"Issuance continued to break new ground in the third quarter in terms of noteworthy and first-time transactions, such as the first green bond transaction by a Chinese issuer," says Henry Shilling, a Moody's Senior Vice President.
"In addition, India has established itself as an early leader in Asia's nascent green bond market, with three India-based issuers coming to market in the third quarter," adds Shilling. "We expect India, along with China, to be a prominent driver of regional issuance in coming years, given ambitious targets on building out renewable energy capacity."
Moody's report highlights that the $7.6 billion issued in Q3 lagged the $13.4 billion that came to market during the second quarter of the year, but did outpace the first quarter's $6.3 billion.
Based on the 9-month average monthly volume of $3.02 billion, green bonds would end the year at $36.3 billion, or just shy of the $36.5 billion issued in 2014.
However, Moody's expects the volume will pick up towards the end of the year to coincide with the December United Nations Framework on Climate Change (UNFCC) Conference of the Parties (COP21) in Paris and is likely to exceed $40 billion for the full year.
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Moody's further notes that nearly half of the third quarter's issuance proceeds, or about $4 billion, are being earmarked for renewable energy projects. This is followed by 18.8%, or about $1.7 billion, earmarked for sustainable water management followed closely by $1.6 billion allocated to energy efficiency projects.
Investment-grade issuance continued to dominate in the third quarter, but high-yield green bonds gained as a share of all Moody's-rated green bond transactions. Nearly 18% of issuance in the third quarter was attributable to below-investment grade issuers, up from just 5% in the second quarter.
Furthermore, green bond performance registered a slight gain in the third quarter. The Bank of America Merrill Lynch Green Bond Index posted a total return increase of 0.9%, while the ML Global Market Index moved up 1.4%.
Nevertheless, it is still difficult to establish differences in secondary market trading between green and non-green bond issues, says Moody's.
The third quarter also saw more standard-setting initiatives aimed at bolstering green bonds standards as well as issuance, says Moody's. These include the publication of the Green Muni Bonds Playbook, the World Bank Green Bond Impact Report and the Climate Bond Initiative's proposed eligibility criteria for agriculture, forestry and other land uses.
In Q3 2015, 26 distinct issuers came to market with 36 transactions.
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