Increasing sovereign green bond issuance, helping to promote green growth

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.

Nineteen sovereigns have now issued green bonds to finance green projects in governments’ budgets, exceeding USD 130 billion. Amid the COVID-19 pandemic, sovereign green-bond issuers have kept the issuance momentum in 2020 with 40% of all the outstanding sovereign green bonds in 2020 consisting of first time issuances by countries including Germany, Hungary and Thailand. This growth continues into 2021 where the issuances in only the first 3 months of the year already account for over 20% of all outstanding sovereign green bonds.

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 around 0.2% of all government debt securities.

Although still nascent, this momentum is expected to continue throughout 2021 with prospective issuers including Brazil, Canada, Colombia, Mexico, Slovenia, Spain and the United Kingdom. The sovereign green bond market is also 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.

See more: OECD Sovereign Borrowing Outlook 2021