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Green bond market gathers pace in 2019 as Europe leads pack

The green bond market rebounded sharply in 2019, up 49% after a lackluster performance in 2018, with the EU accounting for almost half of issuance, according to the latest figures from the Climate Bonds Initiative.

The CBI, a nonprofit organization promoting the sustainable bond market, said 2019 green bond and loan issuance stood at $254.9 billion, up from $171.1 billion in 2018 and above its forecast of $230 billion to $250 billion. Of the 2019 total, $6.8 billion, or 2.6%, are green loans.

For 2020, CBI forecasts $350 billion to $400 billion in green bond and loan issuance.

EU is largest issuer

Regarding geographies, the EU was the largest regional issuer with $106.7 billion. However, the U.S. topped the national rankings at $50.6 billion. China came second at $30.1 billion and France took third place at $29.5 billion.

"The 2019 results and 2020 estimates bring the vital international milestone of $1 trillion in annual green investment by 2021/2022 into sight," CBI CEO Sean Kidney said in a statement.

The green bond market has been growing as investor interest toward environmentally friendly projects increases — but it remains a tiny fraction of the debt market.

Kidney said the market needed more sovereign green bond issues, action by central banks and regulators, increased green financing from banks and insurers, zero-carbon strategies from institutional investors, and global companies committing to the Paris agreement on climate change and the voluntary Task Force on Climate-related Financial Disclosures.

"These will be the signs of market maturation and the financial sector driving capital re-allocation in the 2020s to face the climate emergency," he said.

Top five issuers

The top five issuers for 2019 were the U.S. government-sponsored mortgage finance agency Fannie Mae, with a total of $22.8 billion; Germany's KfW development bank with $9.02 billion; the Dutch state treasury agency at $6.66 billion; the Republic of France at $6.57 billion; and Industrial and Commercial Bank of China at $5.86 billion.

The largest single issues were the Dutch state treasury agency's $6.66 billion green bond, KfW at $3.36 billion and China's Industrial Bank Co. Ltd. at $2.91 billion.

The proceeds of almost a third of all bond issues were dedicated to renewable energy projects and just under 30% for low carbon buildings.

Sovereign green bond issuance accounted for about 10% of the total in 2019 at just over $25.8 billion, with both repeat sovereign issuers and inaugural deals from Chile and the Netherlands.

Chile is expected to issue again in 2020, as are France and the Netherlands, the CBI said.