The Main Objectives

Among other goals, such projects aim to achieve biodiversity conservation, sustainable water management, and clean transportation. The market reached a turning point in 2013 as the first corporate green bonds were issued, increasing the market size to $11bn. In 2016, over $81bn in green bonds were issued, driven in part by an increase in issuers, issue types, structures and investment vehicles.

Moody’s suggested that the global green bond issuance may rise to approximately $208bn in 2017.

This is indeed a very likely outcome as the expansion of green bond types and structures continues to attract multiple potential issuers, including China. The country is expected to contribute around $60bn in green bonds issued in 2017.

Other Players

In recent months, France and Poland became the first countries to issue sovereign green bonds. Countries likely to follow suit in 2017 include Bangladesh, China, Luxembourg, Morocco, Sweden, and Nigeria. Africa’s powerhouse, Nigeria, plans to be one of the first African states to float sovereign green bonds to fund sustainable projects in the economy.

At the Green Bonds Capital Market & Investors Conference, the acting President of Nigeria, Professor Yemi Asinbajo, stated that arrangements were being made for the inauguration of the first African Sovereign Green Bond, worth some 20 billion nairas, to address climate change and environmental projects.

Some of the projects to be financed include a solar unit distribution program for 20 states of the federation and a reforestation program for 26 states. With solar power becoming the world’s cheapest source of energy for electricity, this presents opportunities for investments and diversification, which could cut significant costs for organisations as the nation works towards bouncing back from recession. Whether or not the green bonds will be oversubscribed may depend largely on incentives and regulation of the bonds.

Putting the Money to Good Use

In November, Masen (Morocco’s Agency for Sustainable Energy) issued Morocco’s first ever green bond of €106m. The proceeds from the bond issue will be used to finance the development of 170 MW in the NOOR PV1 project, providing solar power through three plants.

Other African states, including Kenya, are gearing up to take be active in the green bond markets as they work towards supporting the 2015 pledge by world leaders to limit global warming to below 2 degrees Celsius this century.

A Positive Outcome

Apart from potential tax incentives, African states may be able to achieve more sustainable growth in relatively early stages of development in contrast to more developed states. The introduction of the issuance of green bonds increases the priority for sustainable development on the continent, thus encouraging African countries to avoid the mistakes (in sustainable development) that developed economies made in their infancy.

A potential challenge for African states hoping to attain finance for funds through green bonds is the size of the projects and their financing needs. The size of the projects may need to be increased in order to ensure that they are more attractive.

Although the issuance of green bonds is growing fast, it is still less than $1trn, a tiny fraction of the $90trn global bond market. OECD studies suggest that the global annual green bond issuance will need to rise by between $620bn and $720bn for the G20 to meet its climate change targets.

Other Considerations

The standards set for issuers of green bonds should also be considered. Higher standards may direct the efforts made by countries and organisations that hope to become issuers in the green bond market. They will encourage accountability and transparency that will promote more suitable allocation of capital to funding projects.

Critics cite the relatively weak reporting in the green bond market. Coupled with uncertainty on what constitutes a green bond, this may be a deterrent to investors.

Nevertheless, progress is being made in this regard. China and India have already led the way with unique guidelines to support the issuance of green bonds. Similarly, African states will benefit greatly from policy frameworks based on their distinct markets.

Conclusion

Sentiments regarding the sustainable development of economies continue to set the pace for organisations and policy makers in various countries across the globe who hope to remain competitive for investors and other stakeholders.

The numbers do not lie and a shift of winds has already taken place. Individuals and groups must adjust with urgency. Recently, the S&P Dow Jones Indices, the world’s leading provider of index-based concepts, data and research, announced the launch of the S&P Green Bond Select Index. It will measure the performance of green-labelled bonds issued globally.

The wave of change is here, but the real question to consider in the midst of this change is: who will ride it with grace?

By Calvin Ebun-Amu, Sector Specialist

“I am pleased to inform this distinguished assembly that the federal government will be launching the first African sovereign green bond in December 2017.

“The bond will be used to finance renewable energy projects. We are very excited about this development as it will go a long way in solving many of our energy challenges, especially in the hinterland,’’ Buhari said.

According to the Premium Times, the President said this in Abuja on Tuesday while presenting the 2018 budget proposal to the National Assembly.

This development follows  Vice President, Prof. Yemi Osinbajo, announcement in February stating that the government was making arrangements to inaugurate the first African sovereign green bonds.

Osinbajo had also indicated that the federal government was planning to allocate $63 million under the green bonds initiative.

Green bond evolution in Africa

Green bonds are gaining traction across the continent, last month the South African stock exchange (JSE), also celebrated the launch of its Green Bond Segment, which provides a platform for companies and other institutions to raise funds ring-fenced for low carbon initiatives.

Donna Nemer, Director of Capital Markets at the JSE said the introduction of the green bond provides companies with an effective tool to raise capital for investments into sustainable projects that would have been funded internally.

“Issuing a green bond can help companies to strengthen their credentials as sustainable and responsible organisations. At the same time green bonds allow investors to mitigate the effects of climate risk as a part of their investment portfolio, while these bonds also satisfy environment, social and governance requirements and green investment mandates,” Nemer said.

Similarly, there are significant potentials in this pursuit within the infrastructure sector with estimates showing that investment opportunities in Africa’s infrastructure sector are up to US$93 billion per year.4 Available estimates show that in 2013, the annual global climate finance flows reached about US$331 billion out of which subSaharan Africa got only about 4%.5

In this context, Africa has been looking up to a plethora of concessionary, but sometimes uncertain, “climate funds” that are sourced from multilateral and bilateral donations which are seemingly hinged on international politics. Based on calculation using data extracted from the Climate Funds Update database; part of these “climate funds” that have been approved and as such earmarked for projects from 2002 till 2014 in Africa is close to US$3.4 billion. Ninety Seven percent (97%) of this is managed from multilateral sources and the ratio of grants to concessional loans is about 2:1.6

There are other emerging innovations for financing green and inclusive development initiatives. One of these is Green Bonds. Green bonds are used exclusively to fund projects that have environmental and/or climate benefits.

However, from investors’ perspective the debt recourse or financial backing, of the bond may or may not be strictly tied to specific green projects. In fact, the majority of green bonds are green “use of proceeds” bonds meaning they are backed by the issuer’s entire balance sheet. “Use of proceeds” structured green bonds therefore allow investors to benefit from investing in green initiatives without taking on additional risk of investing exclusively in specific green projects. For investors willing to have exposure to green project risk, there are green project bonds and green securitized bonds issued.7

By Uche Duru, Anthony Nyong

Lead managers were first appointed in October 2015, but the issue was scrapped due to market volatility before a 750m euro bond redemption on 4 April prompted a re-think   

The last time the South African National Treasury issued a global bond was in July 2014, even though the February 2015 Budget made provision for issuance of at least $1 billion in the international capital market in the 2015/16 fiscal year.

The most favourable time generally for sovereign bond issuance is in January, as that is when bond investors are cash flush and seeking a home for their money. When the South African National Treasury issued a $1.5 billion 12-year global bond in January 2012 it was priced at a coupon rate of 4.665 percent, which represented a spread of 270 basis points above the 10-year US Treasury’s benchmark bonds.

In April 2016, the South African National Treasury issued a $1.25 billion 10-year global bond at a coupon rate of 4.875 percent, which represented a spread of 335 basis points above the 10-year US Treasury’s benchmark bonds.This is considerably better than earlier this year when the premium foreign investors demanded to hold South African dollar debt rather than US Treasuries reached a seven-year high of 525 basis points on January 20 2016. The yield on South Africa dollar bonds due in September 2025 was 5.99 percent then, but eased to 4.72 percent earlier this week.

South Africa thereby beat Kenya to the international capital market to become the first African country to issue an international bond this year. Kenya said earlier in April that it would test the waters and become the first African country to tap global debt markets in 2016.The World Bank has praised Kenya for its strong growth, a solid agriculture sector, and infrastructure investment so there was expected to be good demand for the Kenyan bond.

African governments issued $15.5 billion in 2015, 22 percent lower than 2014 and the lowest level since 2012 as depreciating currencies, the oil price collapse and the slowdown in Chinese economic growth cut foreign investors’ appetite for African bonds.

Nigeria plans to borrow up to $5 billion this year as it struggles to close the gap between declining revenue sparked by the recent fall in oil prices and continuing high expenditure needs.

The South African National Treasury had appointed Standard Bank, Rand Merchant Bank and Citi as joint-lead managers and Investec as the co-lead manager to arrange the issuance of a foreign currency denominated bond on 9 October 2015. The bond was going to form part of the government’s financing of its foreign currency commitments as stipulated in the Budget 2015.

The Treasury said at the time that the government’s foreign currency commitment for 2015/16 amounted to $1.455 billion of which $756 million had already been paid for the fiscal year to date from the government’s foreign exchange deposits held at the South African Reserve Bank for foreign exchange reserve purposes.

Market volatility ahead of the US Federal Reserve’s first interest rate hike in December 2015 however saw the issuance scrapped, even though with hindsight this was the wrong call.

Nobody at Treasury could have foreseen the turmoil caused by the firing of Finance Minister Nhlanhla Nene on 9 December 2015, which roiled South Africa’s capital markets and severely dented foreign investor confidence. The next Finance Minister, David van Rooyen, lasted only four days before he was replaced by the former Finance Minister Pravin Gordhan.

Finance Minister Pravin Gordhan travelled to the UK and US in early March 2016 after he had presented the February 2016 Budget to meet foreign investors and reassure them that fiscal policy was in capable hands.

Investor confidence in South Africa as reflected in rising capital market yields has been undermined by slowing growth and the consequent pressure on the fiscus that failed to meet its deficit reduction targets due to slowing revenue growth. This has prompted downgrades of South Africa’s sovereign credit rating.

Moody’s, which currently rates the sovereign two notches above junk, has placed South Africa on review for a cut, citing concerns about the government’s ability to meet fiscal deficit reduction targets which rely on stronger growth in future years. Standard & Poor’s and Fitch, whose grades are just a notch higher than sub-investment grade, have also hinted at downgrades if acceleration in growth is not forthcoming.

South Africa might, however, be forced to borrow at a higher spread above US Treasuries if it loses its investment-grade credit rating because of persistently weak growth and large deficits, so issuing now made sense. In addition, foreign reserves had to be replenished following the redemption of a 750 million euro bond on 4 April.

The Treasury said: “The South African government sees the success of the transaction as an expression of investor confidence in the country’s sound macro-economic policy framework and prudent fiscal management.”

Unlike July 2014, the Treasury did not mention the “stable political environment” given the calls for President Jacob Zuma to resign after the Constitutional Court ruled that he had “had failed to uphold, defend and respect the Constitution” as the supreme law of the land in contravention of section 83(b) of the Constitution.

A statement similar to then-Finance Minister’s Nene:“While we are pleased with the confidence that the investors have shown in the sovereign, we are cognisant of our immediate challenges and can therefore not afford to be complacent as a country”, was also missing this time.

By Helmo Preuss 

Several factors are driving water shortages. Climate change could have the greatest global impact. Some projections have temperatures around the globe warming by three to four degrees (Fahrenheit) over the next century, which would affect water in many ways. Some areas would stay the same, but many others would be either flooded or stricken with drought.

Population growth is also putting pressure on clean surface freshwater resources in lakes and rivers. Brackish water must be treated before it is used for human consumption, and groundwater is harder to use because it must be pumped.

According to Julie Gorte, senior vice president for sustainable investing at PAX World Management, 96.5% of all the water on Earth is brackish and 1% is saline. Only the remaining 2.5% is fresh, and of that, 1.2% (0.03% of all water) is surface fresh water. Of the surface fresh water, 30% is groundwater, and 69% is currently locked up in glaciers and icecaps.

The more fresh surface water is used, the more it becomes contaminated. Industrial use is a major issue. For example, hydraulic fracturing, or “fracking,” takes about 5 million gallons of water to frack a well once. The water becomes highly contaminated, and treating it is extremely expensive.

Some countries with large populations are experiencing drought conditions, yet much of their water is contaminated. About 60% of China’s groundwater — which makes up about one-third of the country’s water resources — was rated unfit for human consumption by China’s Ministry of Land and Resources. In India, 80% of sewage flows into rivers without being treated, according to a 2013 study by the Centre for Science and Environment.

Accessing water in underground aquifers is also a challenge. Boreholes can be neglected for years or can be vandalized (sometimes as a result of war). In such cases, wells need to be rehabilitated. In other cases, springs are unprotected, which allows the water to become contaminated. Many communities lack the financial resources to hire engineers and well drillers with the expertise to access and protect the water. Where water is accessible, commercial applications, such as farming, often deplete the supply.

Finally, the availability of ongoing service and support for communities that have previously benefited from safe-water projects is an important consideration.

“For every community that receives first-time access, another community somewhere else is losing the access they once had because of lack of maintenance or continued investment in their water system,” says Stan Patyrak, vice president of strategy and development at The Water Project.

Innovative Solutions

In developing countries, not-for-profit organizations, such as The Water Project, collaborate with local organizations to help improve their capacity to provide sustainable water and sanitation projects. The Water Project’s programs in sub-Saharan Africa focus on water delivery and service, community engagement, hygiene, sanitation training, and ongoing monitoring. Programs sometimes use outside (private sector) hydrogeologists, engineers, and consultants. Moreover, local businesses supply spare parts and provide ongoing maintenance.

Drilling and repairing wells, building dams, protecting springs, and harvesting rain are often the easy part. The main challenge is keeping water flowing. People from the community, local and national governments, and the private sector all have a role to play.

In developed countries, public authorities are addressing the problem through cultural change and technological innovation. Consider the example of Las Vegas. Of 280 major US cities, Las Vegas ranks at the bottom of the list in terms of rainfall, which may explain why it is one of the most water-efficient cities on Earth. Its public authority has taken steps to protect the availability of fresh water by regulating where grass can be put on golf courses, for instance, and what kind of water can be used in fountains.

In the US, California is a case study for drought. In some municipalities, especially near coastlines, salt water is intruding into the groundwater. If too much fresh water is being taken out of the groundwater, sea water will seep in and make the groundwater brackish or saline. It then cannot be used for agriculture, drinking, or hygiene without treatment.

One potential solution frequently used in the Middle East is desalination; the problem with this process, however, is that it is not environmentally friendly. Desalination plants suck water from the ocean, put the contents through a reverse osmosis process, and then dump the briny waste back into the ocean.

Desalination is also energy intensive and reliant on fossil fuels, although companies are starting to use solar energy and wind to power the plants. In California, WaterFX will soon open the first commercial solar-powered desalination plant. The modular technology is located right where it is needed, in this case in the Central Valley — the heart of the state’s agriculture. Rather than processing ocean water and then transporting it inland, the company recycles unusable, salty drainage water from irrigation into potable water for use by local water districts.

“Amazingly, this process changes farmers from being huge water consumers into water producers. They can actually get paid for their water,” says Rona Fried, CEO of SustainableBusiness.com. “And the resulting clean water costs about the same as what farmers pay today, much less than water desalinated from the ocean.”

Other methods are being used to minimize the amount of water used in agriculture. Drip irrigation alone can reduce water usage by 20%. Software and sensors allow farmers to track moisture levels in the soil (minimizing irrigation), and drones are beginning to be used to monitor soil conditions from above. Farmers will likely switch to crops that match their local water conditions.

California is turning to other innovative solutions as well. Orange County is implementing artificial groundwater recharge systems, which route surface water back into the groundwater, as well as using treated wastewater for such purposes as drinking and agriculture. Los Angeles recently dropped 96 million “shade balls,” which float on water and block sunlight, into a reservoir holding 3.3 billion gallons of water, thereby reducing evaporation and making the water less susceptible to algae, bacterial growth, and chemical reactions.

Investment Opportunities

As US water and sewer systems deteriorate, an estimated $1 trillion in new investments will be needed to rehabilitate water infrastructure over the next 25 years, according to the American Water Works Association. Further, the American Society of Civil Engineers estimates that the cumulative capital investment gap for US water infrastructure will rise from $100 billion in 2015 to nearly $200 billion in 2040.

“The massive amount of investment required provides an opportunity to invest in municipal securities over the next 20 to 30 years,” says Zareh Baghdassarian, municipal and corporate credit analyst at NewOak Capital. “Four of the top five issuers — California, New York, Florida, and Pennsylvania — offer domestic investors a double tax-exempt status on returns, and the issuers have high credit ratings.”

For example, the Los Angeles Department of Water and Power’s municipal bonds (5s in 2044) yield around 3.5%, which equates to almost 8% when the double tax exemption is counted.

Municipalities have contracts with regulated utilities that provide water to residents and treat the water. Water utilities are public companies, so investors may trade in their stocks and bonds. In addition, they can invest in public companies — which supply the industry with pumps, pipes, filtration and treatment systems, and other technology — as well as water-related technology companies, such as biotech firms. It is also possible to make private equity investments in small companies that are innovating in this space. Of course, because smaller companies have different financial characteristics than larger public ones, returns may be more volatile.

Another recent development comes for the exchange-traded fund (ETF) sector. The PowerShares Water Resources Portfolio ETF is based on the NASDAQ OMX US Water Index. The constituents of the index are selected by Rona Fried (CEO of SustainableBusiness.com). She first looks at how much of the company’s revenue is driven by water solutions, shooting for a minimum of 50%. Companies that are considered leaders in the industry may also be included, even if water is not their dominant product. She then looks at how a company runs its water business from a sustainability perspective. For example, do wastewater treatment companies use chemicals to treat water, or are they using advanced technologies that treat water biologically? Are they improving the energy efficiency of their plants and incorporating water recycling and/or bio-gas?

As Gorte points out, investors hoping to earn a return need to keep in mind that any company, security, or idea is capable of underperforming depending on economic factors and the financial/business cycle. Some industries are more cyclical than others. Utilities tend to have less cyclical volatility, and technology companies may be more volatile. Ultimately, Gorte believes investors should look for well-managed companies.

“There’s a lot of innovation in how to move water around and treat it and make it available more efficiently with less loss,” she concludes. “That’s a nice, long-term secular growth prospect.”

By Sherree DeCovny, a freelance journalist specializing in finance and technology.

Climate-friendly investment is starting to flow from a relatively new and increasingly popular source – the green bond.

Green bonds were created to increase funding by accessing the $80 trillion bond market and expanding the investor base for climate-friendly projects worldwide. They are fixed income, liquid financial instruments that are easy to understand, and the funds green bonds raise are dedicated exclusively to climate-mitigation and adaption projects, and other environmentally beneficial activities. This provides investors an attractive investment proposition as well as an opportunity to support environmentally sound projects.

“Green bonds have opened a new finance flow that will be essential to confronting climate change,” said Rachel Kyte, World Bank Group vice president and special envoy for climate change. “They are providing green investment opportunity for an ever wider investor group, including those who wish to divest and diversify from fossil fuel-intensive portfolios, and they have proven that a stream of investor capital exists for green assets.”

World Bank and IFC pioneer the green bond market

The World Bank Treasury issued its first green bond in 2008, at a time when investors didn’t have liquid, fixed income investment options that specifically supported climate-focused and environmentally-friendly projects. The World Bank has since issued about US$8.5 billion in green bonds in 18 currencies, including a 10-year US$600 million benchmark green bond and green growth bonds linked to an equity index and designed for retail investors. Separately, the IFC has issued US$3.7 billion, including two US$1 billion green bond sales in 2013. Proceeds from World Bank and IFC green bonds are used to support renewable energy, energy efficiency, sustainable transportation and other low-carbon projects, as well as financing for forest and watershed management, and infrastructure to prevent climate-related flood damage and build climate resilience.

The two institutions – whose AAA/Aaa ratings provide security for investors and development mandate and safeguards provide assurance for the use of proceeds and impact – have helped pioneer the green bond market, expand the investor base, and raise awareness about the needs and opportunities for climate-friendly investment.

ssuers ranging from other development banks to states, cities and corporates have looked to the World Bank and IFC for leadership and guidance in how to issue bonds to raise financing for climate-friendly activities. Both issuers are sharing their knowledge and experience to help grow the market – in addition to building the fundamentals for the market through their own green bond programs. For example, in April 2014, the World Bank signed the first advisory services agreement with the Dubai Supreme Council of Energy (DSCE) to design a funding strategy for Dubai’s green investment program.

At the World Economic Forum in Davos in early 2014, World Bank Group President Jim Yong Kim urged more investors to get involved and called for doubling 2013′s annual green bond market issuances by the UN Secretary-General’s Climate Summit in September.

The market, with about US$11 billion in new green bonds issued in 2013, passed that goal in July, and ended the year with over US$36 billion in new issuances in 2014.

Utilities and corporates lead charge for further market expansion

The involvement of the multilateral development banks has expanded interest in green bonds, with government agencies, municipalities, and more recently utilities and corporations finding ways to use the financial instruments.

State of Massachusetts, Ile de France, and Export Development Canada have all issued green bonds. In May 2014, the French utility GDF Suez issued the largest green bond, a 2.5 billion euro (US$3.4 billion) bond to fund renewal energy projects that was more than three times oversubscribed. It was nearly twice the size of the previous 1.4 billion euro record set by EDF in November 2013.

Another key driver of the market is the growing number of asset managers with mandates to increase investment in instruments that support low-carbon growth. For example, BlackRock was selected by Zurich Insurance in November 2013, to manage a green bond portfolio of US$1 billion.

Standard & Poor’s said corporate issuers were increasingly interested in green bonds as a finance avenue offering access to a diversified investor base.

Green Bond Principles specify use of proceeds

The financial industry is also playing a key role in raising awareness for the green bond market and the need for it to have a solid base on which to grow. In January 2014, a group of banks launched the Green Bond Principles aimed at standardizing practices for issuers and investors and improving transparency. The principles specify sectors in which green bond proceeds can be invested, including in renewable energy, energy efficiency, sustainable waste management, sustainable land use, biodiversity conservation, clean transportation, and clean water.

The principles, developed with the support of the investor group Ceres and in consultation with investors and issuers such as the World Bank and IFC, already  have the support of 55 of the largest investors, bond issuers and intermediaries including Bank of America Merrill Lynch, Citibank, Credit Agricole, JP Morgan Chase, Goldman Sachs, HSBC and SEB. The International Capital Markets Association (ICMA) is serving as the secretariat for the Green Bond Principles.

Green bond-supported projects yield multiple benefits

World Bank and IFC green bonds have supported solar and wind power installations, the reduction of methane emissions, more efficient transportation in cities, reforestation, flood protection, and building climate-resilience in developing countries.

The benefits of these projects can be measured both in the benefits to society and in the reduction of carbon dioxide and other greenhouse gases.

In Indonesia, for example, a geothermal project supported by World Bank green bonds is designed to increase access to affordable, clean energy and also reduce 1.1 million tons of greenhouse gases every year. Another World Bank green bond-funded project in China is reducing costs through improved energy efficiency in factories and is expected to cut greenhouse gases by 4 million tons a year.

IFC green bonds are supporting a new large-scale solar power facility in Mexico that doesn’t require subsidies and will meet the energy needs of 164,000 people while creating jobs and reducing dependency on polluting diesel generators. In India, IFC green bonds are also helping a company recycle e-waste from computers, discarded mobile phones and other electronics that can be harmful to the environment and to peoples’ health.

STORY HIGHLIGHTS

The 12 year bond is double that of the bonds the bank issued last year. The EIB said that the longer time frame “reflects the duration of renewable energy and energy efficiency projects” financed by the EIB.

The bank added that the bond generated strong demand from investors interested in the socially responsible features of the products, highlighting how environmental, social and governance (ESG) issues are now being considered by mainstream investors.

Elia Kreivi, directors and head of the capital markets department at the EIB, commented, “EIB is highly engaged in climate action, a key priority on the EU agenda, and is fully committed to the meaningful development of the green bond market, the importance of which is growing day by day.”

Asset managers made up the biggest portion of investors, accounting for 56%, followed by banks, which snapped up 27%. The Netherlands made up the biggest portion of investment allocation when looking at geographical region, followed by Germany and Scandinavia.

The sums invested in bonds related to climate change have grown rapidly in recent years and their popularity is continuing to grow. A report published in July noted that climate bonds have grown from a niche market and moved into the mainstream, with the market now standing at an estimated $501.6 billion (£293.6bn).

Hendrik Tuch, senior portfolio manager at Aegon Asset Management, which invested in the EIB bond, said, “The Climate Awareness Bond issued by the European Investment Bank fits within our existing mandate guideline and our impact investing approach in which we select investments that meet our existing risk and return requirements, but also have the intent to create a measurable social and environmental impact.

“We think the market for green bonds will grow considerably in coming years as the appetite from investors is more than sufficient to cover increasing issuance level.”

By Blue & Green Tomorrow

The report – Bonds and Climate Change: The state of the market in 2014 – was prepared by the Climate Bonds Initiative and commissioned by HSBC. It noted that compared to when the first edition of the annual report was published in 2012, the green and climate bonds landscape is “unrecognisable”.

It states, “Three years ago, labelled green bonds were a niche market pioneered by a handful of development banks. In the past year, however, labelled green bonds have entered the spotlight with $11 billion (£6.4) issued in 2013 (over three times the issuance of any previous years) and $18.5 billion (£10.8bn) issued up to 10 June in 2014.

The issuer has also expanded beyond development banks to include corporates and municipalities. The green bonds era has begun.”

The labelled green bond market stood at just $7 billion (£4bn) in the last edition of the report, but it now stands at $35 billion (£20.4bn), with strong growth continuing throughout the beginning of 2014.

The broader  “climate-themed universe” is an indicator of where future bonds might be labelled, the report explains. The amount of bonds linked to climate change solutions stands as $502.6 billion (£293.6bn), compared to last year’s estimate of $346 billion (£202bn), with transport being particularly dominant.

Sean Kidney, CEO of the Climate Bonds Initiative, said, “Investors are concerned about climate change. This report shows how they can invest in climate bonds without risk. The investment opportunities we find are safe and secure investment grade bonds. This is a dull green market – just how pension funds and insurance funds like it.”

Despite the progress made, the report adds there is still a long way to go if the International Energy Agency’s projections of the capital flow needed to address dangerous climate change is to be met.

The report identifies electricity utilities, auto manufacturers, bank lending and asset finance, and water utilities as emerging trends.

Co-author of the report, Bridget Boulle added, “In the coming year we will see growth in labelled green bonds from municipalities, cities and corporate issuers. We expect increasing demand from investors signed up to the Principles for Responsible Investment and the Global Investor Coalition on Climate Change.”

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