Green Bond Market Is Estimated To Witness High Growth Owing To Opportunity To Finance Sustainable Development Projects
Green Bond Market
Green bonds are fixed-income instruments that are specifically earmarked for green or climate-aligned projects. Green bonds allow investors to finance environmentally-friendly projects, like renewable energy, energy efficiency, clean transportation, climate change adaptation, and pollution prevention. Such investments help reduce emissions and generate a positive environmental impact. The interest in green financing has been rising among investors seeking to align their portfolios with environmentally sustainable outcomes.
The global Green Bond Market is estimated to be valued at Us$ 552.5 Mn in 2023 and is expected to exhibit a CAGR Of 8.5% over the forecast period 2024 To 2031, as highlighted in a new report published by Coherent Market Insights.
Market Opportunity:
There is a growing impetus on sustainable development worldwide to mitigate risks associated with climate change. Governments and corporates are increasingly focusing on implementing projects that promote renewable energy, green buildings, clean transportation, and biodiversity conservation. The green bond market offers an opportune means to channel private capital towards financing such sustainability initiatives. It is estimated that over US$93 trillion of infrastructure investments will be required by 2040 to develop projects in areas like renewable power, green transport, energy efficiency etc. The enormous funding need presents a massive market opportunity for green bonds to finance these critical projects and drive sustainable development globally.
Porter's Analysis
Threat of new entrants: The green bond market requires significant capital investment and expertise to successfully issue new bonds. Investors also prefer established brands with a proven track record. These factors deter new companies from entering the market easily.
Bargaining power of buyers: Individual investors have moderate bargaining power as they can choose from a wide range of green bond options issued by multiple companies. However, large institutional investors such as pension funds and insurance firms that invest huge capital have strong bargaining power.
Bargaining power of suppliers: Bond underwriters such as merchant banks and brokerage houses have moderate bargaining power as green bond issuers can select from various underwriting organizations. However, a few leading underwriters with extensive experience and presence globally possess higher negotiation ability.
Threat of new substitutes: Alternative investments with environmental or social attributes present a mild threat as some investors may switch to those over green bonds depending on risks and returns.
Competitive rivalry: Intense as key green bond issuers compete for large institutional investment through innovative offerings, certifications, and impact reporting.
SWOT Analysis
Strengths: Growing investor preference for sustainable investments. Issuers get access to larger pool of green investors.
Weaknesses: Higher issuance and verification costs than conventional bonds. Limited history to establish long-term performance.
Opportunities: Rapid expansion in areas like renewable energy require massive green financing. Emerging economies and industries present new markets.
Threats: Stricter regulations or standards could deter some issuers. Economic downturn may shift focus from ESG to profits.
Key Takeaways
The Global Green Bond Market Demand is expected to witness high growth over the forecast period of 2024 to 2031 due to favourable government policies and regulations promoting climate-friendly financing worldwide.
Regionally, the Asia Pacific green bond market has emerged as the fastest growing market and is expected to dominate globally over the coming years led by strong policies and initiatives for renewables and clean technologies in major economies like China and India.
Key players operating in the green bond market are Zimmer Biomet, Smith & Nephew, Stryker, DePuy Synthes, Orthofix, Bioventus LLC, DJO Global, Braun, Medtronic, Globus Medical. Regional leaders are also actively issuing green bonds to finance green building projects, clean transportation, renewable energy, low-carbon technologies, etc.
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