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Green bonds - A green year in review

Nina Ahlstrand
2019 was the year when climate change became a climate crisis.
As the awareness around our negative environmental impact is increasing, public opinion and consumer behavior are shifting. To stay relevant, competitive and profitable, corporations around the world are adjusting their businesses to align with the Paris Agreement.

Also the financial industry is changing. The cost of climate change is becoming more visible, and investors are seeking transparency around the companies and projects they finance. It is not hard to understand why green bonds have become popular. With capital earmarked for environmentally friendly projects, investors receive additional details around their environmental impact.

The first green bond was issued in 2007 by the European Investment Bank, but it was after the Paris Agreement in 2015 that volumes started to grow. The market has also branched out to include not only green, but also social and sustainability bonds, financing areas such as healthcare and education. 

A new record has been set almost every year, but 2019 stands out. Globally, issued volumes reached almost 240 billion – an increase by 64 per cent compared to 2018. Volumes grew across regions, with Europe in the lead, and activity increased in all sectors. The financial industry stands for the largest share where banks finance their green lending with green bonds. 
 
Global Issuance

In the Nordic market, issuance almost doubled year on year. Sweden has historically been the leading country, but volumes are now steadily increasing across the region. Sustainable issuance, as a share of total bond issuance, increased from 2.5 to 5.5 percent, signaling the growing interest for sustainable investments. 
 
Nordic issuance

Municipalities, banks and real estate companies stood for approximately 70 per cent of Nordic volumes. The largest issuers in the respective countries were Kommuninvest with EUR 1.7 billion, Ørstedt with EUR 1.6 billion, DNB Boligkreditt with EUR 900 million and Stora Enso with EUR 570 million. 

The definition of green has also been actively debated. The EU presented a proposal for a Green Taxonomy, providing guidance on how to define an environmentally sustainable economic activity – receiving both positive and negative critique. There is a clear need for common definitions, but if too complex, it may hamper market growth. Bank of England governor Mark Carney also declared that to reach the Paris Agreement, we might need 50 shades of green.

In the green bond market, several transactions also stirred debate. The market has so far been more dark green than light green. However, for many sectors the dark green options are not yet available and lighter green investments might be much needed steps along the way.

As an example, Teekay Shuttle Tankers issued a green bond to finance new vessels that will meet IMO targets of 50 per cent emission reduction by 2050 already in 2020. Despite ambitious achievements, some questioned how a company transporting oil can issue green bonds.

Another example was the Italian oil & gas firm Snam who issued a so called transition bond to finance investments reducing methane emissions. Many see natural gas as essential in achieving successful long-term energy transition, and although not labeling the bond as green, some still questioned whether an oil & gas company should qualify for a sustainable label at all – transition or green.

At DNB, we welcome this debate and this development. The definition of green is not necessary, nor should it be, binary. We need all sectors to contribute towards a green transition – and thereby we need all shades of green. 

Nina Ahlstrand, Sustainable Finance DNB Markets, January 2020