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Global green bond issuance is set to grow by around 60% in 2018 and eclipse a total of $250 billion, according to a new industry projection.
In a report for its clients, ratings agency Moody’s opined that this year's growth would occur at a healthy pace and "far exceed" the record $155 billion of green bonds issued in 2017.
The agency expects sectors that have traditionally played a large role in green bond issuance growth to maintain those roles in 2018. For example, financial and non-financial corporates, which represented 36% of total green bond issuance in 2017, will continue to be significant green bond issuers.
Organic market growth will result from greater awareness among issuers and other market participants of the potential benefits of green bond issuance, including investor diversification and demonstrating a commitment to sustainability.
Moody’s also noted that new players in the market such as emerging market issuers, sovereigns and municipalities should see significant growth in green bond issuance in 2018. Following a breakout year in sovereign green bond issuance, Moody's expects additional momentum in sovereign green bond transactions in the year ahead, including potential financings from the governments of Indonesia and Belgium.
"In addition to promoting sustainability policies, green bond issuance provides a strong signal of a government's commitment to carbon emission reduction under the Paris Agreement. While challenges remain for emerging market green bond financings, Moody's sees strong prospects for growth in issuance. Aggregate growth will be supported primarily by China and India, as well as other economies with governments implementing green finance policies," the report said.
Multilateral agencies will also play a pivotal role in supporting the development of emerging market green bonds, it added.
Matt Kuchtyak, an analyst at Moody's and the lead author of the report, said: "Developed market corporates and banks will remain active issuers. Emerging market issuers, sovereigns, municipals and green securitizations will also provide important engines of growth."
On the demand side, the agency expects that institutional investors will continue to seek to integrate sustainability into their asset allocation and risk management practices.
Reflecting the broader trend toward sustainable investing, the combined assets of dedicated green bond funds reached close to $2 billion in the third quarter of 2017, up from just $500 million in November 2015.
According to the report, the lack of a universally-applied global green bond standard does not pose material challenges for green bond market growth. Last year saw a marked proliferation in green bond standards and taxonomies, a trend that Moody's expects will continue in 2018 as regulatory bodies across the globe influence market development and practices.
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