Green bonds are fixed-income securities issued by public or private institutions as part of their commitment to invest in sustainable projects. These assets present opportunities to diversify and expand the investment base, provide differentiation between companies in the same sector, and improve the corporate image and reputation of the bond issuer.
Several factors have contributed to the boom in the green bond market in recent years, especially in 2017. The strong increase of issuance of sovereign green bonds was one contributing factor. Other sovereign bond issuers have followed the lead of the French government and have announced their intention to issue these securities in the near future: Sweden, Belgium, Indonesia, Ireland, Austria, Italy, Kenya and India, among them.
The boom in sovereign bond issuance and the commitment from European utilities were both key to the growth of the green bond market in 2017"
The commitment of the principal public service companies and European utilities was also very important, and led to their becoming the leading green bond issuers. Other sectors that also have significantly contributed are real estate, infrastructure and technology. We should point out that in 2017, 146 issuers were incorporated into the green bond market for the first time.
In terms of demand, the appetite of institutional investors (fund and pension managers) for these assets has continued to grow, because they are increasingly demanded by their final clients.
For all these reasons, we can characterize the green bond market as one that is one the rise. Green bonds will continue to play a very significant role in financing the transition of economies toward low-emission energy sources, while also favoring sustainable development.
Greater geographic and currency diversification
European bond issuers dominated in 2017, with 43% of all issuances. This led the euro once again being the most-used currency for green bonds, with 40% of the total issuances. The euro was closely followed by the dollar at 32%. It is also important to note the dominant role of investment-grade bonds, which accounted for 80% of total issuances.
During 2017, the market has shown great geographical diversification in Europe (France, Holland, Germany, Scandinavia, Spain, and the United Kingdom, among others), North America (USA, Mexico and Canada) and Asia (with China as the most active country).
Green bond issues in Spain
In Spain, the market has again been led by a significant number of corporate issues. In this regard, Iberdrola continues to be a pioneer and worldwide reference in the green bond market; the energy company issued its first hybrid green bond in the last quarter of the year.
Moreover, 2017 was also a year of successful inaugural green bond issues, such as the ones by Repsol (the first green issuance in the oil and gas sector worldwide) and by Gas Natural Fenosa.
The Spanish public sector has taken a giant step in supporting sustainable financing. The year 2017 saw the Community of Madrid enter the market with a sustainable issue of €700 million for social and environmental groups. In addition, the railway infrastructure company ADIF AV launched its first green bond—one of the first in Europe in its sector. The Instituto de Crédito Oficial (ICO), continues to be a reference in the social bond market, with its third such issue in euros this year. Finally, the Barcelona city government recently issued €35 million for sustainable projects.
BBVA in the international green bond market
BBVA was the most active bookrunner on the Iberian green bond market in 2017, and is a major participant worldwide, having assessed, placed and structured green bonds for clients from different industries in Mexico, the United States and Europe, both in local currency and in euros and dollars.
The inaugural green issue by SSE (Scottish & Southern Energy), was the largest first ever by a British company, as was the one by Avangrid in the USA, for which BBVA was the structuring bank. BBVA’s participation in other significant bond issues, such as the second green bond sold by Mexico City International Airport, or the one issued by Engie in March.
The green outlook for 2018
BBVA estimates that the total volume of green bond issuances will be between $150 billion and $180 billion in 2018. To achieve this new growth, it will be necessary to incorporate more sovereign bond issuers, in addition to continue expanding the number of sectors and geographies.
Without a doubt, 2018 will be an important year for our customers, given that we are expecting a greater number of bond issues in Spain, the rest of Europe and America. It is telling to observe how issuers who have entered the green bond market repeat the experience, and how they cite the added benefits they derive from it.