LONDON (Reuters) - Anglian Water’s issuance of the first water utility green bond in Europe should pave the way for more such instruments which should help the market grow, Dutch bank ING’s head of sustainable capital markets said.
Green bonds are a growing category of fixed-income securities, which raise capital for projects with environmental benefits.
In July, UK-based water Anglian Water [AWGEGF.UL] [AWGES.UL][AWGEOW.UL] issued a 250 million pound ($335 million) green bond, which was also the first public utility green bond issued in sterling.
Proceeds from the bond will finance or refinance new and existing environmentally-friendly projects such as water recycling and drought and flood resilience schemes.
“Anglian Water is the start of a new wave. Multilateral institutions (such as the World Bank) started the green bond market, then energy utilities and real estate companies followed,” said Hans Biemans, head of sustainable capital markets.
“This year and in 2018, we will see a lot more issuance by commercial banks. The next wave will be other pure-play companies who are environmentally conscious such as water companies, air purification and the forestry sector,” he added.
“The big question is - who is after that?” Biemans said.
That wave of issuers should be corporates of all kinds, Biemans said, ranging from global corporates such as McDonald’s Corp. to industrial and telecoms companies.
Spending on sustainable products, including research and development, is eligible for green financing and most companies have the most impact through their products, Biemans said.
For example, U.S. coffee giant Starbucks Corp. issued green bonds in 2016 and 2017 with a total value of around $1.2 billion to help finance sustainable coffee purchasing.
Dutch energy network group Alliander [NUON.L] also issued a 300 million euro ($355 million) bond last year for investments in smart grids and meters.
“We must allow investors to finance all stages of the product ... We see (corporate) issuance growing gradually but it could grow much faster if people understand how it can be done.”
Although green bonds make up a small fraction of the overall bond market, demand has grown significantly as investors seek lower-carbon investments.
Global green bond issuance reached around $62 billion in the first half of this year, according to Moody’s Investor Service.
Biemans sees the market reaching a value of $100-120 billion this year, but could grow faster if emerging market country issuance swells. In Europe, however, growth depends on whether corporates enter the market or not.
Estimates on the value of the market this year vary but are in the range of $90-150 billion.
Reporting by Nina Chestney, editing by David Evans