Investors respond to climate change with bonds

The bond universe has increased its climate bonds by 20 per cent since last year totalling US$597.7 billion, according to a Climate Bonds Initiative report.

The report commissioned by HSBC said the bonds comprised of $531.8 billion worth of unlabelled climate-aligned bonds, and $65.9 billion of labelled green bonds.

It said 32 per cent of the increase of $95 billion was due to the rapid growth of the green bond market and 40 per cent due to climate-aligned rail issuance.

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The ‘Bonds and Climate Change: The State of the Market in 2015' report found low carbon transport accounts for $418.8 billion (70 per cent) of the total climate-aligned bonds universe, followed by clean energy at $118.4 billion (20 per cent), and the remaining 10 per cent in buildings and industry, agriculture and forestry, waste and pollution or water themes, or are multi-sector bonds.

In 2014, $36.6 billion of green bonds were issued, triple 2013 that had $11 billion. The Climate Bonds Initiative expects this growth to continue and green bond issuance in 2015 to reach $70 billion.

Climate Bonds Initiative chief executive, Sean Kidney, said "Investors representing $43 trillion of assets under management signed a statement at last September's UN Climate Summit about the importance of addressing climate change and their willingness to invest accordingly, subject to meeting their risk and yield requirements.

"This report shows them that there's a large and liquid $600 billion universe of bonds they can invest it — and it's 90% investment grade," he said.

Within the mainstream filtered index, US dollars and Euros dominated accounting for $90.6 billion and $83.6 billion respectively. Australia accounts for $4.6 billion, or 1.7 per cent of the $266.3 billion.

National Australia Bank issued the first certified climate bond form a bank but closed in December 2014 after doubling in size on the back of strong investor demand. The proceeds of the A$300 million bond finance loans to a portfolio of 17 wind and solar energy farms.

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