Capital needed for net zero ‘sitting idle’, warns Climate Bonds Initiative

Investors seek returns in ‘all-too-familiar destinations’, says CBI as total green bond issuance hits $2trn.

The Climate Bonds Initiative (CBI) has warned that the capital needed for net zero is “sitting idle seeking returns in all-too-familiar destinations” and it called for more investment in emerging markets in order to hit climate targets and grow the sustainable debt market.

Ahead of its annual conference on Thursday, the CBI released a roadmap setting out the steps it argues are needed to scale the sustainable bond market to meet transition funding needs. The initiative is targeting annual issuance of $5 trillion a year by 2025.

The recommendations included ensuring that taxonomies which can be used “seamlessly and with minimum transaction costs” are put in place, creating a supportive policy environment and expanding the project pipeline for funding.

The roadmap also calls for the scaling of investment in emerging markets, warning that while there is a “global surfeit” of capital, it is not being directed to the right areas to address climate change. The CBI is urging the expansion of programmes to direct capital to the developing world, including blended finance, de-risking guarantees and larger deal sizes.

Meanwhile, the CBI’s Q3 summary revealed one of the lowest levels of ESG-labelled bond issuance since the start of 2020. Global issuers raised $152 billion from green, social, sustainability and sustainability-linked bonds in the third quarter, a decline of 35 percent on the previous quarter and nearly 50 percent below the same period last year.

While issuance volumes have fallen steadily since the start of the year, the CBI noted that sustainable formats made up around 5 percent of total primary market sales, a similar level to the record-breaking years of 2021. Cumulative issuance for green bonds also reached $2 trillion this quarter, and SLB volumes continued to see growth.

Ahead of the Climate Bonds Connect 2022 event in London, the initiative also announced plans to expand its certification scheme to sustainability-linked bonds in December. A consultation on the latest version of its climate bonds standard, which includes the proposed criteria for SLBs, closes on 4 November.

In addition, the CBI published a preliminary report looking at 101 sustainable finance policies needed to hit net zero. The report, which will be followed by a more detailed version after a consultation period, sets out policy priorities for the real economy, governments, supervisors and the financial industry.