The green bond market has deepened and expanded in recent years, with diversified investors such as various corporate entities and local governments. Increased investor demand includes large sovereign wealth funds and pension funds committed to responsible investment and to the integration of Environmental, Social and Governance (ESG) factors.
Sixteen sovereigns have now issued green bonds to finance green projects in governments’ budgets, exceeding USD 80 billion. Amid the COVID-19 pandemic, sovereign green-bond issuers have kept the issuance momentum in 2020 with several re-openings and a few inaugural issuances including Germany and Sweden.
Despite its rapid growth, the size of the sovereign green bond market is quite small compared to traditional bonds. For example, in the OECD area, sovereign green bonds account for only 0.1% of all government debt securities.
Although still nascent, the sovereign green bond market can be expected to keep growing over the longer horizon, as an increasing number of governments assess green bond issuance as a valuable tool to display moral leadership on climate change and sustainability, and to fund commitments under the Paris Agreement.