27 March 2018
Analysis on the Development Trend of Hong Kong’s Green Bond Market
In recent years, sustainability has been more emphasized in economic development. Green finance has emerged accordingly, becoming a spotlight in global financial markets. The Hong Kong Government closely follows the trends in global financial markets and rolled out more comprehensive measures to promote bond market development in the 2018-19 Budget, compared with the past. This article analyzes current situations of green bond markets globally and in Hong Kong as well as the future development in Hong Kong.
I. Development features of global green bond markets
Green bond is a specific debt instrument for financing green projects. Green bond has four unique features compared with traditional bonds, including the usage of funds, evaluation of investing projects, tracing the usage of funds, and submitting annual reports. In general, global green bond markets grow fast with more diverse market structure.
1. Market is expanding fast with huge room for development
The World Bank estimated that there would be USD 23 trillion worth of investments between 2016 and 2030 around the globe in order to transform into the green economy. Green bond markets expanded fast in the past few years given huge financing demand. As of end-2017, global green bond markets reached USD 221 billion, up 87% from 2016. Nevertheless, green bonds merely accounted for 0.2% of entire bond markets with a size of USD 90 trillion. With huge potential for development, robust growth is likely to be sustained in the medium-to-long term.
2. Advanced economies dominate while emerging markets are catching up
In 2017, global green bond issuance reached USD 155.5 billion. The US took the lead with issuance of USD 42.4 billion, followed by China and France, with issuance of USD 22.5 billion and USD 22.1 billion, respectively. These three markets accounted for 56% of entire issuance. At present, global green bond markets are still dominated by advanced economies in Europe and the US. Seven out of top ten markets in the world are advanced economies. Besides the US and France, the remaining markets were Germany, Spain, Sweden, the Netherlands and Canada.
Nevertheless, emerging markets are catching up. Although China has been developing the green bond market for just over two years, it has become a major member in global markets and once ranked first in terms of issuance in 2016. In addition, Indian issuers doubled in 2017, making India one of the top 10 markets. Furthermore, the majority of new green bond issuers came from emerging markets in 2017, including Argentina, Slovenia, Chile, Lithuania, Malaysia, Fiji and Nigeria.
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