Opportunities for growth in the green bond market


Opportunities for growth in the green bond market

By Christa Clapp, Managing Partner and Co-Founder, CICERO Shades of Green Ltd.

The green bond market has grown substantially in recent years to 3% of the global bond market. But what is the potential for further growth? We see several opportunities for continued expansion of the green bond market: in corporate retailers, securitized bonds, and transition sectors.

Corporate retailers and manufacturers have a large potential for growth. Energy and transport company issuers are already known in the green bond market, but retailers and manufacturers offer new opportunities. Two new issuers this year highlight the expanding profile of corporates in the green bond market: Electrolux and Norgesgruppen.


Electrolux Group is the first major corporate appliances manufacturer to issue green bonds in March 2019. Electrolux is a global company headquartered in Stockholm specialized in the production of household appliances and appliances for professional use. The green bond proceeds will support efficiency improvements in energy and water usage, waste management, Hydrofluorocarbons (HFCs) replacements and renewable energy. We rated the Electrolux green bond framework Medium Green. Reducing energy consumption by major household appliances is a critical element to transition to a low-carbon pathway.


Norgesgruppen, a major food retailer in Norway, recently issued a green bond in January 2019. Norgesgruppen has over 1800 grocery stores across Norway. Their green bond supports their long-term mission to become climate neutral. The proceeds will be used for clean transportation, renewable energy and green buildings. We rated the NorgesGruppen framework Dark Green. According to the Climate Bonds Initiative’s comments on the framework, this demonstrates that issuing green bonds is relevant for corporates in different sectors, noting interest from investors in consumer and retail company green bonds.


Securitized bonds can offer scaling to the green bond market universe. As environmental reviewers, we are essentially agnostic on the financial structure of a bond, as long as we can follow the chain of governance down to the asset. Securitization offers a possibility for the green bond market to scale up but requires good transparency on tracing the green criteria down to the underlying assets.

Green mortgages are a recent example of the possible scale: Fannie Mae, a leading source of financing for mortgage lenders in the US, is the largest green bond issuer globally. CICERO reviewed Fannie Mae’s Green Mortgage Backed Securities Framework, noting the governance and reporting processes as a key strength. Both property owners and borrowers are required to report energy and water use performance data annually — this data is made publicly available for each mortgage and audited.

There is also room for growth in sectors transitioning to low carbon. While many green bonds are focusing on renewable energy and zero carbon solutions, the transition space is not well represented in the green bond market. For example, manufacturing based on fossil fuel can make important efficiency improvements as a bridge to cleaner fuels or zero-emission solutions, provided it is not locking-in fossil-based infrastructure. This means that the cumulative emissions over the lifetime of the infrastructure are an important metric to consider for transition projects. Shipping is a sector where there could be more opportunities for green bonds – financing efficiency improvements and batter technology while electric long-haul ships are still under development.

Our Shades of Green methodology supports a range of green solutions. Bonds rated Dark Green finance projects that are close to zero-emissions and consider resiliency to impacts of the changing climate, such as flooding and extreme weather events linked to climate change. On the other hand, Light Green bonds support the first steps in the low-carbon transition, without locking in fossil fuel use in the long run.

CICERO Shades of Green Ratings


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 We typically review bonds that are in the Medium to Dark Green range but would like to see more Light Green solutions. Across the issuer types, we have reviewed a substantial number of corporate green bonds, but very few outside the real estate and energy sectors. To strive for the Paris Agreement target to limit global warming to 2°C, we need all sectors to play a role in the economy-wide transition to a low-carbon and climate resilient future.

Green Ratings by Issuer Type


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Notes: Data from CICERO Shades of Green data as of 25 March 2018. Local governments include municipal banks.

Date of publication: April 9, 2019

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