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Global Green Bond Issuance Could Surpass $100 billion In 2017

Though the recently-unveiled FSB Task Force on Climate-Related Financial Disclosure (TCFD) is currently voluntary in nature, Moody’s Investors Service believes the recommendations are likely to get substantial backing from large investors. Rahul Ghosh and colleagues at Moody’s said in their June 29 research note entitled “FSB Task Force Recommendations Will Lead to a Mainstreaming of Climate Disclosure Over Time” that they believe widespread adoption of the TCFD recommendations will facilitate quicker understanding of the impact of climate-related issues on credit analysis with a surge in Global Green Bond Issuance being one partial consequence.

Moody’s: TCFD recommendations will lead to standardized climate disclosures practices

The Financial Stability Board (FSB) established the TCFD in 2015 to develop recommendations for more effective climate-related disclosures. TCFD published its final report on June 29, setting out recommendations for voluntary, consistent, climate-related financial disclosures across all industries.

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Global Green Bond Issuance
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Ghosh and team believe widespread adoption of the recommendations will facilitate greater standardization of reporting and disclosure practices. The following table sets forth the TCFD’s key recommendations across four thematic areas.

The Moody’s analysts underscore that while the multiple disclosure standards currently in existence are largely voluntary and fragmented in nature, the proposed TCFD recommendations have been developed with an eye on being adoptable by all organizations, including in mainstream financial filings.

Moody’s has been assessing the credit impact of environmental risks and identified 14 industrial sectors that are having high or very high credit exposure to carbon transition risks. In line with Moody’s efforts, the analysts believe the TCFD recommendations will also facilitate a comparable assessment of the relative credit exposure of rated entities to carbon transition risks.

Global green bond issuance could hit record $100 billion this year

As outlined by ValueWalk, HSBC highlighted in its May 10 report the galloping growth of the green bond issue with US$32 billion issued year to date. Total green bond issuance is expected to cross the $90 billion to $120 billion mark this year.

Echoing similar forecasts, the Moody’s analysts anticipate that global green bond issuance will cross the $100 billion mark for the first time this year. However, the analysts believe the TCFD’s recommendations could face headwinds, such as costs associated with publishing climate disclosures in audited financial filings.

When unveiling its report, TCFD highlighted that over 100 business leaders and their companies with an aggregate market cap of about  $3.5 trillion and financial institutions having assets of about $25 trillion have publicly committed to supporting the TCFD recommendations.

The Moody’s analysts said in their report that they believe the TCFD recommendations will generate substantial support from large investors and asset owners. To strengthen their views, the Moody’s analysts recall a large major investor of Exxon Mobil Corporation backing a resolution in May asking the oil behemoth to disclose how it will be impacted by global efforts to trim the rise in temperatures to below 2°C of pre-industrial levels.

Of note, even though the U.S. withdrew from the Paris Agreement, the substantial majority of G20 countries reiterated their commitment to its full implementation in their recent meeting in Hamburg.