Canada National
Railway, Japan Central Railway, China Railway and UK’s Network Rail.

Fully-aligned transport companies make up 52%
of outstanding volumes
Fully-aligned

Strongly-aligned

USD Billions

Number of bonds

618

Fully-aligned

Transport sector issuance is denominated in 25 currencies with CNY
making up the largest proportion as a result of China Railway being
the largest climate-aligned bond issuer.

0
2013

2014

2015

2016

2017

2018

Although transport remains the largest sector, its proportion ofaligned outstanding bonds is now much lower than for 2013 due tothe increasingly diversified issuance from other sectors. As of theend of June 2018, fully-aligned low-carbon transport companies
contribute USD278bn, accounting for 52% of the sector, whilestrongly-aligned issuers make up 43% and labelled green bonds
account for 5% of outstanding climate-aligned bonds.

China Railway is the largest climate-aligned issuer
China Railway Corporation retains the top spot on the list witha total of USD172bn outstanding. This year, the company wasreclassified as a strongly-aligned issuer as ‘non-green’ revenues
generated from real estate and highway infrastructure areslightly in excess of 5%. In China, a clear national target has
been set to extend the country’s high-speed railway network to
30,000km by 2020.2 As the developer and operator of China’s
massive high-speed railway networks, China Railway is expected
to retain its leading position.

Bonds and Climate Change www.climatebonds.net September 2018

Transport issuers favour long tenors
A key feature of the sector is that bonds tend to have longer tenors.
This reflects the underlying nature of transport projects, which
typically have long construction and operation periods. The longtenors facilitate liability matching for institutional investors.
Fully-aligned low-carbon transport companies have the largest proportionof outstanding climate-aligned long-term bonds. Two-thirds havea tenor of 10 years or more. This compares to 51% for labelled green
bonds and 32% for strongly-aligned bonds. The average tenor ofoutstanding bonds in the transport sector is 12 years.
Up to 5Y

5-10Y

10-20YOver 20Y

Perpetual

100

200

300

Green bond
Fully-aligned
Strongly-aligned
USD Billions

0

11

Rail dominates the Transport sector
EV 2%
Mass transit 7%

Bicycle <1%
Shipping <1%

Mass transit(USD39.1bn outstanding aligned, 37 issuers, 171 deals)
AAA

AA

A

BBB

NR

Over 10Y
5-10Y
Up to 5Y
USD Billions

Railway
90%
Railway companies make up 90% of the Transport sector. They areusually large state-backed entities with a long history of issuing debt.
The size of financing tends to be larger due to the massive scale ofinvestment needed in railway infrastructure.

Railway(USD481bn outstanding aligned, 80 issuers, 1130 deals)
Freight Rail 10%

Railway
Conglomerate
68%

Comprehensive
17%
Railway Infrastructure 4%
Passenger Rail <1%
Railway Manufacture <1%
Railway Services <1%

Although railway construction and operation unavoidably have acarbon footprint, the climate impact is considerably less than othertransport modes such as road and air. According to the International
Energy Agency and the International Union of Railways, rail energy
consumption per passenger/km and per freight tonne/km decreasedby 27.8% and 18.1% from 2005 to 2015, contributing to CO2 emission
reduction by 21.7% and 19.0% respectively during the same period.1
Therefore, railway is considered to be one of the most important
low-carbon transport modes because of its relatively energy efficientfeatures. A variety of railway assets, including tracks, rolling stock,signals, controls and communications facilities as well as dedicatedtunnels, bridges, and viaducts, have been recognised as eligible
assets for climate-aligned bonds from railway companies.
A total amount of USD481bn bonds outstanding from railway issuers
has been identified as climate-aligned.
The largest theme in this sub-sector is railway conglomerates(68%), whose business activities range from railway infrastructure
construction to rail operations and other services. This includes
companies such as China Railway and Network Rail.
Railway operating companies make up 28% of the Railway subsector. This includes comprehensive railway operators such as
Central Japan Railway which provide both passenger and freighttransport services. Dedicated passenger rail service providers include
Kowloon-Canton Railway and Keisei Electric Railway. An example offreight rail operators is Union Pacific Railroad.

5

10

15

20

This sub-sector includes coach, bus, BRT, metro, and light rail
operators who provide urban or intercity passenger transport
services. With USD39bn outstanding, Mass Transit represents 7%of the Transport sector. Like railway issuers, it is common for masstransit operators to issue long term-debt with a high rating. 52% of
the outstanding climate-aligned bonds have a tenor of more than 10
years, and 75% carry a rating of A or above.
Metro and light rail is the largest theme, making up three-quarters of
this sub-sector, followed by bus and light rail companies. Fully- andstrongly-aligned issuers primarily comprise metro operators, such as
Guangzhou Metro, Transport for London, Tokyo Metro, Hong Kong
MTR, Prasarana Malaysia, etc.
Metro companies often hold assets such as shops or property
around stations. Some metro companies don’t meet our green
revenue threshold for full alignment due to the large proportionof revenue coming from property assets or other non-relevantbusiness lines, so their bonds are not included in this research.
However, we are supportive of the land value capture modeland metro operators are encouraged to apply it to finance metro
projects. We have seen labelled green bonds issuance from bothHong Kong MTR and Nanjing Metro, using land sale or lease tosupport metro network expansion.

EV and hybrid vehicles(USD11.7bn outstanding aligned, 10 issuers, 57 deals)
This sub-sector is primarily composed of climate-aligned bonds fromfully-aligned EV manufactures (e.g. Tesla) and labelled green bonds.
These account for 42% and 46% respectively.
Auto manufacturers featured for the first time in our green bond list in
2014: Toyota’s Auto ABS raised funding for Toyota to provide vehicle
leases and loans on electric and hybrid vehicles. Auto financing companies
such as Volvofinans Bank and Hyundai Capital Services, and conventional
car manufactures including BAIC Motors and Geely are among the labelledgreen bonds issuers. Chinese company TGOOD, the biggest E-Vehicle
charging solution provider worldwide, brought to market the only (todate) green bond that solely finances an EV charging station network.
FDG Electric Vehicles, who recently received an order of 500 EV
trucks from a US fleet leasing company,2 joined Tesla as the second
pureplay EV manufacturer recorded in our database.

Other(USD101m outstanding aligned, 3 issuers, 3 deals)

Bonds outstanding from issuers operating as rolling stock
manufactures, railway infrastructure constructors and signalling andother services providers account for 4%.

A few climate-aligned bonds have been issued from other subsectors, including bicycle manufacturing and shipping. Nippon Yusen
Kaisha’s labelled green bond is the first shipping bond in our database.
Although it finances LNG-powered assets, we included it as the GHG
emissions targets are clear and the assets financed by NYK’s bond are
currently the lowest emission asset option for long-haul shipping.

Bonds and Climate Change www.climatebonds.net September 201812

Clean energy
Energy is the second largest theme of the climatealigned universe
The energy sector is the second largest climate theme after transport
and accounts for 23% of climate-aligned outstanding bonds, or
USD271bn. In order to meet the goals of the Paris Agreement as wellas support the SDGs, and in particular goals 7, 8, 9 and 13, renewableenergy investment must scale-up quickly.

Green bond

300

The most prolific fully-aligned issuers are from India, China andSouth Korea. Fully-aligned bond issuers offer a greater exposure to
emerging markets: 60% of their outstanding bond number compared
to 27% for strongly-aligned issuers and 28% for green bonds.

200
100

USD22bn of bonds outstanding from fully-aligned issuers will matureby 2020, and an additional USD40bn by 2025. This could be an
opportune time to refinance with labelled green bonds.

0
2013

2014

2015

2016

2017

2018

Labelled green bonds with energy allocations represent a thirdof the outstanding sector amount (USD90bn). A further 37% arecontributed by unlabelled climate-aligned bonds issued from fullyaligned entities (USD99bn). The rest (USD82bn), are from stronglyaligned issuers. Over the years, the proportion of outstanding green
bonds has increased in the energy theme.
Green bonds issued by strongly-aligned entities represent 3% of thetotal debt outstanding of these entities. By contrast, green bonds
from fully-aligned issuers represent 18% of their outstanding debt.
There is sizeable potential for climate-aligned issuers to make thegreen credentials of their debt more visible to investors and forinvestors to contribute to growing the green bond market.
35 countries are represented by energy companies with 75% or moreof ‘green’ revenues. The top 5 are France (USD54bn outstanding),
China (USD27bn), Canada (USD19bn), USA (USD15bn) and Norway(USD12bn). There would be an opportunity for entities in the RussianFederation, Kazakhstan, Portugal, Thailand, Israel, Kenya and Bulgaria
to become the first national green bond issuers in these markets.
The split by emerging versus developed markets is somewhat different
to green bonds. The share of emerging markets for fully climate-aligned
issuance is 46% of the outstanding bonds, whereas it is 17% for green
bonds. This again, suggests that there is potential both for investors
and issuers to leverage green finance within emerging market nations.

Europe accounts for over 54% of Energy bonds

Fully- and strongly-aligned issuers show different
bond characteristics
Up to 5Y

5-10Y

10-20YOver 20Y

Perpetual
N/A

80
60
40
USD Billions

Cumulative outstanding (USD Billions)

Strongly-aligned

The fully-aligned universe features a wider range of currencies
and a greater exposure to emerging markets than the green
bond market. By contrast to Energy green bonds where 89% of
outstanding debt is in hard currency, it is 51% for bonds from fullyaligned issuers. Currencies such as RUB, THB and ILS are solely
available from climate-aligned bonds.
65% of outstanding bonds from fully-aligned issuers areinvestment grade. Within these, more than three-quarters of theoutstanding volume is in currencies other than USD or EUR. Investors
will find more EUR and USD denominated investment grade bonds
from green and strongly-aligned bond issuers.

Green bonds for energy make up a third of
cumulative aligned outstanding volumes
Fully-aligned

A market for all shapes and sizes

20
0
USD &
Other
USD &
Other
USD &
Other
EUR currencies EUR currencies EUR currencies
Strongly-aligned

Fully-aligned

Green bonds

Strongly-aligned issuers give investors the opportunity to accesslonger-dated bonds and a higher proportion of investment grade
deals. Power companies such as EDF, Vattenfall and Fortum Oy arepart of the largest size bucket.
Bonds issued by strongly-aligned entities offer a greater choice of
longer-dated bonds compared to green and fully-aligned climate
bonds. 33% have tenor of 20 years or more, including from EDF,
Vattenfall, Toronto Hydro and Fortum Oy.

RegionAmount(USDbn)Issuers

Deals

% IG
rated

Hard
CCY

Europe

147

102

401

73%

99%

Asia-Pacific

62

104

473

73%

24%

N America

54

64

194

77%

99%

Latin America

7

20

66

31%

25%

Africa

0.3

3

3

0%

51%

Supranational

0.2

2

2

100%

99%

Total

271

298

1,139

-

-

By 2025, USD36bn of bonds from strongly-aligned entities will reach
their maturity. 79% of the amount is currently investment grade anddenominated in hard currency.

Bonds and Climate Change www.climatebonds.net September 201813

5 to 10 years is the largest bracket for green bonds in the energy
space (48% of outstanding bonds) as well as for bonds from fullyaligned issuers (38% of outstanding bonds).
Strongly-aligned issuers tend, on average, to issue more investment
grade bonds compared to green bond and fully-aligned issuers. 73%
of the number of their bonds are investment grade, which comparesto 42% for green bonds and 47% for fully-aligned issuers.

Energy sub-sector characteristics
A large part of the outstanding aligned bonds finances a mix of atleast two clean energy sources. Hydro comes second and accounts for
20% of outstanding bonds. Solar is in third position at 6%, followedby nuclear 3% and wind 3%. The remaining 2% is contributed bygeothermal, bioenergy and battery/energy storage companies.

Two-thirds of outstanding climate-aligned bonds
finance diversified clean energy sources
Hydro
20%

Others 2%
Wind 3%
Nuclear 3%
Solar 6%More analysis on each energy sub-sector can be found below.

Renewable energy (mix)Renewableenergy (mixed)
66%

USD180bn outstanding aligned,
142 issuers, 542 deals
The top 3 fully-aligned issuers are Orsted (Denmark) with
USD7.3bn, including USD1.5bn of green bonds, Korea Hydro &Nuclear Power (USD7bn, including a USD600m green bond),
and Statkraft (Norway, USD3.9bn). Emerging markets accountfor half the outstanding bonds in the sub-sector and include
Kazakhstan, Philippines, Malaysia and Thailand, for example.
For strongly-aligned issuers, French utility EDF (USD59bnaligned share of outstanding bonds, which includes USD5.3bn
worth of green bonds), NextEra Energy (USA, USD7bn) and
Vattenfall (Sweden, USD4.7bn) are in the top 3. Only EDF isa green bond issuer, and its green bonds represent 8% of its
outstanding debt. Developed markets account for the bulk of theoutstanding debt, but there are emerging market issuers from
China, Brazil and Kenya, too.

Solar

Hydro
USD54bn outstanding aligned,
36 issuers, 291 deals
The top 3 fully-aligned issuers are Hydro-Québec (Canada,
USD13.8bn), China Three Gorges (USD10.3bn, including
USD295m of green bonds) and NHPC (India, USD6.1bn). HydroQuébec and NHPC have yet to issue a green bond. Examplesof fully-aligned issuers which have already entered the green
bond market to finance hydro projects include Norway’s BKK
and Iceland’s Landsvirkjun power company. Emerging markets
account for half of the outstanding debt from hydro companies.
China, India and the Russian Federation are in the top 3.
The top 2 strongly-aligned entities are Toronto Hydro (Canada,
USD1.7bn) and Emgesa (Colombia, USD1.2bn). They have yet toissue a green bond. In terms of emerging markets, issuers from
Colombia and India have a good potential.

USD14.8bn outstanding aligned,
51 issuers, 150 deals
32 fully-aligned climate bond issuers account for most of the debt
outstanding in the solar sub-sector. The top 3 are US companies
Solar Star Funding (USD2.5bn), Topaz Solar Farms (USD958m)
and SunPower (USD825m). Emerging markets account for 32%
of the outstanding debt, with China leading. Thailand and Taiwan
are respectively in the second and third position.
US issuers are also very active in the green bond space. Tesla
Energy (previously SolarCity) is the largest issuer, followed bySolar Mosaic and Vivint Solar.

Nuclear
USD9.2bn outstanding aligned,
7 issuers, 42 deals
Teollisuuden Voima Oy (Finland) has the largest amount of debt
outstanding amongst fully-aligned issuers (USD3.3bn), followedby Kernkraftwerk Leibstadt (Switzerland, USD524m) and The
Japan Atomic Power Company (USD464m). China National
Nuclear Corporation (USD2.7bn aligned share) and China General
Nuclear Power Corporation (USD1.3bn aligned share) are the only
two strongly-aligned issuers in our list.

Wind
USD8.9bn outstanding aligned,
36 issuers, 71 deals
The top 3 out of the 22 fully-aligned issuers are Chinese company
CGN Wind Energy (USD1.2bn, including USD469m of green
bonds), Iberwind (Portugal, USD857m) and Continental Wind
(USA, USD494m). Nearly half the outstanding amount from thesub-sector comes from emerging markets issuers from China, India,
Peru, Mexico and South Korea.
Fully-aligned entities have already issued a sizeable amount ofgreen bonds, e.g. CGN Wind Energy, Nordex (Germany), Envision
Energy Overseas Capital (China), Energia Eolica (Peru), CPL Wind
Farms (India), Arise (Sweden), CECEP Wind Power Corporation(China) and Hero Wind Energy (India). Most of the debt
outstanding of companies cited here comes from green bonds.

Bonds and Climate Change www.climatebonds.net September 2018

Geothermal
USD1.9bn outstanding aligned,
7 issuers, 14 deals
No strongly-aligned issuers have any outstanding debt
in this sub-sector. Four fully-aligned issuers account for 18%
of the outstanding amount; the largest being the Ormat
Technologies (USA).
Contact Energy (New Zealand), Star Energy Geothermal Wayang
Windu (Indonesia) and AP Renewables (Philippines) have alreadyissued green bonds for geothermal energy.
Emerging markets represent 45% of the outstanding amount forthe sub-sector. Indonesia is leading the category, followed by thePhilippines, Brazil and Iceland.

14

Bioenergy

Battery and energy storage

USD1.2bn outstanding aligned,
13 issuers, 20 deals

USD1bn outstanding aligned,
6 issuers, 9 deals

Only companies focusing on sustainable bioenergy production
were selected. Fully-aligned issuers account for 93% of theoutstanding debt from the bioenergy sub-sector. The top 2 issuers
included are the American Darling Ingredients (USD500m) andthe Thai company Energy Absolute (USD229m). Thailand andBulgaria are the two emerging markets in the category.

Fully-aligned entities account for 91% of the outstanding debt
from the sub-sector. Most issuers are from emerging markets andin particular, China.

Controversies in hydro and nuclear power
Bonds from fully- and strongly-aligned issuers in the energy theme
represent a wider range of energy generation types than is currently
eligible under the Climate Bonds Standard and Certification Scheme– in particular, nuclear and hydro power. Both of these electricity
generation types have the potential to provide large-scale and lowcarbon power that could meet baseload power demands. However,both power types can be controversial and require stringent criteria
and standards in place in order for them to be included. In theabsence of such criteria, they have been integrated into this report
but may be excluded in the future as criteria are developed.
While hydro issuers in this study have not undergone a controversy
screening process (the main challenge being to assess all of the

In the green bond space, Guoxuan High-Tech issued a CNY500m
green bond in April 2018 to set up a lithium battery project by
their new energy subsidiary.

issuers’ projects one by one), the following criteria have been put inplace for green bonds related to hydropower: run-of-river, existing
reservoirs or new reservoirs with high density (preferably for >5W/
sqm or higher) are eligible. These projects are included unlessthey are controversial due to loss of habitat/biodiversity and/or
displacement of people or with weak social/environmental impact
assessment (if publicly available).
To date, no green bonds financing nuclear power have been includedin the Climate Bonds labelled green bond database. When screening
nuclear issuers for the purpose of this study, preference was given to
entities engaging in the operation and/or decommissioning of nuclear
power plants. Mining activities were not considered as climatealigned and are excluded under the Climate Bonds Taxonomy.

Water management
Water is the fourth largest climate-aligned sector
The Water sector accounts for 8% of the total aligned universe, or
USD101bn. Within the sector, labelled green bonds with proceeds
allocated only to water represent 17% of the theme (USD17bn). 81%
are unlabelled bonds issued from fully-aligned issuers (USD81bn)
and 2% from strongly-aligned issuers (USD1.7bn).

Europe accounts for 63% of water-themed bonds

Green bonds represent 17% of outstanding
issuance in the water theme

RegionAmount(USDbn)Issuers

Deals

% IG
rated

Hard
CCY

Europe

63.4

23

231

94%

99%

Asia-Pacific

19.7

21

190

80%

15%

North America

15

30

87

99%

99%

50

Latin America

2.3

10

54

<1%

15%

25

Africa

0.1

1

2

-

100%

0

Total

100.5

85

564

-

-

Fully-aligned
Cumulative outstanding (USD Billions)

It is crucial that there is a growth of bonds financing water
infrastructure across a diverse range of geographies. Water stress issubstantially impacting emerging markets,4 aggravated by the lackof investment in resilient infrastructure. Global Water Intelligence
has estimated that USD450bn of annual investment5 is required toachieve the SDGs on water and sanitation by 2030.

Strongly-aligned

Green bond

100
75

2013

2014

2015

2016

2017

2018

The market is still heavily focused on developed markets. Issuers from theUK, France and USA represent 77% of the sector’s aligned outstanding
volume. Corporate issuers are more active in the English and Frenchmarkets. In the US, most of the outstanding issuance comes from local
government. Climate Bonds’ briefing on US municipalities3 identified
Water as the largest sector, with more than 1,140 fully-aligned issuers and
USD170bn of bonds outstanding (not included in this report’s analysis).

Bonds and Climate Change www.climatebonds.net September 2018

Bonds in the water sector tend to be longer dated. The largest tenor
bracket is over 20 years and represents 39% of aligned outstanding
issuance. A quarter of outstanding issuance falls in the 10-20Y range
and a fifth in the 5-10Y category.
By 2025, USD41bn of water bonds will have matured, including
USD34bn from fully-aligned issuers. Refinancing under a green label
would improve visibility and possibly disclosure.

15

GBP issuance dominates water theme
BRL 2%
Others 2%

CNY
KRW 7%
9%
GBP
42%

USD
17%

(USD1.5bn outstanding aligned, 7 issuers, 20 deals)
The largest outstanding amount of bonds comes from English
company Affinity Water Programme Finance (USD1bn), followedby Thai TTW PCL (USD204m) and state-owned Umgeni Water
Services (USD140m), the largest supplier of bulk potable water in theProvince of KwaZulu-Natal, South Africa.

Water treatment

EUR
21%

(USD19.1bn outstanding aligned, 16 issuers, 215 deals)

42% of outstanding bonds in the sector are GBP-denominated,largely made up of bonds from fully-aligned issuers (50% of bonds
from fully-aligned issuers are in GBP). CNY is the dominant currency
for strongly-aligned bonds, whilst USD accounts for most of thegreen bonds outstanding (60%).
Water bonds are overwhelmingly investment-grade rated: 90%
overall, 91% for fully-aligned issuers, 81% for strongly-aligned bonds
and 84% for green bonds. From the identified universe, only fullyaligned issuers have issued sub-investment grade bonds and these
represent 6% of their outstanding bonds.

Water treatment& supply
66%

Water supply

Water
treatment
19%

Water Supply 1%
Water treatment &supply and Waste
management
14%

Fully-aligned issuers in the sub-sector account for 60% of debt
outstanding. The largest is Korea Water Resources with USD10.2bn
outstanding, including USD300m green bonds. Bazalgette Finance(UK), the financing vehicle for the Thames Tideway supersewer,
comes second with USD1.9bn outstanding, including USD1bn ofgreen bonds.
86% of bonds outstanding by number originate from emerging
markets. South Korea and China account for the most deals.
Large green bond issuers include China Development Bank and US
municipal New Jersey Infrastructure Bank.

Water treatment & supply and waste management(USD13.7bn outstanding aligned, 12 issuers, 38 deals)
French utility Suez is the sole fully-aligned issuer identified in the
sub-sector, with USD10.7bn worth of bonds outstanding. Its activities
are split between water treatment and waste management.
No strongly-aligned issuers have been identified in the sub-sector.
In terms of green bond issuers, US local governments account fornearly all of the green bonds outstanding in the sub-sector.

Controversies
A sub-sector analysis shows that 80% of aligned outstanding bonds
were raised for a mix of services. Green bonds have been issued tofinance all of the sub-sectors.
The water sector accounts for the highest share of adaptation andresilience integration8 in the green bond market. Netherland’s NWBBank highlights how municipal banks can issue green bonds toprovide loans to local water authorities to fund water projects that
integrate adaptation components.
One of the latest developments in the sector comes from Kenya
Pooled Water Fund which is planning a 1.5bn Kenyan Shilling bond
(USD14.8m)9 this year to fund water utilities. This is a welcome
initiative as public entities remain the dominant players in this field.

Water treatment and supply(USD66bn outstanding aligned, 54 issuers, 291 deals)
384 fully-aligned issuers account for most of the outstanding amountunder the Water sector (87%, USD58bn). The top 3 by outstanding
debt are Thames Water (UK, USD12bn), Veolia Environnement(France, USD10.2bn) and Water Capital (USA, USD4.5bn).

Water is a fundamental human right. Yet, freshwater represents only
0.5% of total potable water available.6 Access to and consumption ofwater is highly unequal across the globe, putting an additional strain
on vulnerable nations already greatly exposed to climate change.
While our screening process did not account for controversies,
we acknowledge that certain activities by issuers have been undercriticism. Financial sanctions have been applied to an increasing
number of firms found to be breaching laws by committing
environmental offences.7 Other issuers have been reported to be
involved in anti-competitive behaviour, which artificially inflates
market prices.
The contractual relationships between water providers andmunicipalities have also been under increasing scrutiny. The
concern is that they are not fostering the right incentives for waterproviders to keep investing in infrastructure, which in turn results in a
substantial number of leakages and water loss.
Lastly, some controversies revolve around tax havens and the factthat several water utilities have a separate financial entity registeredin more tax lenient countries.

17 out of the 38 fully-aligned entities in this sub-sector are UK based.
English water utilities are privately held and often raise debt throughan offshore dedicated finance subsidiary.
The top 3 green bond issuers are Ibank (USA, USD1.3bn), Beijing
Enterprises Water Group (China, USD1.1bn) and San Francisco Public
Utilities Commission (USA, USD1bn). All others are US based.

Bonds and Climate Change www.climatebonds.net September 201816

Low-carbon buildings
Green bonds dominate climate-aligned issuance
The decarbonisation of the buildings sector is paramount as it
accounts for more than 6% of total global GHG emissions, according
to the IPCC’s “Summary for Policymakers” 2014.10 The projected world
population growth, combined with increased energy access acrossthe globe will drastically increase the overall energy demand in the
sector and its related carbon emissions.
Directing significant proportions of investments towards energy
efficient buildings, equipment and materials provides substantial
opportunities to offset future energy demands and CO2 emissions.
In 2017, 59% of all energy efficiency investments went towards
the building sector, according to the IEA’s World Energy Investment
2018 report.11 Yet the buildings sector constitutes a 6% share of
the climate-aligned bond universe. The USD72.1bn outstanding is
allocated to funding certified buildings (57%), energy efficiency
upgrades (40%), FSC, MTCC and PEFC certified wood building
materials (2%) and LED manufacturers (1%).

Excluding green bond issuers, the largest issuer is Canadian producerof FSC and PEFC certified wood building materials Norbord Inc. It
is a fully-aligned issuer with USD555m outstanding. Overall, we
identified 7 other issuers in this sub-sector with a total of USD1.6bn
of outstanding bonds: Boise Cascade and Louisiana-Pacific Corp.
(USA), West Fraser Timber (Canada), Kanger International (China),
Masisa (Chile), Dongwha Enterprise (South Korea) and Wood One(Japan). Most deals are private placements.
We also identified 4 LED manufacturers, all fully-aligned, with a totalof USD493m of bonds outstanding.
Almost 40% of outstanding climate-aligned debt is rated
investment grade. If Fannie Mae issuance – generally regarded as
low-risk due to its quasi-governmental status – is included, the figure
increases to 90%. Non-investment grade issuers almost entirelycomprise of fully- and strongly-aligned issuers, whereas green bondissuers are primarily investment grade.

38% of outstanding bonds are investment grade

Green bonds for certified buildings and energy
efficiency improvements dominate issuanceAAA
11% AA

40
30

8%Energy Efficiency
LED

USD Billions

20
10

A
13%

NR
59%

BBB 6%BB 2%
B 1%

Real Estate
Wood Buildings
Materials

US dollars dominate green bond issuance mainly due to Fannie Maevolumes. If issuance from Fannie Mae is excluded, EUR is the largest
currency (USD13.7bn), followed by USD (USD12.7bn) and Swedish
Krona (USD3.5bn).

0
2013

2014

2015

2016

2017

2018

There are many manufacturers that produce energy efficientequipment and systems, but we have not been able to identify
climate-aligned issuers among them due to the lack of revenue splits
in corporate accounts that would help us identify ‘green’ revenues.
Daikin Industries, for instance, produces HVAC equipment for green
buildings but its revenue streams cover other products too.
Green bonds represent 97% of outstanding climate-aligned debt.
Strongly-aligned issuers represent a negligible amount, with fullyaligned issuers accounting for almost all the remaining 3%. OverUSD41bn worth of green bonds has been used to finance certified
properties and USD29bn for energy efficiency improvements.
Fannie Mae dominates the sector with USD37.7bn of outstanding
green agency MBS allocated to loans for energy and water
efficiency improvements and mortgages on certified multifamily
properties. Fannie Mae’s green MBS represent over half the total
climate-aligned debt in the sector. The remaining outstanding debt
has been issued from a wide range of financial and non-financial
institutions. The next largest issuers are BerlinHyp, Obvion and theDevelopment Bank of Japan.
The US is the top country of risk at USD46.6bn of issuance. In
Europe, France, Germany, Sweden, Norway and the Netherlands
account for the largest volume of outstanding climate-aligned debt.
As of the end of June 2018, Sweden has issued the largest number ofgreen bonds: 44, far exceeding the European average.

Bonds and Climate Change www.climatebonds.net September 2018

70% of outstanding bonds are USD-denominated
EUR
19%

CHF 1%
ZAR 1%SEK 5%
Others 6%
USD
70%

CNY 1%
MYR 1%
Others 2%

The most popular issuance tenor across the building sector is
between 5 and 10 years with 60% of climate-aligned outstanding
debt falling in this tenor range.
Buildings sector allocations have been increasing, but there is still roomfor growth. Energy efficiency has become increasingly important togovernments and policy makers who are aware of the benefits associatedwith implementing large-scale energy efficiency programmes acrosscountries such as improved energy security and lower final energy demand.
Most of these programmes require public investment to support
subsidies and/or incentive schemes as well as R&D to improve theproducts’ energy performance. Green bonds represent an effective
financial tool to raise such capital. Securitisation has proven to beeffective in refinancing small energy efficiency loans.

17

Property companies are hard to classify
Many property companies, REITs, house builders and funds own
certified green buildings, develop energy efficient buildings and/or have invested in energy efficiency upgrades. However, thisinformation is rarely clearly delineated in corporate reporting.
Consequently, our multi-faceted screening methodology did not pickup any fully- or strongly-aligned issuers.
Instead, we considered other metrics to identify best performers.
For example, Klepierre, CapitaLand and Gecina provide morecomprehensive environmental reports, which include key
performance indicators such as GHG emissions and energy efficiency
improvement measures introduced in new building projects. Thisapproach represents an initial step towards improved best practicereporting, including increased disclosure on GHG emissions
reductions and on certified buildings – number, share of total stock,certification programmes and level achieved.
In its recently published 2018 CSR report,12 French property company
Klepierre, for instance, reports that in 2017 75% of its assets
were certified buildings and it is targeting 100% green building
certification by 2022. We hope we will be able to include Klepierrein the climate-aligned bond universe in the future, along with anincreasing number of property companies if they start reporting
more extensively on building certifications and energy performance
improvements, and the associated revenues.
We do not feel there is a single metric that captures the multi-faceted
nature of what would define a ‘green’ property company. Instead, we
considered a variety of metrics to form a broad view.

Property Company
or REIT

Klepierre

In addition to annual accounts and other corporate reports, weconsidered the following external resources:• CDP’s A list,13 which scores companies according to their extent ofenvironmental data disclosure;• GRESB public disclosure list14 which awards property companies
based on ESG performance (gold winners only);• EPRA BPR Awards15 which scores property companies
according to their successful adoption of EPRA BPR Guidelines(gold winners only);• Sustainalytics16 and Robeco SAM17 ratings, which rate companies
according to their ESG performance (more information on their
methodologies is available on their websites);• Bloomberg’s green building flag;• Disclosure on certified green buildings;• Green bond issuance.
Each resource ranks or includes the relevant property company
in their list according to different metrics, which are ultimately
complementary and underpin corporate engagement inenvironmental performance measurement and disclosure. The tablebelow provides a sample list of property companies which tick themost boxes using these reference points.
The combination of climate-related disclosure and revenue splits
which identify ‘green’ revenue could help us identify companies
which could be included in the climate-aligned bond universe.

CDP
A list
2017

GRESB
Gold
winnerEPRA
Gold
winner

X

X

X

92.8

X

X

Gecina SA

Bloomberg
green
building tag

Greenbuilding
certification

100

X

X

98.9

98

X

X

90.1

96

X

X

Sustainalytics
score

CapitaLand Ltd

Robeco
SAM
score

British Land PLC

X

X

97.2

90

X

X

Hammerson PLC

X

X

91.7

85

X

X

Unibail-Rodamco

X

X

99.4

72

X

66. 7

100

X

X

96.7

58

X

X

63.5

76

X

X

-

91

X

X

Sekisui House
X

Icade

X

Ventas Inc
Stockland

X

Bonds and Climate Change www.climatebonds.net September 2018

Green
bond
issuer

X

X

X

18

Small sector with big opportunities for switchingfrom vanilla to green issuance

Fully-aligned companies dominate issuance at 82%

Agriculture and forestry play a crucial role in achieving global
decarbonisation targets. In 2014, the IPCC estimated18 that these
two sectors account for approximately a quarter of anthropogenic
emissions. The implementation of sustainable agricultural practices
is necessary for the industry to successfully reduce emissions, adapt
to changes in weather patterns, and withstand the pressures placedon food security by population growth. Simultaneously, limiting
deforestation and forest degradation is imperative to ensure that
forests act as a net carbon sink rather than a GHG emitter.

Cumulative outstanding (USD Billions)Sustainable land use

Despite the need for more finance flows directed towards addressing
climate impacts on these sectors, this theme remains small. It
accounts for USD37.3bn or just over 3% of the climate-aligned
bond universe.
Identified land use companies have been divided into five subsectors according to their main areas of operation (with no overlap):
Containers & Packaging, Forestry, Forestry & Adaptation, Forestry &Paper, and Paper. No ‘green’ agriculture issuers were identified.

Containers & packaging issuers dominate volumes
Containers & packaging
Forestry & paper

Forestry

Forestry & adaptation

Paper

Fully-aligned
Strongly-aligned
Green bond
USD Billions

0

10

20

30

Fully-aligned companies account for over 82% of aligned
outstanding bonds (USD30.4bn), with over half the volume
coming from containers & packaging companies (and 47% for thesustainable land use sector overall).

Fully-aligned

30
20
10
0
2014

2015

2016

2017

2018

Strongly-aligned issuance makes up 7% at USD2.6bn, withapproximately three-fifths of deals coming from paper companies
including Mercer International (Canada) and Nippon Paper Industries(Japan). Japanese containers & packaging company Oji Holdings
represents 22% of strongly-aligned volumes.
Swedish state-owned company Sveaskog, from the forestry & paper
sub-sector, is both a strongly-aligned and repeat green bond issuer
with a total of SEK2bn (USD242m) raised to finance FSC certified
forestry land holdings.
USD4.3bn of labelled green bonds have been issued to finance land
use related projects within this theme overall. Svenska Cellulosa
Aktiebolaget (SCA) was the first green bond issuer to allocate part of thedeal’s proceeds to sustainable forestry projects in April 2014. Nine moreissuers have come to market since. The Agricultural Development Bankof China is the largest issuer accounting for over a third of green bonds,
with proceeds allocated to sustainable land use, forestry and adaptation.
In Q2 2018, Landshypotek Bank issued the first green covered bondsecured on FSC and/or PEFC certified forestry assets. As the green
covered bond market expands, other issuers could follow their
example and use the dual-recourse debt structure to finance similar
projects in the forestry and sustainable agriculture space.

Over half of the outstanding bonds are USDdenominatedSEK 5%CNY
10%

The paper sub-sector represents 32% of fully-aligned figures and has
already seen green bond issuance. In September 2017, Brazilian paper
company Klabin came to market with a USD500m green bond20 tofinance FSC certified forest plantations, native forest restoration
and biodiversity conservation, as well as renewable energy, cleantransport, waste management, water management and adaptation
projects. In March 2018, Stora Enso (Finland) published a Green
Bond Framework21 which includes projects related to FSC and PEFC
certified forests among its eligible categories, signalling its intention
to enter the market.

USD
56%

Bonds and Climate Change www.climatebonds.net September 2018

Green bond40

Paper producers are the next largest segment. International Paper
Corporation (USA) is by far the largest issuer in the sub-sector andsector. At USD9.7bn, it represents 26% of volume. The company
benefits from FSC forest management, FSC Chain of Custody and
PEFC Chain of Custody certifications19 across its global operations.

10% of fully-aligned issuance comes from forestry companies suchas Weyerhaeuser Company (USA), included for its PEFC Chain of
Custody certified22 forests and manufacturing facilities.

Strongly-aligned

JPY
7%

EUR
15%
BRL 4%

Others 7%
Others 3%

88% of outstanding aligned bonds are denominated in hard currency,with USD deals representing the largest share at 56%. This reflects thegeographical distribution of issuers: half the deals were originated in
the US, 82% of which issued in local currency. Most companies from
Argentina, Brazil, Indonesia and South Korea have issued both in USD
and local currencies; likely to attract more international investors.
EUR is the second most popular currency at 15%, with the bulk ofdeals coming from European entities and 22% from UK packaging
and paper company Mondi Finance. CNY-denominated deals were
issued exclusively by domestic companies, with ADBC and Shandong
Chenming Paper Holdings accounting for 40% each.

19

69% of outstanding bonds are investment grade

Greening the agriculture sector

AA 4%
AAA 2%NR
B 10%
4%

The challenges facing today’s agricultural industry will have wide
ranging and cross-sectoral impacts, including exacerbating pressureson global food systems and landscapes, increasing health burdens
such as hunger and malnutrition and rising the risk of conflicts.

A
8%

Therefore, the transition to a climate resilient and sustainableagricultural sector will require a holistic approach in order tobe successful. The emergence of technological innovations
present new avenues for achieving emission reductions while
also tackling issues such as improving the food and nutrition
systems. Examples of these technologies include:

BB
17%
BBB
55%

• Hydroponic and vertical farming provide the opportunity to
optimise land use and reduce stress on resources.
• Yield enhancing technologies can increase crop productivity andresistance to extreme changes in weather while also reducing water
usage, and thus ensuring steadier revenue streams for farmers.

BBB is the largest ratings band at 55%, with deals from large fullyaligned companies including International Paper Co, WestRock andMondi Finance. 21% of issuance is rated BB+ or below, while 10% of
deals are not rated.

• Augmenting crop nutrient levels through fortification/
biofortification processes can contribute to tackling hunger
and malnutrition.

Breaking down rating by developed and emerging markets shows that
almost three-quarters of DM deals are investment grade compared toaround half for EM issuance. 29% of EM deals are not rated – almost
five times higher than DM – which could be due to deals being rated by
local agencies which have not been captured in our database.

The availability of such innovations presents significant
investment opportunities to help create an efficient and lowcarbon agriculture system.

Waste management
Waste management accounts for USD6.9bn ofoutstanding climate-aligned bonds
Fully-aligned

Strongly-aligned

Asia-Pacific is the largest region by both volume outstanding andnumber of bonds issued.
USD amount aligned

Green bond

30

30

3

20

2

6
4
2

12

1

2013

2014

2015

2016

2017

2018

We have identified USD6.9bn of outstanding climate-aligned bonds inthe waste management sector. According to UNEP, methane emission
from waste management activities, including waste collection, transfer
and treatment, contribute to global warming and climate change
significantly. In addition to the potential climate impact, some typesof industrial waste could also be hazardous to the environment.
The size of this sector is relatively small, with three quarters ofaligned outstanding bonds coming from fully-aligned companies,
10% from strongly-aligned and 16% from labelled green bonds.
The first labelled green bond in this sector was brought to market by
UK waste management company Shanks Group in 2015. The grouphas since merged into Renewi and is a repeat issuer.

Bonds and Climate Change www.climatebonds.net September 201810
00
Asia-Pacific013North America

Number of Bonds

8

USD Billions

Cumulative outstanding (USD Billions)

Number of bonds

EuropeInvestment grade bonds only make up 22% of the sector. 38% of
outstanding bonds in this sector are not rated, and USD860m of thatis labelled green bonds. This is partly due to municipality issuers, suchas City and County of Honolulu, California Pollution Control Finance
Authority and King County not seeking a rating for their green bonds.
AAA

Fully-aligned

AA

Strongly-aligned

BBB

Green bondBB
BNR
USD Billions

1

2

3

20

36% of outstanding climate-aligned issuance is USD-denominated.
The next most common currencies are CNY (27%) and EUR (18%).
While CNY denominated bonds had the highest proportion of AA
and AAA ratings (83%), it is worth noting that all Chinese issuers
only used local rating agencies.

Recycling(USD2bn outstanding aligned, 7 issuers, 26 deals)
Fully-aligned

Strongly-aligned

Green bond

Up to 5Y

EUR
18%

SDG
12%
SEK 5%

CNY
27%

5-10Y

CHF 1%

Perpetual

Other 2%

0
250
500
750
1000
USD Millions, aligned outstanding amountCAD <1%

USD
36%

Other <1%

Recycling is a component of Waste Management, but it’s treated asa separate sub-sector in this research because of its focus on waste
prevention and minimisation before going to final treatment.

Short-term and medium-term bonds
dominate the sector
Fully-aligned

Green bondStrongly-aligned

Perpetual
Over 20Y
10-20Y
5-10Y
Up to 5Y
USD Billions

1

2

3

4

Around half of the outstanding bonds have a tenor of 5-10 years.
Long-term debt makes up 13% of the sector’s outstanding bonds.
Labelled green bonds have the most diversified tenors. Bonds withmore than 20 years tenor comprise solely green bonds issued by
US municipalities. For example, South Carolina Jobs-Economic
Development Authority and Ramsey County are on the list of longterm green Muni bond issuers. Green bonds have been widely usedby US municipal government to fund large-scale, long-term waste
infrastructure projects.

Waste is divided into four sub-sectors with
Waste management being the largest
Waste-to-energy 5%
Waste/Water
12%

1250

Waste management(USD3.7bn
outstanding aligned,
15 issuers, 20 deals)

Recycling has been shown to result in the highest climate benefit
compared to other waste management approaches in both OECDand developing countries.23 Seven issuers from France, China andSweden have been identified and their aligned outstanding debt adds
up to USD2bn. All the issuers are from the private sector and 64% of
their outstanding bonds have a tenor less than 5 years.
Issuers in this sub-sector include companies which recycle all typesof materials, including metals, paper and plastic, and specialised
ones. For instance, Stena Metall has dedicated operations to certain
recyclable materials, China Hao Ran Recycling recycles paper andHuayou Cobalt recycles only cobalt.
This research has also identified a fully-aligned French issuer, Aurea
SA, dedicated to the circular economy. By looking at alternatives for
re-use, remanufacturing, repair and recycle, the circular economy
is expected to further reduce waste disposal and close the loop of a
product’s life cycle.

Waste & water(USD808m outstanding aligned, 2 issuers, 5 deals)
Hyflux Ltd and Taiwan Environmental Scientific Co. have been
identified as climate-aligned issuers operating across the waste andwater sectors. Due to the complexity, in practice, a company may
provide services in both waste and water sectors. Taking Taiwan
Environmental Scientific as an example, 93% of the company’s
revenue comes from pollution remediation, where both soil and water
treatment are included.

Waste-to-energy(USD368m outstanding aligned, 2 issuers, 4 deals)

Recycling
29%

54%

Waste management includes various activities ranging from recycling
to monitoring of all forms of waste matters. Renewi (UK), Paprec(France) and Waste Italia are examples of comprehensive waste
management corporate issuers.

Two waste-to-energy issuers were identified with outstanding
issuance amounting to USD368m between them. Generating energy
from waste can have a positive climate impact by replacing energy
derived from fossil fuels, coupled with the fact that emissions arisingfrom the use of waste as a source of energy are generally lower thanthose produced from fossil fuels, according to UNEP.24
In addition to fully- and strongly-aligned issuers in the sector, there isgreen bond issuance from US Munis in waste management.

Hazardous waste management companies, such as pharmaceuticalwaste manager Stericycle and dedicated nuclear waste solution
provider Studsvik, are also included in our research.

Bonds and Climate Change www.climatebonds.net September 201821

Green bonds - diversity of bond structures
Green bonds have been issued using diverse
structures and diversity is increasing
Most green bonds issued to date have been senior unsecured corporate
or SSA25 bonds with a specified use of proceeds: to fund assets andprojects with a climate benefit. Over the years, however, issuers haveapplied the green bond label to a variety of structures. In some cases
it has been applied to bond structures they have traditionally used toraise debt. Sometimes, they have used new approaches to achieve
funding goals and appeal to a specific type of investor.
The introduction of solar ABS and PACE ABS as new funding
instruments designed specifically to refinance large pools of small
green loans and leases initiated a green securitisation market, which
has gained prominence with Fannie Mae Green MBS.
Private placements have accompanied public bond issuance since2010. Schuldschein, sukuk, covered bonds, hybrids and MTN
programmes all play a role in growing the green bond market.

Green bond issuers use diverse structures*
Covered bond, dual recourse 6%

Securitisation enables companies and lenders to sell off existing
financial assets to free up capacity for more business. It is theprocess through which an issuer creates financial instruments –asset backed securities or ABS – backed by financial assets suchas mortgages or lease receivables. The ABS bonds are sold toinvestors who receive a return drawn from the cash flows of theunderlying assets.
By aggregating the funding into a common structure, securitisations
enable institutional investors to finance small-scale assets and smalland medium-size businesses.
A securitisation can be defined as ‘green’ when the underlying cash
flows relate to low-carbon assets or where the proceeds from thedeal are earmarked to invest in low-carbon assets such as mortgages
on certified buildings, loans or leases on electric vehicles, on solar
and wind assets or equipment (e.g. EV charging stations), loans forenergy efficiency improvements and loans to climate-aligned SMEs.

Green securitisations are diverse too
40

Hybrid/Perpetual 5%
Private Placement 4%

Solar ABS

ABS
18%

30

Other 8%20

Schuldschein 2%*Chart total represents 27% of the green bond market. It excludes seniorunsecured and senior secured bonds (unless part of an MTN programme)

Synthetic ABS is the largest ABS issue to date
What is it? In a synthetic ABS, the issuing bank retains
ownership of the loans it wants to use as collateral for the deal
but transfers the associated credit risk to an investor via the
ABS structure. The bank continues to provide specialised loan
servicing, but by selling the risk, it frees up regulatory capital.
This allows the bank to originate new loans. In a green synthetic,
proceeds are earmarked for new green lending.
Who’s issuing? Credit Agricole CIB’s USD3bn synthetic ABS
from 2017 is the only one so far. It was privately placed with USbased Mariner Investment Group and was secured on a varietyof loans, including project finance on renewable energy.
Future prospects: Synthetics can be very useful to lenders
and the market as the freed-up capital can be used to create amultiplier effect in lending and scale up green funds available tosmall- and medium-sized businesses and projects. As the firstdeal shows, this can be done in scale.
The structure can also be used by financial institutions to help
them transition to increased volumes of green lending. The
loans included in Credit Agricole’s ABS pool were a mixture of“brown” and green loans. Thus, ‘brown’ assets are helping thebank secure funding for green assets.

Bonds and Climate Change www.climatebonds.net September 2018

USD Billions

MBS
36%

PACE ABS
CMBS

Sukuk 2%Other 2%

RMBS
Receivables ABS

MTN 2%US Muni
23%

Synthetic ABS

10

Auto ABS
Agency ABS

0
2014

2015

2016

2017

2018

MTN issuance by property and UK watercompanies
What is it? Medium term note (MTN) programmes create adebt issuance framework which gives the issuer the flexibility
to come to market repeatedly to raise funding. The eligibility
criteria are fixed, but bond terms are set for each bond issue.
Who’s issuing? Swedish property company Fabege AB put inplace the first Green MTN in 2016 and has raised the equivalent of
USD555m in multiple bonds issues. It is also a JV partner with 4other property companies in SFF, a financing vehicle with an MTN
programme, which caters to both vanilla and green bonds.
In the UK, MTN programmes are being used by Anglian Water
and Bazalgette Finance to finance water and wastewater assets.
They have raised funds through a variety of debt instruments,
including public and private green bonds, retail bonds and loans.
In 2018, Malaysian property company Segi Astana issued the first
ASEAN Green MTN, which complies with the ASEAN Green Bond
Standards. French state-owned company Société du Grand Parishas set up a Green Euro MTN programme of up to EUR5bn to raisefinancing for investment in the Grand Paris Express metro system.
Future prospects: MTN structures can be deployed by repeat green
bond issuers around the world to facilitate access to the market andlower issue costs.

22

Green sukuk was pioneered in Malaysia
but Indonesia issued the first sovereign
green sukuk

Green perpetuals were pioneered in China

What is it? A sukuk is an Islamic financial instrument, thatcomplies with Sharia law. The issuer sells an investor group
certificates, uses the proceeds to purchase an asset, of which
the investor group has partial ownership, and distributes partof the asset revenues as profit to the investors. The assets
need to comply with Islamic ethical values, which include
green assets and projects.
Who’s issuing? The first green sukuk was originated in 2017 in
the private sector to finance Malaysian solar projects with a deal
each from Tadau Energy and Quantum Solar Park. State-backed
investment company Permodalan Nasional Berhad has issued
the largest Malaysian sukuk (MYR1.9bn/USD461m).

What is it? Perpetuals are bonds without a maturity date, i.e. theyremain outstanding in perpetuity. However, issuers set call dates
when they can redeem the bonds and these are typically 5-7 years
after bond issuance. Perpetuals are one form of hybrid securities,
as they exhibit certain features of equities given the absence of amaturity date, but at the same time, they pay a coupon and thecall date sets an expectation of redemption, similar to bonds.

Repeat issuance of perpetuals and hybridsfrom Spain and China
2016

Multiple Malaysian green sukuk issuers but
Indonesian sovereign dominates volume
2017

2018

2018

2.0
1.5
USD Billions

To date there have been five green sukuk from Malaysian issuers
and one from Indonesia – a USD1.25bn sovereign green sukuk.
Future prospects: Malaysia and Indonesia have large sukuk
markets, but Middle Eastern issuers could also decide tolabel Islamic finance debt structures to finance green assets.
This represents a significant growth opportunity for property
finance, solar and desalination plants, water conservation andresilience investment.

2017

1.0
0.5
0
China

FranceNetherlands

Spain

Who’s issuing? The first green perpetuals were issued by Xinjiang
Goldwind, a Chinese wind turbine manufacturer, in 2016. The 6
Chinese issuers to date have raised the equivalent of USD1.7bn in
9 deals, primarily to finance investment in water and wastewater
management and adaptation (USD976m) as well as renewableenergy assets and related equipment (USD654m).
Energy companies Iberdrola (Spain), Engie (France) and TenneT
Holdings (Netherlands) account for the remaining issuance.
Typically sized at EUR1bn, European deals raise funds at scale.

SovereignNon-financial corporate
Government-backed entity
0.4
0
USD Billions

0.8

1.2

Schuldschein are not just a German phenomenon

Future prospects: Perpetuals are a flexible financing instrument
which give the issuer control over the bond repayment date andcan be used for capital management purposes. Their popularity
among large European issuers appears to be on the rise.

Schuldschein used across Europe

What is it? Schuldschein or SSD, also referred to as certificate ofindebtedness, are privately placed, unlisted, bilateral loan notes.
The debt is legally constituted by the underlying loan agreement,so the instrument is treated as a loan by investors. HistoricallyGerman public authorities have been the largest issuers. Green
Schuldschein have been issued by corporate borrowers.

MANN+HUMMEL’s Green SSD Framework is one of the few that
identifies environmental performance improvement of production
facilities and processes as a key investment category in connection
with investment in renewables, energy and water efficiency, as wellas pollution prevention and control initiatives.
The Volkswagen Immobilien deal raised funding in 5 tranches ofdifferent maturity, exemplifying SSD flexibility as an instrument.
Energy sector companies TenneT Holdings (Netherlands), Acciona(Spain), Verbund (Austria) and Repower (Switzerland) havecontributed USD911m to green Schuldschein issuance to date.

Bonds and Climate Change www.climatebonds.net September 2018

2017

2018

Austria

Germany Netherlands

1.0

USD Billions

Who’s issuing? Germany tops the rankings with deals from
Nordex (wind turbine manufacturer), MANN+HUMMEL (filtration
products) and Volkswagen Immobilien (property company).

2016

0.5

0
Spain

Switzerland

Future prospects: Verbund AG’s EUR100m deal from April 2018
was a digital Schuldschein, executed over a fully integrated,digital issuing platform. The use of blockchain technology in theexecution of deals could be the next chapter, but more broadly
the structure is expected to retain its appeal among corporate andfinancial sector issuers given the well-established debt format andits flexibility.

23

Private placement
What is it? In private placements, the bond issuer places thebond directly with the investor. Certain terms such as the tenor
or currency may be chosen to match investor preferences. Private
placement (PP) bonds are typically not listed.

US private placements and supranationals
investing in EM green bonds support growth
2.5
2.0

While most debt details – particularly pricing – are confidential,
green bond issuers are expected to disclose information on theassets/projects to be financed. As with other green bond issuers,
best practice is to develop a green bond framework in compliancewith the Green Bond Principles and obtain an external review.

Financial corporate
Government-backed entity
Non-financial corporate
Sovereign

1.0
USD Billions

Who’s issuing? 2017 volumes reached a record high of USD2.6bn,
or over half of total PP issuance to date. The spike is largely due
to higher issuance from non-financial corporates including rail
company Alpha Trains (Luxembourg) and renewable energy
companies Neoen (France), Acciona (Spain), Tenaska (USA) and
GCL New Energy Investment (China).

1.5

Development Bank

0.5
0
2013

2014

2015

2016

2017

2018

US REIT Hannon Armstrong Sustainable Infrastructure and Argo
Infrastructure Partners (Cross-Sound Cable) have raised privatebond funding for renewable energy infrastructure, while property
companies WDP (Belgium) and Fonciere INEA (France) as well as
Monash University (Australia) have raised funds for buildings.

Developed markets issuers such as Australian bank Westpac and
New Zealand’s Contact Energy have used US private placements
to tap US institutional investors who can invest in size and cantake long-term positions. Conversely, Canadian Solar used private
placement to raise JPY funding for a Japanese solar power plant.

Private placements also feature public sector issuance, including
Fiji’s sovereign green bond and some of the World Bank’s green
bonds issued between 2010 and 2016. Government-backed
entities that have accessed the private placement market include
the Indian Renewable Energy Development Agency (IREDA),
water authority Aquafin (Belgium), power company Landsvirkjun(Iceland) and local government funding agency MuniFin (Finland).

Five issuers have achieved Certification under the Climate
Bonds Standard for 8 private placement deals, which accountfor USD1.3bn, or 28% of total green bond private placements
to date. Certification under sector-specific criteria involves
independent third party verification that the underlying assets
are on a trajectory towards decarbonisation by 2050, and this isreconfirmed annually as part of ongoing impact reporting.

Private placement investment can play an important role in supporting
the introduction of green bonds in emerging markets. For instance, thefirst green bond from Lebanon, issued by Fransabank SAL in April 2018,
was fully subscribed by the IFC and the EBRD. The IFC has invested
in green bonds placed by further emerging market banks, e.g. Bank
Zachodni WBK (Poland), Davivienda (Colombia), YES BANK (India).

Future prospects: Private placements have been part of
the green bond market since 2010, and are likely to be small
but complementary to public placement bonds, given rising
issuance from emerging markets financial institutions andprivate sector corporates.

Green bond private placements from emerging market issuers total
USD1.4bn compared to USD3.4bn from developed market issuers,
with the remaining USD233m attributable to the World Bank andAsian Development Bank.

Note: Bonds which do not disclose sufficient information to confirm anasset’s green credentials are not included in the Climate Bonds green
bond list. While private placements are confidential, greater climaterelated disclosure on underlying assets would help improve market
credibility and deal visibility.

US Munis

Top 10 US states for green bond issuance

What is it? US Municipal bonds benefit from favourable tax
treatment to facilitate access to private funding for public sector
spending, including infrastructure investments. They feature longtenors and are often sold as a pension investment.

10
Certified

For more on US Munis, see our US Muni briefing from July 2018.26

5

USD Billions

Future prospects: Issuance is expected to pick up again as theeffect of recent tax changes is incorporated in deal structures.

Green bonds

7.5

Who’s issuing? Municipal entities from 29 US states have issued
green US Munis, contributing USD26.6bn in issuance. New YorkState tops the rankings with USD7.2bn from 27 deals, followed
by California (USD6.9bn, 38 deals). NY Metropolitan Transit
Authority is the largest issuer at USD5.5bn, and its deals are
Certified under the Low-Carbon Transport Criteria of the Climate
Bonds Standard.

2.5

0
NY CA MA WA

Bonds and Climate Change www.climatebonds.net September 2018

FL

CT

IA

IN

DC

CO

24

What is it? The US Property Assessed Clean Energy (PACE) modelis an innovative mechanism for financing energy efficiency andrenewable energy improvements. PACE loans fund the upfront costof energy improvements on residential and commercial properties,
and are paid back over time by property owners through property
tax bills. Sponsoring states implement legislation to collect loan
repayments through property tax bills and redistribute them tolending agencies. The funding and credit risk are passed onto ABS
investors through the securitisation of the loans. Each ABS frees up
lending capacity for new loans.
Who’s issuing? Four PACE financing providers from California
have issued green ABS backed by residential PACE loans. The
largest issuer is Renovate America under its HERO funding
programme. The most recent issuer is PACE Funding Group.
Greenworks Lending, based in North Carolina, became the firstcommercial property PACE (or C-PACE) issuer in 2017.

PACE ABS reached USD5.1bn in H1 2018
2014

2015

2016

2017

2018

1.5

1.0

USD Billions

PACE ABS

0.5

0Renovate
America(HERO
Funding)

YgreneEnergyFund (GoodGreen)

Renew
Financial

Other

Future prospects: So far there has been limited issuance outside
California and most loans are taken out by homeowners. Improved
access to C-PACE loans from smaller landlords could help
significantly in upgrading existing building stock.

Similar legislation for local governments to incentivise energy
efficiency improvements can be implemented elsewhere.
The Climate Bonds Initiative is part of the EuroPACE Project
consortium – an H2020 project seeking to implement PACE
financing in Europe through a city-wide pilot in Spain.

Solar ABS

Solar ABS issuance is on the rise

What is it? Solar ABS are securitisations secured on cash flows
from solar assets. Most deals are backed by lease payments andpower purchase agreements. Some are backed by loans extended
to fund the acquisition and installation of solar panels. A variation
on solar ABS is Hannon Armstrong’s ABS secured on ground leasereceivables from solar and wind farms – see Other Receivables
ABS below for details.

2.0
FlexiGroup (Australia)
Northland Power (Canada)
1.5

Who’s issuing? In total USD4.4bn solar backed ABS have been
issued through H1 2018 and 92% by volume, from US issuers. 2018is shaping up as a record year for solar ABS with the market entryof Vivint Solar. In total, its public and private deals contributed
USD932m to issuance figures.

1.0

SolarCity (now Tesla Energy) issued the first one in 2013: a
USD54m deal backed by cash flows from power purchaseagreements for the electricity generated by a bundle of residential
rooftop PV installations of around 5,000 customers. In total, thecompany has placed 9 solar ABS deals.

0.5

FlexiGroup issued the first Australian deal with a green ABS
tranche in 2016 to refinance a pool of loans extended tocustomers for residential rooftop solar. The tranche priced
5bps lower than the pari passu non-green tranche issued
as part of the same ABS. FlexiGroup’s 2018 deal included
a subordinated green tranche as well as a AAA-rated one,indicating yield appetite on the demand side.
Future prospects: Solar ABS has been used primarily to refinanceresidential rooftop solar, but commercial solar has significant
scaling potential. Wind and Hydro ABS can also work.
Changes in or uncertainty about the availability of subsidies andthe level of feed-in tariffs can impede issuance.

Bonds and Climate Change www.climatebonds.net September 2018

Vivint Solar
Solar Mosaic
Tesla Energy (SolarCity)

USD Billions

In Canada, Northland Power’s 2014 ABS is backed by revenue fromthe 20-year feed-in tariff contract between the company’s solar
projects and the Ontario grid.

Other US issuers

0
2013

2014

2015

2016

2017

H1 2018

In Europe, the uptake of renewable energy ABS has been hinderedby the lack of standardised documentation, uncertainty aroundfeed-in tariffs and insufficient volume of green assets fromindividual banks or leasing companies. Financial warehousing
which aggregates loans and/or leases from multiple sponsors
would help scale up the market.
Emerging markets such as India are also considering ABS for solar
loans to finance ambitious targets for renewable energy capacity
development within the lending capacities of banks.

25

Mortgage-backed securities
Type

Issuer Name

Note

Agency MBS

Fannie Mae (Green MBS)

Whole deal

CMBS

Harvest Capital

Whole deal

124m

124m

Natixis (CSAIL Commercial Mortgage Trust)Tranches

72m

72m

NAB (National RMBS Trust)TrancheObvion (Green Storm)

Whole deal

RMBS

2016

Grand Total

2017

3,538m

H1 2018

26,354m

9,583mTotal
39,475m

233m

233m

595m

667m

685m

1,948m

4,133m27,217m

10,501m

41,852m

Agency MBS

RMBS

CMBS

What is it? US government agencies
Fannie Mae and Freddie Mac purchasea significant volume of mortgage pools
from originating lenders and refinancethem in the MBS market. Fannie Mae’s
Multifamily Green Initiative Program now
targets mortgages to certified low-carbon
buildings and financing for energy andwater efficiency improvements of at least
25%. Freddie Mac has a similar program.

What is it? Residential mortgage-backed
securities are ABS deals secured on large
pools of residential mortgages.

What is it? Commercial mortgage-backed
securities are ABS deals secured oncommercial mortgages. Commercial asset
classes include offices, shopping centres,
multi-family housing, logistics, hotels, etc.

Who’s issuing? Fannie Mae issued
USD26.4bn of labelled Green MBS in 2017,
significantly above the USD3.5bn issuancevolume achieved in 2016. It is the largest
green bond issuer for 2017.
Future prospects: The Green Initiative
sends a strong signal to lenders,incentivising best practice such as
certification for buildings and lending forenergy efficiency. Freddie Mac may also
start labelling the MBS it issues which are
secured solely on loan pools purchased
under its Green Advantage program.
With time, more stringent prerequisites
to enter the program can help ensure thebuilding stock is aligned with a 2oC world.

Who’s issuing? Dutch lender Obvion issued
the first green RMBS in 2016. Together with
its Green Storm 2017-1, the mortgage lenderhas now placed USD1.3bn of green RMBS.
In 2018, National Australia Bank issued an
AUD2bn RMBS with an AUD300m green
tranche. All three green issues have been
Certified against the Climate Bonds Standard
for Low-Carbon Buildings (Residential).
Future prospects: A common barrier toscaling up green RMBS is the lack of data oraccess to energy performance data. In somecountries such as the UK, pressure fromlending institutions to make data available
has resulted in new green bond transactions.
The Energy efficient Mortgages Action Plan
(EeMAP) – an H2020 project led by theEuropean Mortgage Federation – is seeking
to create a standardised and cheaper energy
efficient mortgage. A successful pilot could
facilitate RMBS.

Who’s issuing? CSAIL, a joint platformof the US operations of Credit Suisse
and Natixis, issued the first CMBS
deal with green subordinated notes.
They are secured on a LEED Platinum
certified office building on Wall Street
in New York City.
But it is China that recorded the first green
CMBS – a three-tranche deal secured
on a LEED Gold certified office building
owned by China Energy Conservation andEnvironmental Protection Group (CECEP).
Future prospects: There is significant
potential in the US for green CMBS due
to the common use of CMBS to financeproperty. This is less likely in Europe
due to unfavourable capital treatment.
The availability of competitively priced
alternative funding, e.g. covered bonds,
can also limit green CMBS issuance.

Covered bonds provide a funding option for banks and real asset security to bond investors
What is it? Covered bonds are highly-regulated securities withsuperior credit ratings. They achieve lower funding cost thanunsecured debt thanks to a dual recourse structure where bondinvestors have a general claim against the issuer, as well as a claim
over a dedicated ‘cover’ pool of assets. Cover pool composition isregularly monitored.
Who’s issuing? Green covered bonds under German Pfandbrief
legislation were first issued by BerlinHyp in two EUR500m deals in2015 and 2016. Deutsche Hypo followed with a EUR500m deal in
2017. LBBW placed its first green covered bond (EUR500m) in 2018.
In early 2018, SpareBank 1 Boligkreditt (Norway), the covered bondvehicle of an association of savings banks, issued a EUR1bn green
covered bond with a residential mortgage cover pool.
In contrast to German deals, the eligibility criteria were notfocused on building certification and energy certificates, but on

Bonds and Climate Change www.climatebonds.net September 2018

recent building codes. This proxy has helped identify the mostenergy efficient residential properties in Norway.
The approach was also adopted by DNB Boligkreditt (Norway)
for its EUR1.5bn covered bond. Both deals are Certified under
Residential Buildings Criteria of the Climate Bonds Standard.
In May 2018 Landshypotek Bank (Sweden) issued the first forestry
covered bond. The cover pool eligibility criteria feature PEFC and
FSC certification for large holdings and green forest management
plans for small holdings.
Future prospects: Luxembourg has issued legislation on dual
recourse bonds for renewable energy. Extending the structure toother low-carbon assets can encourage more green issuance.
The dual recourse structure can also be employed outside coveredbond regulations, as was the case with Bank of China’s USD500m
dual recourse bond from late 2016.

26

Other receivables ABS
What is it? Any stream of receivables orrevenues can be used to secure an ABS
deal as long as the revenue is predictableenough to be modelled and valued.
Diversification is a key benefit for investors
as it reduces the risk of losses from any one
project or borrower. This makes pools oflease payments, small loans, bills and fee
collections ideally suited. The structure canbe employed both by financial institutions
and corporates.
Who’s issuing? Green ABS may berelatively new with a limited numberof deals so far, but the diverse range offinancial assets and structures used bodes
well for the growth of this type of debt
instrument. Issuance to date exceeds
USD8bn (excluding, MBS, solar, PACE andthe synthetic ABS). Notably, about a fifthof transport issuance was raised to finance
Chinese public transport investment, andChina leads in public sector issuance.

Agribusiness credit rights:
CRA ABS

Auto ABS

Brazil’s innovative securitisation
instrument has helped farmers andcooperatives secure financing forthe production, sale, processing
or industrialisation of agricultural
products.

Toyota Finance has issued USD4.6bn
in three green ABS secured against
the cash flows from existing carleases and with the proceeds
destined to finance new leases andloans exclusively on hybrid andelectric vehicles. Using existing‘brown’ assets to free up capitalfor more ‘green’ ones is a key
component of financing the lowcarbon transition.

Credit rights deals have been successful
thanks to the competitive loan pricing
they offer farmers, the asset-liability
match and the tax exemptions for bothinvestors and issuers.
In 2016, Suzano Papel issued the first– and so far only – green CRA ABS of
BRL1bn (USD295m). Brazilian peer andfellow green bond issuer, Fibria, has also
issued CRA deals but not labelled green.
Tagging issuance as green can help
attract SRI investors.

22 other receivables ABS fund a mix of low-carbon sectors
Buildings 5%
Water 6%

An improvement on the structure
would be to issue an Auto ABS
secured solely on low- to zeroemission vehicles and use theproceeds to originate even more
green assets in the form of vehicleloans and leases.

Bill receivables ABS
In 2014 the State of Hawaii issued
GEMS 2014-1, an ABS deal securedon the green infrastructure feecollected by three state utility
companies via electricity bills.

Energy14%

Other 5%

Transport
70%

Land use
4%

Waste 1%
Adaptation<1%

Ground lease ABS

Receivables ABS – China

Hannon Armstrong’s first green
ABS from 2013 is secured on groundlease receivables from 78 solar andwind farms.

Chinese issuers have issued 11 ABS
deals totalling USD2.4bn and secured
on receivables from wind turbines andother renewable energy equipment
leasing, public transport, water and waste
management: by far the most diverse
sector range among countries with green
ABS issuance.

Leasing land to renewable energy
operators carries lower risk thanowning and operating the solar andwind farms.
Pooling the leases creates diversity ofincome streams, a prized feature of
securitisations, which further lowers
deal risk.

The bond raised funds for the Hawaii
Green Infrastructure Loan Program,so it can provide loans to financethe installation of renewable energy
power systems and for energy
efficiency projects.

One of the more intriguing examples isprovided by Beijing Enterprises Water
Group. The company operates 19 water
treatment plants under takeover-operatetransfer (TOT) or build–operate–transfer(BOT) contract with 16 municipalities.

Bonds and Climate Change www.climatebonds.net September 2018

Its green ABS is backed by water
treatment service fee receivables. The
proceeds are allocated to another 9water infrastructure projects that fall
into Pollution Prevention, Resource
Recycling and Adaptation categories
under PBoC’s green bond catalogue.
Another example comes from TGOOD.
Its four-tranche ABS is secured onreceivables from switchgear andelectrical substation equipment with theproceeds earmarked for the installationof EV charging stations across China.

27

Green bond policy update

Public sector action is central to enablingand scaling up green bond issuance andinvestment at the scale and speed required,to reach USD1tn of annual issuance by 2020.

sector issuance, excluding supranationals,
now accounts for 26% of the market. Over the
past few years policymakers and regulators
have been stepping up their involvement by
designing clear guidance, providing incentives
and setting disclosure requirements.

Public sector issuance from developmentbanks in particular was instrumental to
kickstarting the green bond market. Public

Enabling private capital to flow towards
low-carbon infrastructure and assets
is the main goal of green bond policy.

The role of green bond policy

Governments have used several tools in thepast to successfully steer private capital
towards policy priority areas; these can now
be applied to channel capital to climate
investments through green bonds.
Policymakers are involved both in creating
the pipeline of low-carbon projects andin supporting the development of green
finance tools to finance it.

Availability of national and regional green bond guidancePrivate initiatives
In the pipeline
Listing requirements
Regulation andofficial guidelines

The role of central banks and financial
regulators in addressing climate-related
financial disclosures
Addressing climate-related risks is rising on the agenda of capital
markets regulators and central bankers as they step up efforts
to facilitate an orderly transition to a low-carbon economy, while
trying to maintain the stability of financial markets.
Several central banks have started exploring stress-tests ofclimate-related risks, green bond investments, integratingclimate risks in macroprudential frameworks and allowing green
bonds in collateral frameworks.
The Network for Greening the Financial System was establishedin December 2017 as a forum for regulators and supervisors
to find solutions to address climate-related financial risks.
The network has decided on three work-streams: supervision,macro-financial and mainstreaming green finance.

Bonds and Climate Change www.climatebonds.net September 2018

The EU taxonomy on sustainable finance andgreen bond label
In March 2018, the European Commission announced acomprehensive Action Plan on sustainable finance. Following
the Action Plan, the EC presented three legislative proposals
aimed at establishing an EU taxonomy for sustainable finance,
improving ESG disclosure, and creating low-carbon benchmarks.
A Technical Expert Group (TEG) on sustainable finance wasestablished in June 2018 to progress on the details of thelegislative proposals and action plan. The TEG is divided into
4 subgroups tasked with developing an EU taxonomy onsustainable finance, an EU green bond label, low-carbon indicesand metrics for climate-related disclosure.
Sean Kidney, Climate Bonds Initiative’s CEO, is a memberof TEG’s taxonomy subgroup, which will deliver the climate
mitigation component of the taxonomy in Q1 2019, and climate
adaptation and broader environmental assets in Q2 2019. On
the back of the taxonomy, the EU green bonds label is planned
to be developed by Q3 2019.

28

Green bond policy update
Top 3 public sector developments

Sovereign issuanceis growing

Harmonisation of definitions
and standards

Targeted incentives for green
bond issuers

Green sovereign bonds are increasingly
seen as a key tool for governments to raise
capital to implement infrastructure plans tomeet the Paris agreement targets and theSustainable Development Goals.

The development of clear guidelines
and standards for what is green are a key
step to establish the foundation for a green
bond market.

New forms of financial support andincentives, introduced in 2017 and H1 2018,
can lower the initial hurdle for new issuers
entering the market by covering or offsetting
the additional costs of an environmentallyrobust issuance.

Besides raising capital, a sovereign green
bond can diversify the investor base, signal
policy certainty and coherence, scale up thedomestic market and support the emergenceof a green financial hub.
USD21bn of sovereign green bonds havebeen issued to date:• Fiji issued the first emerging market at
FJD100m (USD50m)• Nigeria came to market with a NGN
10bn (USD30m) bond – the first African
sovereign green bond
• Indonesia issued the first sovereign
green sukuk worth USD1.25bn• Belgium and Lithuania issued sovereign
green bonds for EUR4.5bn and EUR20m• Poland issued a second sovereign green
bond of EUR1bn in February 2018
• France has tapped its green OAT 4 times,
reaching EUR10.8bn outstanding as of H1
2018, and has since placed an additional
EUR4bn• Hong Kong has announced a sovereign
green bond programme up to HKD100bn(USD12.7bn)• Ireland has recently published a green
bond framework, signalling its intention tocome to market

Green bond guidelines and regulations are
now in place in several countries across theglobe. Latest developments include:• ASEAN Green Bond Standard: developedby the Capital Markets Forum, the standard
explicitly excludes fossil fuel investments• Indonesia: OJK has issued green bondrequirements; all ASEAN countries
are expected to translate the regionalguidelines into regulation.
• Stock exchanges in Santiago, Chile andLima, Peru have issued green bondguidance for their listed companies.
Santiago’s newly established segment isfor both green and social bonds.

Following the Green Bond Principles,
ICMA has coordinated the developmentof Social Bond Principles (SBPs) andguidance on Sustainability Bonds. SDG
bonds have also emerged.
The development of green, social andsustainable markets is expected
to converge as disclosure and reporting
frameworks remain consistent. Eligible
assets overlap, especially thosethat deliver climate resilience andsocial goals.

• Singapore: The central bank, Monetary
Authority of Singapore, announced a green
bond grant scheme that will absorb the fullcost of external reviews.
• Malaysia: Tax deduction on issuancecosts for issuers and tax exemptions
for investors are in place until 2020 forsocially responsible sukuk and green
sukuk. A MYR6m Green SRI Sukuk Grant
Scheme has also been set up to cover thecosts of external reviews.
• China: PBoC will include green bonds as
eligible collateral for its Medium-term
Lending Facility. Green credit is now part ofbanks’ Macro-Prudential Assessment: thehigher the volume of green assets held (loans,bonds, etc.), the higher a bank’s MPA score.
• Hong Kong: The government announced
a HKD2.5m (USD0.3m) three-year pilotbond grant scheme that will subsidise thecost of getting green bond certification
through the scheme operated by the Hong
Kong Quality Assurance Agency.
• Japan: To facilitate green bond issuance,
the Ministry of Environment has
introduced subsidies of up to JPY50m per
issue to help cover the costs of third-party
outsourcing (e.g. external reviews, green
bond structuring and consulting).

Read more on sovereign green bonds in the
Sovereign Green Bond briefing.

Climate Bond Initiative’s role in driving green bond policy• Policy intelligence: Monitoring andregularly reporting on green bond policy
developments across the globe.

• Policy advisory: Working withgovernments and regulators to develop
roadmaps for green bond market
growth, draft green bond regulationand explore incentives.

Bonds and Climate Change www.climatebonds.net September 2018

• Policy education and engagement:
Promoting green bond policy
actions through public engagements,
peer-to-peer exchanges andtraining programmes.

29

Spotlight on green bond pricing researchWith the support of IFC, Obvion, Pax,
and Rabobank, Climate Bonds Initiative
has spent 2 years exploring how green
bonds behave in the primary market.
The work has concentrated on labelledgreen bonds issued in EUR or USD, with aminimum size of USD300m (increased to
USD500m from January 2018).
From January 2016 to June 2018, analysis
included 152 bonds with a combined value of
USD126bn. We compiled data on the salientfeatures of the primary pricing market suchas order book size, spread compression
during the book building process, whether
there is a greenium, distribution of the bondsby type of buyer, and spread performancein the immediate secondary market. Where
possible, we compared this data withequivalent vanilla bonds, sharing similar
characteristics, and issued within the samequarter as the paired green bond.
Findings on pricing
On average, green bonds tend to achieve
larger book cover and spread compression
during pricing when compared to vanillaequivalents. In the immediate secondary
market, half of green bonds tighten by alarger percentage than vanilla equivalents,
after both 7 and 28 days.

When matched with a corresponding index,
70% of green bonds tightened by a larger
percentage after 7 days. After 28 days, thatfigure was 61%. Generous book cover may
mean access to a broader investor basefor issuers, and good performance in thesecondary market is attractive to investors.

enough data for this, 31 of which exhibited a
new issue premium, albeit often reported tobe smaller than expected. The remaining 29
green bonds priced either on the curve, or
exhibited a greenium. While buyers of green
bonds cannot expect to receive a new issuepremium, a greenium cannot be guaranteed.

Many issuers of green bonds remark that theyreceive better or preferential pricing for theirgreen bonds. What does this mean? It is normal
for new bonds to price outside their own yield
curves, i.e. with a slightly lower price thanexisting debt. This cost is borne by the issuer
to attract investment and is known as a newissue premium. Occasionally, bonds may priceinside their own yield curves, i.e. with a slightly
higher price than existing debt. In this case,the investor will receive a slightly lower yieldcompared to existing debt, and this is known asa new issue discount, new issue concession,or, when applicable to green bonds, Climate
Bonds Initiative has termed it a ‘greenium’.

Findings on investors
We have tried to determine who is buying
green bonds, by approaching issuers
directly. Since there is no standard
definition of a ‘green bond investor’ wehave asked issuers to use their discretion.

A new issue premium is a normal feature of thebond market, and the absence of a new issuepremium is regarded favourably by issuersbecause it can lower their funding costs. We
have monitored yields on pricing date for green
bonds in our sample, with a minimum of four
comparable vanilla bonds. 60 green bonds had

We have gathered data for 57 bonds, andthe range is from 20% to 85%. The average
distribution to green investors is 51%. For green
bonds with a country of risk designated as an
Emerging Market that figure is 31%, while forDeveloped Markets, the average is 55%.
The takeaway of this analysis is that green
bonds are being supported by those declaring
themselves as green investors, and those thatare not. Green bonds apparently appeal
to a wide range of investors which will be
critical in enabling the market to scale up.
For more information, please see Climate
Bonds Initiative’s pricing research at https://www.climatebonds.net/resources/reports

Climate Bonds Taxonomy
The Climate Bonds Taxonomy was used to categorise issuers by sector. The underlying
research focused on 6 of the sectors: energy, transport, water, buildings, land use andwaste. More information is available at https://standard.climatebonds.net/taxonomy.
ENERGY

WATER

Solar

Private transport

Water monitoring

Residential

Agriculture

Cementproduction

Preparation

Broadband
networks

Wind

Public passenger
transport

Water storage

Commercial

Commercial
Forestry

Steel, iron &aluminium
production

Reuse

Telecommuting
software andservice

Geothermal

Freight rail

Water treatment

Products &systems for
efficiency

Ecosystem
conservation &restoration

Glass
production

Recycling

Data hubs

Bioenergy

Aviation

Water distribution

Urban
development

Fisheries &aquaculture

Chemicalproduction

BiologicaltreatmentPowermanagement

Hydropower

Water-borne

Flood defence

Supply chain
management

Fuel production

Waste to energy

MarineRenewables
Transmission &distribution
Storage

BUILDINGSLAND USE &MARINERESOURCES

TRANSPORTINDUSTRY

Nature-based
solutions

WASTE

ICT

Landfill

Certification Criteria approved

Radioactive waste
management

Criteria under development
Due to commence

Bonds and Climate Change www.climatebonds.net September 201830

Are we nearly there yet? Towards USD1 trillion a year of green bond issuance by 2020
We estimate that the global green
bond market would significantly boost
progress on Nationally Determinted
Contributions (NDCs) in connection with theParis Agreement and the implementation ofcountry climate plans if it reaches USD1tn perannum by 2020.

This report identifies USD1.45tn of climatealigned bond issuance currently outstanding
which have been issued since 2005.
Meanwhile the labelled green bond market
reached USD162bn of issuance in 2017.
The growth is encouraging but there is stilla long way to go with global GHG emissions

on track to far exceed 2 degrees ofwarming. Over the coming decade, muchstronger action from government and theprivate sector is needed to ensure there isa pipeline of low-carbon projects sufficient
to meet the Paris Agreement targets.

1.0
Actual green bond issuance
0.8

Climate Bonds projection to 2020

0.6

USD Trillions

0.4

0.2

0
2014

2015

Endnotes
1. https://economictimes.indiatimes.com/news/
international/business/china-to-increase-highspeed-rail-network-to-30000-km-by-2020/articleshow/51922944.cms
2. https://www.reuters.com/article/us-ryder-chanjevans/u-s-rental-truck-firm-ryder-makes-first-bigelectric-van-order-idUSKBN1D222D
3. https://www.climatebonds.net/files/files/US%20
Muni%20climate-aligned%20bonds%2011-07-2018.pdf
4. https://www.wri.org/resources/data-sets/aqueduct-projected-water-stress-country-rankings
5. https://www.globalwaterintel.com/water-tariffswill-need-to-rise-by-5-9-a-year-to-achieve-the-sustainable-development-goals-new-gwi-report-finds-1
6. https://www.usbr.gov/mp/arwec/water-facts-wwwater-sup.html
7. http://environmentalratingagency.com/wp-content/uploads/2017/06/Environmental-Rating-Agency_Water-Industry-Risks-2017_press-release.pdf

2016

2017

2018

8. https://www.climatebonds.net/files/reports/
cbi_briefing-climate_adaptated_investment_helps_
achieve_sdgs_final.pdf
9. http://www.bondsloans.com/news/article/1887/
kenya-pooled-water-fund-ceo-the-water-sanitat
10. https://www.ipcc.ch/pdf/assessment-report/ar5/
wg3/ipcc_wg3_ar5_summary-for-policymakers.pdf
11. https://webstore.iea.org/world-energy-investment-2018
12. http://www.klepierre.com/content/uploads/2018/05/KLEPIERRE_CSR-Policy-2018.pdf
13. https://www.cdp.net/en/scores-2017
14. http://gresb-public.s3.amazonaws.com/2017/
Public%20Results/2017_RE_PD_Snapshot.pdf
15. http://www.epra.com/sustainability/sustainability-reporting/sbpr-awards
16. https://www.sustainalytics.com
17. http://www.robecosam.com
18. https://www.ipcc.ch/pdf/assessment-report/ar5/
wg3/ipcc_wg3_ar5_summary-for-policymakers.pdf

2019

2020

19. http://www.internationalpaper.com/planet/policies-certifications/certificates
20. https://www.sustainalytics.com/wp-content/
uploads/2017/09/Klabin-Green-Bond-Frameworkand-Opinion-08302017_FINAL.pdf
21. http://assets.storaenso.com/se/com/DownloadCenterDocuments/GreenBonds_SPO_Sustainalytics.pdf
22. https://www.weyerhaeuser.com/sustainability/
environment/certification/#certificatefinder
23. http://www.unep.or.jp/ietc/Publications/spc/
Waste&ClimateChange/Waste&ClimateChange.pdf
24. http://www.unep.or.jp/ietc/Publications/spc/
Waste&ClimateChange/Waste&ClimateChange.pdf
25. SSA stands for “sovereign, subsovereign andagency”and covers a variety of government-related
entities.
26. https://www.climatebonds.net/files/files/US%20
Muni%20climate-aligned%20bonds%2011-07-2018.pdf© Published by the Climate Bonds Initiative September 2018 in association with HSBC.
This report was prepared by the Climate Bonds Initiative.
Lead Author: Monica Filkova
Co-Authors: Bridget Boulle, Camille Frandon-Martinez, Amanda Giorgi, Diletta Giuliani, Alan Meng, Giulia Rado.
Input from the Climate Bonds Team.
Design: Godfrey Design
Source data from Thomson Reuters EIKON, Bloomberg, FTSE Russell Green Revenues, climatebonds.net and other parties. All figures are rounded.
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 financialorganisation 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 forcontent 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 theclimate 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 onbehalf 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 201831

This report identifies a universe of USD1.45tn climate-aligned bonds:• 389bn in green bonds• 497bn in bonds from fully-aligned issuers• 314bn in issuance from strongly-aligned issuers• 250bn in issuance from fully-aligned US Muni issuers

What does it mean?
• Global growth of green finance is encouraging• There is a large universe of unlabelled bonds financing green infrastructure• There is huge potential for a larger and even more diverse green bond market

There is still a long way to go• Global emissions remain on track to exceed 2 degrees of warming• USD90tn of investment in climate projects is needed by 2030
• Global green finance needs to reach USD1tn by end 2020 and grow each year of the new decade

Strongly-aligned
climate issuers$314bnPrepared by Climate Bonds Initiative.

Green bonds$389bnCommissioned by HSBC.

Fully-aligned
climate issuers$497bnwww.climatebonds.net