Reaching a new high amid policy headwinds: global green bond issuance nears trillion US dollars, AI and electricity demand become the new engine

The Zhitong Finance App learned that despite policy and regulatory tightening in the US and Europe, investors have poured in large numbers into climate-friendly assets this year due to artificial intelligence driving the boom in demand for energy infrastructure. According to data, the amount of green bonds and green loans issued globally so far this year has reached a record high of 947 billion US dollars. Meanwhile, renewable energy stock market indicators are expected to achieve their first annual rise since 2020, and the performance far exceeds the S&P 500 index, while stocks of power grid technology companies continue to be favored.

These financial flows were particularly prominent this year, as US President Donald Trump supported fossil fuels and removed clean energy subsidies and legislation. Europe has also withdrawn some of its most stringent environmental rules due to concerns about growth and competitiveness.

However, global electricity demand is expected to grow by nearly 4%, driven by demand for artificial intelligence, cooling, and electrification, and sharper policy signals are boosting investors' optimism.

“Green investments are increasingly being viewed as core infrastructure and industrial investments rather than just niche ESG deals,” said Melissa Cheok, VP of ESG Investment Research at Sustainable Fitch. Capital is likely going to areas with clear revenue visibility, policy support and structural needs, such as grid upgrades and renewable energy associated with electrification.”

According to data, companies and government issuers in the Asia-Pacific region raised US$261 billion in green debt, an increase of about 20% over the same period last year, thanks to China and India's support for renewable energy deployment. China set a record for issuing green bonds of US$138 billion, with the main issuers being large domestic banks. China also first issued sovereign green bonds in London earlier this year.

The “green premium”, the lower borrowing cost of green bonds, is most evident in the Asia-Pacific region. According to data, in November, some issuers received interest rate discounts of more than 14 basis points for using the green label. Companies usually issue green bonds to raise capital to switch to renewable energy or low-carbon transportation.

According to data, BNP Paribas and Crédit Agricole are the lead underwriters for this year's green bonds. Researchers at LSE Group said last month that in the past five years, the size of outstanding green bonds has grown at a compound annual growth rate of 30%, and the current issuance volume accounts for about 4.3% of total global bond issuance.

Crystal Geng, head of environmental, social and governance research in Asia at BNP Paribas Asset Management, said that lower US interest rates and refinancing requirements may push global green bond sales to 1.6 trillion US dollars next year.

Green stocks have been market leaders this year. The S&P Dow Jones Index and WilderShares' Clean Energy Index surged 45% and 60%, respectively, although both are still below their 2021 peak.

U.S. solar and battery storage stocks (including SolarEdge Technologies Inc.) have been among the top performers, while wind turbine manufacturers led gains in China and Germany. India has become a hot spot for renewable energy IPOs. Eleven companies have gone public and raised more than $1 billion, while 6 other companies are seeking more than $3 billion in financing. Last year, 14 renewable energy companies raised $2.4 billion through IPOs.

Not all markets are benefiting. The amount of green debt issued in the US fell 7% this year to $163 billion, and supranational bond sales declined by a similar margin. Germany's funding level has stabilized at around $79 billion.

Jeanne Soh, head of structured finance in Asia at Sumitomo Mitsui Bank, said that although India's green loan scale reached a record of 7 billion US dollars, the strong interest of foreign banks has intensified competition, squeezing profit margins on financing projects such as renewable energy by 5% to 10%.

According to the data, due to concerns about “greenwashing,” bond sales linked to sustainable development plummeted by about 50% to 165 billion US dollars this year. Issuance of transformational bonds targeting industries that are difficult to reduce emissions has been reduced by more than half to US$10.9 billion.

Xuan Sheng Ou Yong, Robeco's portfolio manager for sustainable investment clients in Singapore, said these trends could be reversed within the next two years. He pointed out that changes to European fund rules will allow asset managers to define what is a sustainable investment, thus opening the door to emissions reduction investments in highly polluting industries.

Overall, the amount of sustainable global debt this year is about 1.6 trillion US dollars, down more than 8% from 2024, according to the data. On the other hand, the US sells more than $500 billion in social bonds, which are linked to the government's National Mortgage Association (Ginnie Mae), which guarantees the principal and interest of mortgage-backed securities.