The sustainable finance market surged 26% in 2018, with a record $247 billion worth of sustainability-themed debt instruments raised during the year, according to research company BloombergNEF (BNEF). Green bonds issuance amounted to $182.2 billion in 2018, whereas one new product, sustainability-linked loans reached $36.4 billion.
The sustainable debt market is comprised of labelled bonds and loans that finance projects with green benefits, social benefits or a mixture of both. Many investors target these debt offerings in order to meet their own objectives or mandates on environmental and social impact.
While the focus of the market has historically been on green bonds that make up the largest part of the market, attention is now shifting to a broader range of sustainable bonds and loans.
As a result, growth in green bonds slowed to 5% in 2018 YoY compared to 68% in 2017 while sustainability-linked loans, surged 677%. Sustainability-linked loans are term loans or credit facilities that come with a sustainability pricing mechanism. For example, in November 2018, French electricity utility EDF agreed to a 4 billion-euro facility with pricing indexed to the group’s key sustainability performance indicators.
Corporations are not the only ones pioneering sustainable debt – a growing number of governments are issuing their own debt instruments with a sustainable label, meaning that the money raised will be earmarked to go into environmental or social projects.
Aiman Mallah, sustainable finance research analyst at BNEF, said: “Green sovereign debt hit $17.6 billion in 2018 – a 64% increase from 2017, thanks to inaugural issuance from countries like Belgium and Ireland, as well as further taps on the French sovereign bond. These governments are raising the debt to meet national and international environmental goals, particularly on climate change mitigation and adaptation.”
The two leaders in sustainable debt issuance in 2018 were the U.S. and China. In the U.S., some $45.4 billion of sustainable debt products came to market, far surpassing China’s $25.5 billion. Mortgage giant Fannie Mae accounted for the vast majority of the U.S. issuance, thanks to its ambitious green financing programs.