Global issuance of green bonds, which fund environmentally beneficial projects, is expected to increase to a record $180 billion in 2019, up 8% from last year, while new issuance in the broader bond market is unchanged, according to a new report from S&P Global Ratings.
Though a small part of the global bond market, green bonds are supported by "strong market fundamentals [including] policy and regulation, rising awareness of environmental risks, and new business opportunities," the report says.
The recent special report from the International Panel on Climate Change recommending that nations strive to limit global warming to an increase of 1.5 degrees Celsius since the Industrial Revolution rather than the previous 2-degree target further reinforces the need for green bonds, according to S&P Global Ratings.
Its analysts expect financial institutions will to continue to play a major role as investors and issuers in green bonds "as investment needs for the transition to a low-carbon economy increase."
Financial institutions accounted for about 25% of new issuance of green bonds in 2018, and roughly 40% of those issues came from Chinese institutions. U.S. institutions followed, but at a great distance, issuing less than a quarter as many green bonds as Chinese banks did.
Despite the upbeat forecast, the growth in green bond issuance in 2019 is expected to be well below issuance just two years ago, when growth surged by 85% along with strong growth in the broader global bond market. Issuance last year grew just 3% due in part to fewer muni green bond issues because the tax code revision reduced issuers' ability to refinance existing debt, according to the S&P report.
