Green bonds market grew by $500bn in 2021, a new record

Climate Bonds estimates that this is a 50% increase on 2020 levels

New research from Climate Bonds Market Intelligence has found that 2021 marked the highest annual figure in green finance issuance since the market’s inception. In total, more than $517bn of green bonds were issued by investors last year.

The research found that “substantial growth” was delivered across social, sustainability, sustainability-linked bonds (SLBs). On top of green bonds, these types of financing deals pushed total issuance to $646.5bn in 2021.

Climate Bonds estimates that this is a 50% increase on 2020 levels, previously the largest year of growth. The levels recorded in 2021 are also up a massive 343% on 2019 levels. Climate Bonds claims that this has been driven, in part, by “pandemic bonds” that are aligned to social-linked bonds.

In 2015, the green finance market was in its infancy, Climate Bonds notes, at a total volume of $104bn. The market has since grown exponentially, surpassing the cumulative $1trn milestone in 2020 and now sits at $1.5trn.

The revelation comes days after research from McKinsey examined the sectors that are accountable for 85% of all emissions across 69 nations. The report examines how demand, spending and jobs would change in order to reach net-zero.

The report claims that, between 2021 and 2050, capital expenditure on assets for energy and land-use systems tailored towards net-zero would reach $275trn and around $9.2trn annually, almost three times greater than the current annual spend. An additional 1trn on today’s annual spending would also need to be relocated from high-emitting sectors to new low-carbon assets. McKinsey starts that this increase is equivalent to half of the recorded profits from corporates globally in 2020.

Climate Bonds’ chief executive Sean Kidney has stated that green bond issuance would need to reach $5trn annually by 2025 in order to align with wider climate goals.

UK focus

The research also examined the UK market, where 21 sovereign green bonds were issued last year.

The UK’s green gilt package was first confirmed by Chancellor Rishi Sunak in November 2020 and subsequently confirmed at the 2021 Budget speech in March. Then, in July, the price of the UK’s green gilts was set at £15bn by the Treasury.

The UK launched its first green gilt in September. Reuters first reported £90bn in orders – a figure which surpasses all previous records for debt sales by the UK Government or any of the devolved administrations. The UK Government has since confirmed that £10bn has been raised through the sale. 

Then, in October, the second green gilt sale was confirmed. It has raised a further £6bn to fund green projects and, together with last month’s sale, a total of £16bn has been raised for projects such as zero-emissions buses, offshore wind and schemes to decarbonise homes and buildings.

The Government has also confirmed that the order book for this gilt was 12 times oversubscribed.

Matt Mace