Green bond comment, November 2017

By Peter Cripps

It was great to have something positive to announce about the US green bond market at this year's Green Bonds Americas conference!

The headlines around the US and climate policy have been grim in recent months, having been dominated by President Donald Trump's plans to withdraw from the Paris Climate Agreement.

So, it was with some gusto that I was able to tell the 240 delegates that cumulative issues from US-domiciled issuers have now passed the $50 billion mark*.

The figures are boosted by the inclusion of two major multilateral development banks, the IFC and IBRD, which account for $14.5 billion of issues, and arguably are not true US entities.

On a less positive note, US issues appear to have slowed in 2017, with some $10 billion of issues in the first three quarters, down from about $12 billion in the same period the previous year, perhaps due to the Trump effect.

Nonetheless, hitting $50 billion is an important landmark for the market.

A real driver of growth in the US has been its muni market. US munis have now raised $18.6 billion via green bonds, as issuers increasingly realise that the projects they fund are often a good fit for the market.

Numerous issuers, such as New York MTA and New York Housing Finance Agency, explained that the green label helps to diversify their investor base as well as highlight that they are involved in green projects.

While the US muni market is going strong, attracting corporates has proved to be harder work, despite two high-profile issues from Apple.

The issuers that have come to market to-date tend to be companies that are funding renewables projects, such as Southern Power and Renovate America. But there are swathes of companies in the US that have yet to be convinced by the argument for issuing a green bond. Some of these companies, such as Tesla and SolarCity, are pretty uncontroversially green.

The prospects for more US corporates joining the party are good, particularly as there is growing evidence of more green bond funds being created, which will only lead to increased demand for green bonds. The latest example was a $25 million separate account run by Nuveen.

Just don't expect a US sovereign green bond any time soon!

Elsewhere in the Americas, Canada is going strong, with $5.5 billion of issues, of which $3.4 billion has come this year.

Ottawa is coming to market soon, and Ontario plans to return by the end of its fiscal year.

Mexico is also in strong growth, with $6.7 billion of issues. However, $6 billion has come from one issuer - Mexico City's airport. One interesting piece of gossip to come out of the conference is that Hong Kong airport is now also planning a green bond.

Brazil is also on the march, with $3.5 billion of issues, helped by its national green bond guidelines. One of the most interesting facets of the Brazilian market is that it has been dominated by companies - pulp and paper companies (Klabin, Suzano and Fibria) renewables (Omega and Rio) and a food company (BRF).

To see the full list of slides from the conference click here, and a brief write-up of the event can be found here.

My thanks to all the delegates and sponsors. It was quite an achievement to attract such a large, enthusiastic and engaged crowd despite the shadow cast by President Trump's stance on climate change. It may have even sent a signal to his administration too!

Looking at the market more broadly, global cumulative issuance has now passed $250 billion. The figure for the year to date is $90.7 billion, meaning that annual issuance must surely break the $100 billion mark for the first time.

October was a strong month for deals, with a combined value of $10.4 billion. This compares with the $9.5 billion in the same month the previous year.

Japan was a notable issuer, as environmental, social and governance (ESG) concerns continue to surge up the investment agenda in the country. There were three issues, from the city of Tokyo, Mizuho and Sumitomo Mitsui. Construction firm Toda is next in line.

China returned with another of its blockbuster issues, this time through ICBC's $2.1 billion issues.

But Germany was the surprise package, with $3.2 billion of issues. This comprised bonds from debutants Mann+Hummel and Innogy as well bonds from old favourites Berlin Hyp and KfW.

Conservative German corporates, like US corporates, have largely shied away from the market so far, but there is a chance that as the market becomes better established, they will join the fray. Willkommen.

*  Figures from Environmental Finance's Green Bond Database

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