GREEN BOND MARKET ANALYSIS

Green Bond MarketSize and Trends

The green bond market size is valued at US$ 525.72 Bn in 2024 and is expected to reach US$ 1,033.43 Bn by 2031, exhibiting a compound annual growth rate (CAGR) of 10.1% from 2024 to 2031.

The green bond market focus on sustainability and climate change intensifies. Green Bonds are fixed-income financial instruments specifically designed to raise funds for environmentally friendly projects and initiatives. Issuers, which include governments, municipalities, corporations, and financial institutions, utilize the proceeds from Green Bond offerings to support projects such as renewable energy infrastructure, energy efficiency improvements, sustainable transportation, and climate change mitigation and adaptation measures.

Investors are increasingly drawn to green bonds due to their potential for positive environmental impact and alignment with socially responsible investment strategies. The green bond market not only provides issuers with a viable funding avenue for sustainability projects but also allows investors to contribute to the global transition towards a more sustainable and low-carbon future. As governments worldwide implement policies to address climate change and corporations adopt more sustainable practices, the green bond market is expected to continue its growth trajectory, further mobilizing capital for environmentally responsible projects.

Green Bond Market Trends:

• Increasing issuance and market growth: The green bond market has experienced significant growth in 2021-2022, with a steady increase in the number of issuers and the total value of green bonds issued. As environmental concerns intensify and sustainable finance gains traction, more entities are turning to green bonds to fund environmentally friendly projects. For instance, in 2021, some large issuances include the US$15 Bn green bond issued by the European Union (EU) to support climate change mitigation and adaptation projects. India has also emerged as a key market with issuances worth US$4.3 Bn in 2022 from issuers like Rural Electrification Corporation Limited (REC) and National Thermal Power Corporation (NTPC) to fund renewable energy projects according to India's Ministry of Finance. Thus, increased commitment to environmental, social and governance (ESG) and net-zero goals coupled with growing investor appetite has significantly accelerated the growth of the green bond market in recent times.
• Innovation in green bond structures: Issuers are exploring innovative green bond structures to meet specific financing needs and align with project timelines. This includes sustainability-linked bonds, where the issuer commits in achieving predetermined environmental targets, and green project bonds that are tied to specific green projects. In 2019, as per the Climate Bonds Initiative (CBI), around 25% of the green issuance in 2021 comprised of the above innovative formats, up from under 10%. Interestingly, majority of large issuances last year such as from Renault & Enel have collaborated on various initiatives related to electric mobility and sustainable energy, opted for the newer designs indicating growing preference. Their ability to unlock greater volumes while accommodating transitional business models has certainly accelerated the explosive growth witnessed in the market.