July 24, 2019 / 8:17 PM / 4 months ago

Global green bond supply may slow in second half 2019 -BMO

NEW YORK, July 24 (Reuters) - Green bond supply from around the world in the second half of this year may slow from a record first half, as issuers take time to meet tighter standards on sustainability for activities these bonds are intended to fund, BMO Capital Markets analysts said on Wednesday.

In the first six months, total green, social and sustainable bond issuance reached nearly $140 billion, 66% higher than the same period a year ago.

“However, there is reason to think that issuance in the second half may not sustain such a high pace and our initial projection may not prove as far off as it now seems,” BMO strategists Daniel Krieter and Daniel Belton wrote in a research note.

They projected annual green bond supply in 2019 to hit $210 billion.

Europe remained the leading region for green bonds, which saw $80 billion in issuance year-to-date, up 62% from a year ago.

U.S. companies have raised almost $7 billion in green bonds in the first half, up 64% from a year earlier.

“While this is an encouraging sign, we expect the development of the domestic U.S. green bond market to continue to lag the rest of the world, at least in proportional terms, so long as the (Trump) administration continues to view environmental initiatives with a skeptical eye,” Krieter and Belton wrote.

Meanwhile, green bond activity will likely be affected in the wake of the European Union’s Technical Expert Group report, released on June 18, on a proposed classification system on sustainable activities, they said.

A classification system is intended to become European law including using it as a reference for a proposed European Green Bond Label, they said.

“We believe the EU taxonomy/green bond label have the potential to finally set a new standard for the green bond market that could result in significant supply growth by removing uncertainty in the long term,” Krieter and Belton said. “However, in the short term the release of the official taxonomy could actually constrain issuance given its stringent nature.”

Reporting by Richard Leong; Editing by Cynthia Osterman

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