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This year’s record-breaking green bond issuance is an indication of not only strong demand for sustainable fixed income investments among investors but also growing interest from issuers to tap into this market to finance their transition strategies. With a global push towards renewable energy, electric vehicles, and the broader transition to net-zero, green bonds have gained prominence as a way to fund projects that contribute to environmental objectives.
Global Landscape and U.S. Green Bond Issuance
Global green bond issuance has soared, reaching an impressive $436.99 billion year-to-date (YTD)1, according to data compiled by the Climate Bond Initiative.
However, corporations in the U.S. have scaled back their issuance of green bonds this year. A variety of factors may help to explain this, including significantly higher U.S. interest rates and political resistance from some quarters against sustainable investment strategies.
Green Bond Issuance 2023 and Entities Issuing Green Bonds in U.S.
Source: Climate Bond Initiative, as of Nov 13, 2023.
U.S. Green Bond Market: Key Players and Trends
U.S. government-related entities issued around $18.2 billion in green bonds in 2023, accounting for about 35% of total U.S. issuance YTD. California Community Choice Financing Authority ($4.9 billion), New York Metropolitan Transport Authority ($2.5 billion), Fannie Mae ($2.3 billion), Freddie Mac ($1.3 billion) and Washington Metropolitan Area Transit Authority ($1.2 billion) accounted for the bulk of this issuance. Asset-backed securities issuance stood at $7.0 billion, primarily consisting of home solar loans and E.V. vehicle loans. U.S. corporations have issued $50.7 billion worth of green bonds in 2023, accounting for approximately 50% of the U.S. total issuance.1
Below we take a closer look at a few notable U.S. green bond issuers in 2023:
JPMorgan Chase (JPM)2 : In 2023, the largest U.S. bank raised $7.25 billion through three parts, including a $2 billion green bond. The funds will finance eligible green projects, spanning green buildings, renewable energy, and sustainable transportation, in alignment with the bank’s sustainable bond framework. The bank’s previous green bonds have financed solar and wind renewable energy projects across the United States adding around 666 MW of renewable capacity, generating 2,523 GWh of renewable energy and helping to avoid around $2 million tons of carbon dioxide emissions.3
MidAmerican Energy Company4: MidAmerican Energy, a repeat issuer, issued $1.35 billion in green bonds this year to finance new renewable energy projects. MidAmerican serves the energy needs of more than 1.6 million customers in Iowa, Illinois, Nebraska and South Dakota. MidAmerican has invested nearly $15 billion in renewable energy projects across Iowa and financed around $5.75 billion of these via green bonds. The company has more wind generation capacity than any other investor-owned utility in the U.S. With its commitment to renewable energy generation, MidAmerican has retired five of its 11 coal units and has reduced its CO2 emissions by 41% since 2005.5
PNC Financial Services Group (PNC)6: In 2023, PNC closed its latest green bond issuance, raising $1.25 billion to fund projects including renewable energy, energy efficiency, green buildings, and clean transportation.
PacifiCorp( OTCPK:PPWLM, OTCPK:PPWLO)7: PacifiCorp, the largest grid operator in the western U.S., holds renewable energy assets in Wyoming, Montana, Oregon and Utah. The company’s investments through its green bond program have helped produce around 15,843 GWh of renewable energy8 so far. With its latest issuance of $1.2 billion in green bonds, the company plans to deploy funds to its wind or solar energy generation development or transmission development program to make its grids more energy efficient.
Comcast Corporation (CMCSA)9: Comcast issued a $1 billion 10-year green bond earlier this year to help the company’s efforts to reduce its carbon footprint and uphold its goal to be carbon neutral by 2035. The bond will help finance renewable energy, energy efficiency, green buildings, clean transportation, and circular economy initiatives.10
Verizon Communications (VZ)11: Verizon was the first U.S. telecom company to issue a green bond in 2019. Verizon has issued four additional $1 billion green bonds including its latest green bond offering issued in May 2023. Verizon plans to allocate the net proceeds to renewable energy investments.12 The company expects to source 50% of its annual electricity usage from renewable energy by 2025 and 100% by 2030. It is also developing on-site green energy generation at its facilities. Since 2013, Verizon has installed 37.6 MW of on-site green energy.
Challenges and Opportunities on the Horizon
Despite continued headwinds to U.S. market growth, the rebound in global green bond issuance signals a positive trajectory for sustainable finance. The U.S. political landscape may continue to pose challenges in the near term for sustainable investment strategies, but we believe this year’s record-breaking issuance globally signals strong demand.
Green bonds can appeal to investors who may be skeptical or critical of broader ESG investment strategies. Because they focus on a bond’s use of proceeds rather than the broader activities of the issuer, evaluation is more straightforward and objective. Security selection does not rely on backward looking and sometimes incomplete data, but rather projects that can bring positive environmental benefits going forward. An investment in green bonds has a direct impact on financing environmentally friendly projects.
Lastly, from an investment perspective, green bonds have the same risk and reward as conventional bonds, all else equal, allowing investors to invest sustainably in their core fixed income portfolios without materially changing the overall risk and return characteristics of their portfolio. These features have contributed to the market’s significant growth over the past decade, and the global push towards sustainability suggests that the green bond market will continue to play a pivotal role in financing the transition to a more environmentally aware future.
The VanEck Green Bond ETF (GRNB) seeks to replicate, as closely as possible, before fees and expenses, the price and yield performance of the S&P Green Bond U.S. Dollar Select Index. The index is comprised of U.S. dollar-denominated green bonds that are issued to finance environmentally friendly projects and includes bonds issued by supranational, government and corporate issuers globally.
Disclosures
1 Data as of 11/13/2023, source: Climate Bond Initiative.
2 JP Morgan Chase bonds held about 0.51% weight in GRNB as of 11/30/2023.
3 Based on issuer reported data, source: JP Morgan Chase.
4 MidAmerican Energy Company bonds held about 0.47% weight in GRNB as of 11/30/2023.
5 Based on issuer reported data, source: MidAmerican Energy Company.
6 PNC Financial Services Group bonds held about 0.46% weight in GRNB as of 11/30/2023.
7 PacificCorp bonds held about 0.2% weight in GRNB as of 11/30/2023.
8 Issuer reported data, source: Pacific Corp.
9 Comcast bond held about 0.34% weight in GRNB as of 11/30/2023.
10 Issuer reported data, source: Comcast.
11 Verizon bonds held about 0.28% weigh in GRNB as of 11/30/2023.
12 Issuer reported data, source: Verizon.
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