A boon for green bonds: Record $210bn of climate bonds certified in 2021

The next update is due in March 2023

The calculation is for bonds that were issued under its Climate Bonds Standard – one of the most popular certifications for green bonds with a focus on climate mitigation and/or adaptation.

Among other things, the Standard mandates annual public reporting on funds raised and spent, and the carbon impacts of funded projects. It also includes a taxonomy defining what can be defined as low-carbon.

In 2020, $160bn of bonds were issued through the Standard, meaning that the 2021 figures represent a $50bn year-on-year increase. Some 220 organisations from 40 nations issued certified climate bonds in 2021. Nations joining that cohort last year were Costa Rica, the Dominican Republic, Finland, Hungary, Malawi and Mauritius.

The largest single issuance came from French rail operator Societe du Grand Paris (SGP), with a $7.62bn package. The firm, which was set up by the French Government in 2010, has issued a total of $24.98bn certified climate bonds to date. The French Government is notably striving to double the amount of goods transported by rail freight by 2030, against 2019 levels, and to eliminate diesel trains by 2035.

Several of the other major issuances documented by the Climate Bonds Initiative came from organisations linked to national governments, Chile issued $1.26bn of certified bonds in 2021 and will spend proceeds on programmes to decarbonise transport and buildings. Australia’s Queensland Treasury Corporation issued green bonds totalling $2.21bn, while China’s state-led development bank raised $6bn. ­­

“Reaching the $200bn milestone is a testament to the market’s hunger for credible green financial products based on a robust, science-based emissions reduction foundation that aligns with the Paris Accord goals,” said the Climate Bonds Initiative’s chief executive Sean Kidney.

The Climate Bonds Standard is currently in its third iteration, and more major updates are due in 2022. The Standard will this year see new transition criteria added, meaning that issuers will need to prove how the activities they plan to finance are compatible with a transition to net-zero by 2050 or sooner.

Additionally, the Initiative will release new ‘use of proceeds’ frameworks for a range of high-emitting and hard-to-abate sectors, starting with chemicals, cement and steel. A consultation on the framework for chemicals is due to open next month.

The global net-zero movement grew exponentially in 2021, in the lead-up to COP26 in Glasgow in November. Net-Zero Tracker estimates that 90% of GDP and 88% of annual emissions are now covered by national-level targets.

The Climate Bonds Initiative predicted in September that global green and sustainability-linked bond issuance was likely to exceed $500tbn by the end of 2021. It is yet to release data on whether this milestone was met.

L&Q

In related news, UK-based social housing provider L&Q has this week issued the first sustainability-linked bond in its sector.

The £300m bond will be used to raise funds for projects to reduce the emissions of L&Q’s operations and its homes – primarily by improving energy efficiency. On operations, the firm is striving to reduce Scope 1 (direct) and Scope 2 (power-related) emissions by 20% by the end of March 2024, against a 2019-20 financial year baseline. It is also striving to have all homes on an average of EPC band C by the same deadline. These commitments are linked to a 2050 net-zero target covering all emissions scopes.

The bond will also be used to accelerate L&Q’s development of sustainable homes, of which it is hoping to build at least 4,000 by the end of March 2024.

BNP Paribas was the sole sustainability structuring advisor on the issuance of the ten-year bond.

“We want to enable sustainable economic and housing growth, to safeguard the environment, and to collaborate with others to achieve significant improvement in social impact and social value,” said L&Q’s group finance director Waqar Ahmed.

“However, we face the challenge of funding these ambitions while simultaneously delivering a major programme of safety remediation work, improving residents’ homes, and increasing the supply of much-needed new homes. 

“[This week’s] successful issuance demonstrates the strength of our investor relationships, and the confidence they have in our strategy, our governance and ability to adapt.”

Sarah George