Just over a decade ago, in 2007, the iPhone made its debut, Tesla unveiled its first electric car, and the England football team returned home to the new Wembley stadium.
A potentially overlooked milestone, however, was the launch of the first green bond: a climate bond issued by the European Investment Bank.
Since this debut, green bonds have exhibited explosive growth, with annual issuance now at $155bn – a level likely to be eclipsed in future.
Indeed, since the launch of Columbia Threadneedle Investments' UK Social Bond fund in 2014 we have been encouraging sovereigns, supranationals, agencies and corporates to consider a wider range of issuance which address the needs of society more holistically (see Figure 1).
Green, social and sustainability bonds are “specific use-of-proceeds” bonds, which means the financing is exclusively channeled to pre-identified projects where the outcome will be green, social or sustainable.
Until recently, this was a much-undernourished area of issuance, but in the past 12 months there has been an orientation towards financing which targets specific social and sustainable outcomes.
Figure 1: differentiating bond types
Source: ICMA/Columbia Threadneedle Investments August 2018
One of the main drivers of this, alongside increased investor demand, has been the launch of codes of best practice: the International Capital Markets Association’s (ICMA) Green Bond Principles, a voluntary framework for good practice around guidelines, transparency and disclosure, were announced in 2014 with a revised version arriving in June of this year; while the Social Bond Principles and Sustainable Bond Guidelines followed in June last year.
As at the end of June 2018, more than 400 entities (including 167 year-to-date) have issued green, social and sustainability bonds in excess of 30 currencies across 50 countries (Figure 2).
Figure 2: selected recent and forthcoming bond issues
Source: Columbia Threadneedle Investments, August 2018.
The breadth is particularly pleasing, with sovereign bonds issued in Indonesia, Belgium and Lithuania, while the Hong Kong government has announced plans for a sovereign issuance program of up to HK$100bn, as well as a grant scheme to support green bond issuance.
HSBC, meanwhile, was the first bank to launch a bond dedicated to the UN Sustainable Development Goals (SDGs) in November last year, which targeted seven of the 17 goals (see below) and is a great example of an aggregator model whereby, through its use of proceeds, we can reach those entities which would ordinarily not be of sufficient size to access the bond market.
When reflecting on the past 12 months, we believe there have been two significant milestones in the growth of the market.
1) ‘Social Tuesday’, November 2017
November last year was a seminal month in the development of the market, with an unprecedented number of specific use-of-proceeds bonds being issued in Europe.
In fact, three of these – Cassa Depositi e Prestiti (CDP), Bayern Labo, and African Development Bank (ADB) – were issued on a single day, 14 November. Hot on the heels of Black Friday and Cyber Monday we christened it ‘Social Tuesday’.