Green Bonds From Companies Seen Doubling to $20 Billion

The annual market for corporate green bonds will double this year, driven by rising investor appetite for sustainable investments, according to Standard & Poor’s.

Companies will issue bonds worth about $20 billion for environmentally beneficial investments compared with $10.4 billion last year, the ratings agency said in a report today. The market is accelerating because it helps issuers tap new types of investors who are increasingly interested in implementing environmental, social, and governance goals, the credit rating company said.

Green bonds are used by governments, companies, banks and international financing institutions. The value of the market will reach $40 billion this year, according to the Climate Bonds Initiative, a non-profit organization.

“As the market continues to develop, smaller environmental projects may be able to attract financing by combining into larger investment offerings that could make them more suitable to larger investors,” Michael Wilkins, a credit analyst for S&P, said in the report.

“We think it likely that the next stage of market evolution will see structuring of bonds to enhance credit support and a move to finance environmental projects away from the issuer’s balance sheet,” he said.

Green bonds differ from mainstream corporate bonds in that proceeds are ring-fenced and allotted to finance or refinance projects addressing environmental issues, according to S&P. Crucially for investors, credit risk remains with the issuer, it said.

Record Issues

Companies are tapping rising investor demand with ever-larger green bond issues. Last week, GDF Suez sold a 2.5 billion-euro ($3.4 billion) bond, the largest so far. It offered an average return of 1.9 percent for about nine years. Demand from socially responsible investors outstripped the amount offered by more than three times, the French utility said on May 14.

Previously, the biggest such bond was Electricite de France’s 1.4 billion-euro issue last year.

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