Green bond market tipped to return to strong growth in 2019

The green bond market should return to impressive growth in 2019, following a year of "healthy consolidation with more modest growth".

That is the conclusion of the latest update from leading Nordic bank and green bond specialist SEB, which predicts the global green bond market should grow from around $180bn this year to $210bn in 2019, with the potential to "surprise to the upside" and reach $240bn.

The report confirms that November 2018 saw a record level of green bond issuance, with $31.bn representing 21 per cent growth year-on-year. The burgeoning Chinese market accounted for over 40 per cent of all activity during the month, thanks in large part of a $9.6bn issuance from the country's Industrial Bank.

The strong performance means the market is up six per cent for the year to date, reaching $168bn. However, the record November performance largely served to make up ground following a sluggish summer that means 2018 is not expected to maintain the stellar growth rates seen in recent years.

"Despite the energetic November, our earlier characterizations appear to remain accurate and it looks that the market will end 2018 in line with our previously described expectations of a "move sideways", with issuance levels more on par with the $173bn seen in 2017," the SEB report stated. "We expected 2018 to be a year of "healthy consolidation with more modest growth", because we are bullish in terms of 2019 (and medium-to-long-term prospects) on account of growing refinancing backlogs intermingled with a relentlessly strengthening investment proposition across a wide range of green infrastructure projects and activities."

A number of new policy initiatives designed to drive green finance innovation are also expected to provide the market with a further boost during 2019.

"2019 can deliver bright growth prospects for the green bond market, after stabilising at around $180bn of issuance on a moving 12 months basis this year," said Christopher Flensborg, head of climate and sustainable financial solutions at SEB. "The market has the potential to grow to $210bn in 2019, continuing its now familiar quest of organically evolving across geographies and sectors."

He also stressed that the market had the potential to outperform SEB's expectations. "In this scenario, our assumptions are bolder in terms of the prospective scale of the green infrastructure investment pipeline, and more issuers across new sectors and geographies finding deeper pools of projects and activities to fund on their balance sheets," he said. "We also assume that the modest policy incentives offered and proposed by a handful of governments will stimulate additional issuance."

Between $38bn and $45bn of social and sustainability bonds are expected to be issued in 2019, while government agencies and municipalities are projected to "return to form"and deliver $20-22bn from agencies and $12-14bn from municipalities. Non-financial sector corporates could deliver a further $45-50bn of issuance during 2019, the report said. "Sovereign issuance exceeded our expectations in 2018 with seven active issuers and the trend will continue next year, with potential for $23-28bn," SEB said.

It added that it also expects to see the first Green Collateralised Loan Obligations (CLOs) launched in 2019.

"We have done our annual review and are confident to see growth in 2019," SEB said. "Especially Europe will see growth but also the US and many other countries - and at last we expect to see both banks and corporates become more frequent issuers."