Still a comparatively young and small class of investment, the "green bond" market is one of the fastest growing in the world and is gaining momentum in the wake of the Paris climate agreement struck in late 2015.
Issuance reached $US42 billion by the end of 2015 and has good prospects for near doubling during 2016. Most issuance has occurred in the US and Europe but increasingly markets in Asia are gaining momentum. Since mid-2015, $US5.5 billion has been issued in China and in India.
In Australia, in just 18 months we have seen $A1.8 billion of local issuance across four transactions and a €300m issuance by a local corporate. We believe there is significant, multi-billion dollar opportunity for further growth across markets such as commercial property, transportation and renewable energy.
For example, our research shows a significant pool of eligible green-bond assets in the commercial property market across Australian capital cities – we have conservatively estimated this to be just over $A40 billion. Around another $A40 billion is potentially available with rail assets.
Green bonds are bonds where the proceeds are applied to existing or proposed environmentally friendly assets or expenditure which aim to address key areas of concern such as climate change, natural resource depletion, biodiversity conservation or pollution.
The Green Bond Principals and the Climate Bond Initiative Standards both provide sound frameworks for qualifying such assets or expenditure for green bond issuance.