Energize Weekly, November 27, 2019
Debt instruments fostering sustainable projects and development reached $1 trillion in 2019 – with more than 30 percent of those loans coming this year, according to Bloomberg New Energy Finance (BNEF).
“Reaching the trillion dollar milestone is a key moment for the sustainable debt market – if this market wasn’t already on the radar of major global investors, it will be now,” Angus McCrone, chief editor at BNEF, said in a statement.
A total of $13.5 billion was invested in green project financing before 2012. Since then, a little more than $1trillion has been invested in green credit instruments, with 2019 accounting for $320 billion.
The sustainable market is composed of green, social and sustainability bonds and loans to finance “projects with positive environmental and social benefits,” BNEF said.
It also includes debt securities that are keyed to the sustainability performance of the borrower.
“Surging capital flow into the market has been driven by growing investor demand for the securities,” BNEF said. “Some markets like Japan, Hong Kong and Singapore also offer financial benefits for issuers structuring sustainable debt, in an effort to boost the supply of investment opportunities.”
The most popular debt vehicle by dollar volume remains green bonds. Green bonds – which were first issue issued in 2007 to finance projects with positive environmental or climate impacts – account for $788 billion in investment, or 77 percent of the total debt.
Sustainability-linked loans make up about 10 percent of the market and sustainability bonds another 7 percent of funds invested.
“Sustainability-linked debts are a new innovation that offer explicit price incentives to borrowers or investors,” BNEF said.
The first company to issue such bonds was Italian utility giant Enel SpA. The utility issued $1.5 billion in sustainability-linked bonds in September 2019. Enel has said it will increase the interest rate the bond pays if it fails to meet its own renewable energy generation targets.
“The sustainability-linked model is a crucial development for the sustainable debt market,” Mallory Rutigliano, a BNEF green and sustainable finance analyst, said in a statement. “The bonds and loans are considered sustainable not because of the use of proceeds, but because of how the borrower commits to making sustainability improvements.”