Across the Atlantic, the EU attracted strong demand for the issuance of its inaugural green bond. The €12 billion sale racked up more than €135 billion in interest, making it the largest green bond deal in history.
Stateside, green bond issuance is also picking up — in 2020 alone, the U.S. issued $51.1 billion according to a report published by the Climate Bonds Initiative. We wanted to take a look at how different states approached their issuance and how climate risk might affect green bonds specifically. ICE’s data showed that the number of newly-issued green bonds exposed to high to extreme flood risk has been growing — rising from approximately 29 securities to almost 300 by the end of last year.
Count of Newly Issued Green Bonds CUSIPS and Their Exposure to Flood Risk by Year
Source: ICE Data Services, Oct. 21, 2021
We then looked at which states had the highest number of individual green bond securities exposed to high or extreme flood risk — the answer, surprisingly, was California.
Number of Green Bonds Exposed to High to Extreme Flood Risk by State
Source: ICE Data Services, Oct. 21, 2021
We also looked at the relationship between climate risk and green bond issuance across maturities. ICE’s data showed that, overall, the number of green bonds issued with high to extreme climate risk is relatively low compared to green bonds with low-to-medium climate risk scores — e.g., the number of green bonds maturing in 2026 that have high-to-extreme climate risk exposure was only 13, compared to the ~500 green bonds issued with low to medium risk.
Green Bond Issuances By Maturity Year: Comparing Bonds with High to Extreme Climate Risk and Low to Medium Climate Risk
Source: ICE Data Services, Oct. 21, 2021
Understanding climate risk can help investors better understand how nonfinancial factors might affect a bond’s long-term stability.
ICE Climate Risk provides actionable insight that may not be captured in other standard data sets. The product applies geospatial climate, economic and demographic data to help enable analysis and comparison between specific municipalities and securities. This level of transparency can help municipal market participants identify securities that may have high climate risk exposure, which may help better inform their investment decision making process as it pertains to new issuance, secondary trading opportunities and portfolio management.