Although green bond issuance surged by 56 per cent globally year-on-year in 2019, a fund manager has said Australian issuers may be lagging on serving a global rise in demand.
Around $234 billion in green bond issuance was added to the market in 2019, an increase of 56 per cent on the previous year’s $150 billion.
Insight Investment has reported while issuance in 2018 and 2017, last year saw a significant uptick in the number of issuers joining the market – which its senior ESG analyst Josh Kendall has called a “turning point for investors”, in the shift to support climate transition.
The core sectors for the instruments – financials, governments, utilities, energy and industrials – all experienced significant growth in issuance with financials leading the charge, adding more than $78 billion in green bonds over the course of the year.
Diversity was said to improve with the telecommunication sector now being part of the market.
Josh Kendall, senior ESG analyst at Insight commented his firm expects 2020 to build on 2019 and be another record year for green bonds, with early indications suggesting a total close to $300 billion.
But after a flatlined performance from Australian issuers, Bruce Murphy, Insight Investment director of Australia and New Zealand added the firm hopes to see increased issuance from local corporates in the coming year.
“Its issuance last year remained largely level with 2018 ($4.5 billion in 2019 versus $4.3 billion in 2018), which suggests issuers may be missing out on the swell of demand from a global investment community actively seeking diverse and impactful opportunities,” Mr Murphy said.
“A deeper investable universe will help speed the transition to a low carbon economy and hopefully create jobs and boost productivity along the way.”
The Netherlands issued its inaugural green bond in 2019 and Germany said it intends to issue a green bond later in 2020.
‘The market still struggles with transparency reporting’
Social and sustainable impact bonds issuance also increased, adding $35 billion in 2019, which together with green bonds, brought total issuance of impact instruments over the year to almost $300 billion ($299.8 billion).
Insight also noted the evolution of new types of impact instruments in the market, pointing to Enel’s transition bond as a potential example for further issuance from petroleum companies.
Mr Kendall said while the growth in impact instruments was encouraging, he often finds the targets set by issuers “lack conviction and ambition”.
“We want to see far more attention paid to the quality of the underlying propositions,” he said.
“Insight has awarded ‘green flag’ status to only 27 per cent of more than the 120 impact bonds we have reviewed. This is because the market still struggles with transparency reporting and a clear demonstration of positive impact.”
Insight reported it manages $30 billion for Australian investors and $1.2 trillion globally.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].