The bond markets offer an additional source of green financing to bank lending and provide an important signaling mechanism for companies and investors. Green bonds use the debt capital markets to raise funds for investment in development projects such as renewable energy, energy efficiency and clean water. Sustainable, social and green bonds are also important investment tools for achieving the Sustainable Development Goals. These bonds require disclosure and reporting on the use of proceeds from the issuer to connect investors with assets that are expected to deliver a positive sustainability impact.
According to the Climate Bonds Initiative, approved green bond issuance reached US$ 167.6 billion in 2018, with a further US$ 21 billion in sustainability/SDG/ESG bonds and US$ 14.2 billion in social bonds. In the first 11 years of their existence, US$ 521 billion of green bonds have been issued. With the growth of this sector, there is an increasing diversification of issuers. Sovereign issuance accounted for around a third of issuance in both developed and emerging markets, and development banks are still the most prominent issuer in emerging markets.
Expanding the green bond market, especially in emerging markets, will likely require further definition of the asset class and continuing evolution of standards, including the EU’s Green Bond Standard which aims to increase transparency and comparability of the green bond market, as well as to provide clarity to issuers.