The global green bonds market sent yet more records tumbling last year, as total issuances under the Climate Bonds Standard reached an all-time high of $210bn throughout 2021, helping to unlock a wave of fresh investment in the accelerating net zero transition.
The latest milestone was announced by the Climate Bonds Initiative yesterday, which said bonds, loans, and other debt instruments certified under its most rigorous science-based scheme had now been issued by over 220 businesses, financial firms, and governments across 40 countries worldwide.
Green bonds meeting the standard must ensure their revenues are invested in projects consistent with the Paris Agreement’s 2C global warming pathway, so that issuers “genuinely contribute to addressing climate change”, the UK-based bonds tracking agency said.
Data released yesterday by the group shows the largest share of proceeds from climate bonds certifications worldwide last year went towards low carbon transport projects, which made up 39 per cent of volume in 2021, followed by energy which accounted for 17 per cent of the market and buildings with a 14 per cent share.
Certified green bond issuances which finance two or more sectors, meanwhile, were responsible for 28 per cent of the total share last year.
The global market for green financial instruments has massively expanded over the past decade, and last year saw green bonds of all stripes under various verification schemes reach a record high issuance of almost $482bn worldwide, according to Refinitiv data.
However, the market has also been described as a ‘wild west’ by some critics due to the lack of a single clear and consistent standard governing how proceeds from ‘green bonds’ can and should be used. Some issuances have courted controversy after funds were channelled to support relatively carbon intensive projects.
But Climate Bonds Initiative CEO Sean Kidney said the latest milestone for issuance under his agency’s certification standards in 2021 demonstrated growing market appetite for credible, robust, science-based green bonds.
“Reaching the $200bn milestone is a testament to the market’s hunger for credible green financial products based on a robust, science-based emissions reduction foundation that aligns with the Paris Accord goals,” he said. “Certified issuers continue to lead development in their regional and global markets, demonstrating by example, best practice in green and sustainable investment.”
French rail operator Société du Grand Paris (SGP) was the single largest certified climate bond issuer worldwide last year at $7.62bn, and is also the largest cumulative certified issuer with $24.98bn raised through multiple bonds issues to date, according to the agency.
Chinese banks also produced several prominent Climate Bonds Standard-certified issuances in 2021. The state-led China Development Bank raised over $6bn over three certified issuances for ecological protection and green development along China’s Yellow River Basin, while the world’s largest bank – the Industrial and Commercial Bank of China – issued a $2.34bn certified bond with proceeds aimed at low carbon transport and renewable energy projects.
Over the coming year, the Climate Bonds Initiative plans to expand its labelling scheme in several areas, including through the addition of new ‘Transition Criteria’ to create pathways for investing in decarbonisation projects in ‘hard-to-abate’ sectors such as chemicals, cement, and steel.
Last year saw certification and criteria for bond issuance expanded to cover five further sectors: grids and storage, hydropower, bioenergy, geothermal and shipping, according to the Climate Bonds Initiative.
The first criteria set to emerge this year will cover basic chemicals and cement, which will signpost how proceeds from green bonds issuances should be used in these sectors, with the standard additionally set to encompass both sustainability-linked bonds and loans, Kidney said.
“This represents the continued evolution in the labelling of financial instruments to encourage large-scale investment towards net zero,” he added.