Green bonds market hits $42bn in 2015, finds Commission

Green bonds issuance is taking off, says study, but stakeholders must resolve ‘bottlenecks’ that are hindering further growth

Total global issuance in the green bonds market reached $41.8bn last year, according to a new study from the European Commission, with the corporate segment hitting 36%: its highest ever share.

The study pointed out that issuance in the field continues to grow rapidly, and cited estimates that performance for this year will range between $70bn and $100bn.

However, it noted, despite that rapid growth, the green bonds market currently forms only around 0.13% of the world’s entire bonds market. As such, there is a huge opportunity at hand for stakeholders to unlock further activity.

With that in mind, the study identifies five, key ‘bottlenecks’ that are constraining growth, and must be resolved in order to stimulate the market.

The Commission defines those bottlenecks as a lack of:

  • pipelines for green projects and subsequent bonds;
  • aggregation mechanisms for green projects;
  • a universally recognised green bonds definition and framework;
  • a clear risk profile for green investments; and
  • adequate market information and knowledge.

In the Commission’s view, government bodies across Europe have an important role to play in enabling the EU to overcome the bottlenecks. But their efforts must be carefully pitched.

“Measures such as public investment in green bonds, credit enhancement, fiscal incentives for green bonds or preferential treatment of green bonds in credit regulations could lead to an unjustified altering of risk profiles,” argues the study, “thereby threatening the financial stability of the participating market actors.”

Such “far-reaching interventions”, the study warns, should therefore only be considered and implemented if they can be justified by “profound evidence”.

In the meantime, it recommends, governments of Member States should:

  1. raise awareness about the benefits of green bonds, with the aim of increasing supply;
  2. support capacity-building and knowledge-sharing schemes;
  3. provide stronger support to their local partners, such as municipal authorities, to issue green bonds; and
  4. issue sovereign green bonds – a policy measure already announced this year by France and Poland.

Commission vice president and financial services chief Valdis Dombrovskis – who is spearheading the EU’s Capital Markets Union (CMU) scheme – said in a statement: “Promoting long-term and green finance is one of the priorities of the CMU Action Plan. Green bonds are an important instrument to raise capital market finance for environmentally friendly and more sustainable investments.

“The new High Level Expert Group on sustainable finance will help define steps towards greener capital markets.”

Environment, maritime affairs and fisheries commissioner Karmenu Vella added: “The EU has positioned itself well, to allow companies and municipalities to be among the frontrunners in the expanding green bond market.

“We must double our efforts to eliminate existing bottlenecks. This will allow green bonds to help on investment needed to move towards a circular economy and fulfil our energy and climate commitments.”

Find the Commission’s full study here.

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