“COP26 was in our view at best a qualified success,” says Thomas Thygesen, Head of Research, Climate & Sustainable Finance, at SEB. “A number of pledges were agreed upon, including on coal, methane and deforestation. The summit was a step in the right direction, but clearly not a sufficient step. What’s more, COP26 did not address the elephant in the room: the lack of investment.”
The latest The Green Bond report, titled COP26: Pledges don’t count, only actions do, explores this issue in closer detail by looking at the inconsistencies in governments’ transition plans. More specifically, it focuses on how governments want to stop producing fossil energy and reduce energy prices for consumers but at the same time seem unwilling to spend what it costs to provide an alternative to fossil fuels. If governments don’t rapidly ramp up investments in renewable energy, they will fail with their objectives and there is also a big risk that money will start flowing back into fossil energy production and development.
The report also includes an update on developments in the sustainable debt market. After slowing down over the summer, September and October showed strong growth with more than USD 303 billion in new transactions, driven mostly by sustainability-linked bonds and loans. That means the year-to-date volume of sustainable bonds and loans is now more than USD 1.3 trillion.
“We are firmly on track to reach our forecast of more than USD 1.5 trillion in total sustainable financing for the full year 2021, and I would be surprised if we don’t scale USD 2 trillion in global issuance in 2022,” says Thomas Thygesen. “The question now is to what extent this issuance will translate into more investment in renewable energy and the rest of the transition process.”
The report also looks at how the share of sustainability-themed bonds as a percentage of total bond issuance has reached double digits in four key markets. While labeled bonds only account for 3.2 percent of the entire market when looking at all currencies so far this year, the development is much different for Sweden, the EU, the U.K. and perhaps most remarkably, Australia. Year-to-date, 24.1 percent of all bonds issued in SEK carry a green, social, sustainability or sustainability-linked label, up from 16.2 percent in 2020. For EUR-denominated bonds, the number is 11.4 percent; for GBP-denominated bonds, 12.2 percent; and even for AUD-denominated bonds the number is now in double digits.
”The fact that we now have four markets achieve double-digit share is a very strong indication that sustainability-themed bonds and loans are quickly becoming part of the international debt market mainstream,” says Gregor Vulturius, Advisor at Climate & Sustainable Finance at SEB and co-editor of The Green Bond. “Sovereign and corporate issuances are the key drivers of the growing popularity of sustainable debt, but increased efforts by issuers and policy makers in the US or Asia are needed to replicate this success elsewhere.”
This edition of The Green Bond also features an interview with Sweden’s chief climate negotiator Mattias Frumerie, a contribution from the Coalition for Rainforest Nations, and an interview with Swedish companies LKAB, SSAB and Volvo Cars about the value-chain transition. It also features a comment by the research organizations Stockholm Environment Institute and Climate Strategies on COP 26, the energy crisis and the transition of the oil and gas industry.
