BONDS AND CLIMATE CHANGE THE STATE OF THE MARKET 2018 WAT E R N D U S L A E O L L U T P I O D N N C A O E N T T S R ILDIN A O U G L B S A $1.45 W TRILLION CLIMATE- ALIGNED SP BONDS TRAN ORT UNIVERSE* EN E R GY *Including USD389bn of green bonds Prepared by Climate Bonds Initiative. Commissioned by HSBC. Bonds and Climate Change www.climatebonds.net September 2018 1 Report Guide About this report 2. Issuer screening Table of contents The first part of this report presents the In the second phase, issuers were excluded if: findings of Climate Bonds Initiative’s PART 1: • they had no debt outstanding, according to research of climate-aligned issuers, CLIMATE-ALIGNED BONDS Bloomberg and/or Thomson Reuters EIKON, conducted between April and June 2018. It • had been acquired or 3 The climate-aligned bond universe identifies issuers who generate at least 75% • there was insufficient revenue information of their revenues from ‘green’ business: low- 4 Introduction to determine the share of ‘green’ revenues. carbon transport, clean energy, sustainable 5 General overview water and wastewater management, low- 3. Bond research and data processing 10 Sector analysis carbon buildings and built environment, In phase 3, we collated and analysed all sustainable forestry and agriculture, as well 11 Low-carbon transport bonds outstanding from issuers that passed as waste management and recycling. the screens in phase 1 and phase 2. We 13 Clean energy The second part of the report looks at the further screened bond issuance data by: 15 Water management diversity of bond structures used in the green • Issue date: bonds were only included if 17 Low-carbon buildings bond market. Features on different bond and they were issued after 1 January 2005 and securitisation types provide commentary on 19 Sustainable land use before the end of Q2 2018. issuers and future prospects. • Maturity: bonds were removed if they had 20 Waste management It also includes an update on green bond matured, been called or otherwise repaid, PART 2: policy covering 2017 and 2018, as well as a or had a 2018 maturity date. summary of the green bond pricing research GREEN BOND FOCUS Other data notes: conducted by Climate Bonds Initiative. 22 Green bonds – diversity of bond All 2018 figures are for H1 2018. structures Research methodology For fully-aligned issuers, the full volume 28 Green bonds policy update This report identifies and analyses a universe of outstanding bonds is climate-aligned. 30 Spotlight: Green bond pricing of climate-aligned bonds, defined as: For strongly-aligned issuers, we used a pro • bonds from issuers that derive > 95% rata amount outstanding per bond that of revenues from ‘green’ business lines corresponds to the percentage of ‘green’ Climate Bonds Initiative (fully-aligned) revenues. For example, if 80% of revenue is • bonds from issuers that derive 75-95% climate-aligned, for each bond we used 80% The Climate Bonds Initiative is an of revenue from ‘green’ business lines of the amount outstanding for all charts and international investor-focused not-for- (strongly-aligned) figures. Consequently, this report refers to profit organisation working to mobilise • labelled green bonds and analyses ‘aligned outstanding’ bonds the USD100tn bond market for climate rather than to total amount outstanding. change solutions. To identify aligned issuers and bonds, the following process was undertaken: If an issuer is fully- or strongly-aligned and The mission focus is to help drive has also issued a labelled green bond, then to down the cost of capital for large-scale 1. Issuer-level research avoid double counting: climate and infrastructure projects Companies were first identified by industry and to support governments seeking • their green bonds are attributed in full to sub-sector and key words, or through increased capital markets investment to green bond figures, and previous climate-aligned issuer lists. meet climate goals. • all remaining outstanding bonds are Issuers were considered for inclusion if they The Climate Bonds Initiative carries out attributed to either fully-aligned figures (in derived at least 75% of revenue from ‘green’ market analysis, policy research, market full) or strongly-aligned figures (on a pro business lines in at least one of 6 climate development; advises governments and rata basis) as per the issuer’s alignment. themes: clean energy, low-carbon transport, regulators; and administers a global water management, low-carbon buildings, Note that many green bond issuers have green bond certification scheme. waste management and sustainable land use. less than 75% of revenue derived from green Climate Bonds Partners range from business lines and are therefore neither Information on issuer revenues and debt investors representing USD14tn of fully nor strongly-aligned. Unlabelled bonds outstanding was obtained from Bloomberg, assets under management and the from these issuers are hence excluded from Thomson Reuters EIKON and company world’s leading investment banks to aligned outstanding volumes. websites (particularly annual accounts), governments like Switzerland and France. and cross checked against other sources, Issuer screening is based on the Climate Bonds The Climate Bonds Initiative is the lead including FTSE Russell Green Revenues. Taxonomy (see p30) and the Climate Bonds partner in the Green Infrastructure Standard and Criteria but the screening Notes: Where deemed appropriate, special Investment Coalition. Sean Kidney, process does not apply the full Climate Bonds purpose vehicles and subsidiaries were Climate Bonds Initiative’s CEO, is a Sector Criteria due to insufficient granularity of aggregated under corporate groupings. member of the European Commission’s information available. Therefore, it is possible Both publicly listed and private issuers were Technical Expert Group (TEG) on that some climate-aligned bonds would not considered for inclusion. Sustainable Finance (see p28). meet the full Climate Bonds Standard. Bonds and Climate Change www.climatebonds.net September 2018 2 The climate-aligned bond universe The $1.45tn climate-aligned bond universe Strongly-aligned climate issuers $314bn Labelled green bonds $389bn Fully-aligned Fully-aligned climate issuers US Muni issuers $497bn $250bn All amounts represent aligned outstanding bond volume. Bonds and Climate Change www.climatebonds.net September 2018 3 INTRODUCTION Sustainable Development Goals (SDGs) Climate-aligned bond universe: 869 issuers with have been included for the first time in USD1.2tn outstanding (excluding US Muni fully-aligned issuers) this report. We identified six SDGs where increased green investment provide direct Fully-aligned: 342 issuers with USD497bn outstanding benefits: SDG 6, 7, 9, 11, 13 and 15. However, climate mitigation measures, adaptation Strongly-aligned: 82 issuers with USD314bn aligned and the development of climate-resilient outstanding infrastructure and buildings underpin the achievement of all 17 SDGs. To highlight the Green bonds: 498 issuers, of which 52 fully- or strongly- links, sector headings use related SDG icons. aligned, with USD389bn outstanding More in depth green bond coverage has been provided on green bond structures, policy updates and public sector developments, as well as green bond pricing. The Climate Bonds Initiative has been What’s new in 2018? This can be found on pages 22-30. researching investment opportunities in This year we have expanded the scope bonds financing climate-aligned assets since The 2018 research identified 869 issuers: to include issuers who are strongly 2012. The climate and investment backdrop 342 fully-aligned, 82 strongly-aligned and climate-aligned, i.e. ones that derive at has changed dramatically over the past 498 green bond issuers. least 75% of their revenues from ‘green’ 6 years. The labelled green bond market business lines. This is to capture companies has taken off and with it, the focus of this transitioning to ‘green’ and to take into research has expanded. account the fact that as ‘pure-play’ issuers Previous reports identified issuers whose grow, their revenue streams tend to diversify. revenues are derived almost entirely from This approach seeks to highlight as many ‘green’ business activities (>95%). Outstanding issuers raising funds for green assets and bonds of these issuers, sometimes referred to projects as possible including labelled green as ‘pure-plays’, plus labelled green bonds were bonds and unlabelled bonds from climate- collectively defined as ‘climate-aligned bonds’. aligned issuers. Quick guide to terminology used in this report Green bonds: Bonds issued in Climate Bonds conducted a separate scoping not analyse the full outstanding volume order to raise finance for climate exercise. Outstanding bonds from these of bonds from strongly-aligned issuers change solutions and labelled as green issuers are not included in the report analysis (see definition of strongly-aligned by the issuer. They can be issued by except in the overall climate-aligned universe climate issuers). For simplicity, ‘aligned governments, banks, municipalities or figure of USD1.45tn. Labelled green bonds outstanding’ bonds is always implied corporations and can be applied to any from these issuers (USD14bn) have been throughout the report although the term is debt format, including private placement, taken out of the USD264bn outstanding to not always used in full. securitisation, covered bond and sukuk. avoid double counting. The USD250bn fully- Certified Climate Bonds: Issuers can aligned amount outstanding of US climate- Green bonds are only included in this report certify bonds or loans under the Climate aligned municipal bonds has been provided and the Climate Bonds database if at least Bonds Standard. Certification confirms as an indication of the market size. 95% of proceeds are dedicated to green that the bond is aligned to the Paris assets aligned with the Climate Bonds Strongly-aligned climate issuers: Agreement and to keeping global warming Taxonomy and if sufficient information on Bond issuers where 75%-95% of under 2°C. Many of the bonds in this the financed projects is available.