Green bonds attracted larger book cover and exhibited larger spread compression than their vanilla equivalents in the second half of 2021 according to the Climate Bonds Initiative, an investor-focused not-for-profit that aims to mobilise global capital for climate action.
A record $240bn of green bonds were added to the Climate Bonds Green Bonds Database in the last six months of 2021, the most in any half year. In total 2021 broke the half trillion mark for issuance for the first time and marked the tenth consecutive year of growth.
Climate Bonds Initiative’s thirteenth report in its pricing series reviewed the most liquid green bonds issued in the final six months of 2021. The sample included US dollar and Euro bonds with a minimum original issue size of $500m, which amounted to $73bn or 30% of total issuance, split between 73 green bonds from 61 issuers.
The majority, 61%, of green bonds experienced greater oversubscription than their vanilla equivalents, an increase from the 40% seen in the first half of last year. Average oversubscription was three times for US dollar green bonds compared to 2.7 times for vanilla equivalents.
For euro green bonds average oversubscription was 3.4 times compared to 2.7 times for vanilla equivalents.
Just over half, 53%, of green bonds achieved larger spread compression than their vanilla equivalents. Spread compression averaged 25.9 basis points for US dollar green bonds, higher than 21.7 basis points for vanilla bonds. For euro green bonds spread compression averaged 19.3 basis points, against 17 basis points for vanilla bonds.
The report noted that investors exercised increased caution moving into year end which reflected expected interest rate rises.
Climate Bonds Initiative said it expects demand for green bonds to continue to outstrip supply for the foreseeable future as funds seek to classify themselves as Sustainable Finance Disclosure Regulation (SFDR) Article 8 or Article 9 in Europe, and US policy increasingly encourages accountability around responsible investments.
“However, as interest rates rise, bond prices generally fall, and while a lack of supply may temper the magnitude of the impact, a green label is unlikely to offer complete protection from this,” added the report.
©Markets Media Europe 2022
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