Green Investments at $694 Billion Are Much Bigger Than You Think

(Bloomberg) -- The green bond market is much bigger than most people think, and it's booming on a scale not appreciated beyond the tight circle of analysts who track it.

That's the conclusion of a report commissioned by HSBC Bank Plc, which showed $118 billion of securities issued that are officially labeled as green bonds -- a fraction of the $694 billion wider market of investments that will rein in pollution and curtail climate change regardless of how they're classified.

The report found a wide range of investments that don't get tagged as green bonds. There's no generally agreed standard for what constitutes green in finance. The Climate Bonds Initiative, which compiled the report, is drawing up voluntary principles for the industry, as is another initiative called Green Bond Principles, which is run by the International Capital Markets Association.

“Bridging the climate finance gap doesn't require complex new investment models,” Sean Kidney, chief executive officer of Climate Bonds Initiative, said in a statement on Friday. “The realignment of bond market activity with climate change and low emission goals will deliver a stable long term source of green investment. Harnessing bonds and other forms of debt based capital toward climate and carbon goals is within reach.”

A record $46 billion of green bonds were issued worldwide last year, and annual issuance may reach $56 billion in 2016, according to tally by Bloomberg New Energy Finance, which uses a different definition for the market.

The Climate Bonds Initiative report said more than two-thirds of climate-aligned bonds will help fund low carbon transport projects, accounting for 67 percent of the total. Clean energy, the second largest beneficiary, will take just 19 percent of the money raised.

The growth in size and depth of both the climate aligned and labeled green bonds is a positive for potential investors looking to invest in low carbon projects, particularly after the Paris climate summit in December, where almost 200 countries agreed to limit global warming to well below two degrees, said Zoe Knight, managing director for HSBC's climate center of excellence.

“It's a sign of the scale and liquidity in the market and demonstrates the potential for future green investment,” she said in a statement.

To contact the reporter on this story: Jessica Shankleman in London at jshankleman@bloomberg.net. To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Will Wade