Market Views: Fixed Income

Green bonds: nascent market to play vital role

We examine the growing market in green bonds, which we believe is a vital tool in facilitating the allocation of capital to projects that can help deliver on ambitions to limit global warming.


Rick Stathers

Head of Responsible Investment

A year of strong growth

Green bonds saw exponential growth in 2014, with €22.7 billion issued according to the banking group ING, more than double the level of 2013 (97 green bonds were issued by 50 issuers in 2014, with four issuers accounting for 50% of the total number). Growth was boosted as the issuer base expanded - from governments and financial institutions - to include companies. Standard & Poor’s estimates that corporate bond issuance could reach $30 billion in 2015 (a near 50% increase on 2014). Corporate green bonds have helped bring depth to the market and also a range of currencies, geographies and maturities. In addition to new issuers, new types of green bonds entered the market, such as asset-backed securities from Toyota linked to hybrid and electric vehicle loans. Beyond the corporate sector, municipal green bonds are expected to be a growth area in 2015. Green bond issuance will also continue to grow as China gears up its green development programs and Latin American countries and companies look to increase their renewable energy capacity.

Green standards

As the market grows, so do concerns about the potential for market abuse, with some issuers not being totally transparent about what they plan to do with the proceeds of bonds. The development of “Green Bond Principles” by a group of issuers, investors and intermediaries provides a commonly agreed framework for legitimate issuers to adhere to and should give confidence to investors as to the integrity of a green bond and the use of its proceeds.

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