The cost advantage of renewable energy over fossil alternatives continues to widen, and incoming data is starting to confirm a surge in energy investment that will also accelerate the transition for energy-using sectors. SEB’s latest The Green Bond report explores this development, and how 2022 is likely to be the first year when total transition investment exceeds USD 1 trillion. In this issue of The Green Bond, titled Biodiversity in the Spotlight, we also take a deep dive into the topic of biodiversity – particularly looking at how businesses and investors are now moving beyond climate-risks to increasingly also focus on the need to protect and restore nature and biodiversity.
In the December issue of The Green Bond, we suggested that 2022 could be the year when the world finally breaks with a decade of stagnation in renewable energy investment and starts moving back to a more Paris-aligned transition path, as a surge in the cost of energy and electric power has made all kinds of energy production extremely profitable. Data has since started to confirm this development, with global clean energy investment jumping more than 50 percent to a record USD 125 billion in the fourth quarter of 2021, taking full-year investment to a record USD 350 billion. At the same time, the cost advantage of renewable energy has increased further.
“We therefore expect an increase in global clean energy investment of more than 25 percent in 2022,” says Thomas Thygesen, Head of Research, Climate & Sustainable Finance, at SEB. “Thus 2022 is likely to be the first year where total transition investment exceeds USD 1 trillion, which means it has doubled in just four years. However, if we are to maintain hopes of completing the decarbonization by 2050, it will have to double again both in the first and the second half of this decade. It would therefore be wrong to say that we are on the pathway to Paris, but we can at least say that we are now – for the first time in a decade – moving in that direction.”
Biodiversity
This issue of The Green Bond also explores how nature and biodiversity is becoming increasingly important aspects of the debate and initiatives within the sustainability area. The report has been guest-edited by Susanne Gløersen, Deputy Head of Sustainable Banking Norway at SEB, and looks at the decline of natural capital and just how big of a financial risk the loss of biodiversity constitutes. It also explores the macro-economic impacts of this development, and how the business and investor community is now increasingly focusing on the need to halt and reverse nature and biodiversity loss.
“Sustainability is more than climate,” says Susanne Gløersen. “Experts have stressed that conservation and restoration of natural carbon sinks is vital to achieving the Paris Agreement. But while the understanding of how corporates and investors can manage climate risks has matured, awareness about the necessity of protecting and restoring nature and biodiversity is still low. This is about to change as industry-driven initiatives and corporate action on nature-related risks and opportunities are gaining momentum.”
Sustainable Financing
The report also features a sustainable debt market update, showing that the market for sustainable debt grew an impressive 114 percent last year. That compares with an average annual growth rate of 52 percent between 2014 and 2020 and was the highest growth rate since 2014. As stated in our sustainable financing outlook from December, we expect the global volume of sustainable bonds and loans to grow to USD 2.3 trillion this year in our Baseline Scenario and to USD 2.6 trillion in our more optimistic scenario.
“While risks from rate hikes, macro-economic uncertainty and political tensions in Europe have increased since we published our forecast, we are still confident that our growth expectations for sustainable bonds and loans will be met – and maybe even exceeded – this year,” says Gregor Vulturius, Advisor at Climate & Sustainable Finance at SEB. “For this to happen, both old and new market segments need to post growth at least at pre-pandemic levels – something that we believe is very likely given the momentum we saw in the market last year.”
About The Green Bond report
SEB, which together with the World Bank developed the green bond concept in 2007/2008, publishes the research publication The Green Bond 5-6 times a year. It strives to bring readers the latest insight into the world of sustainable finance through various themes. Even though the report covers all kinds of products and developments in the sustainable finance market, we have decided to keep its historic name – The Green Bond – as a tribute to our role as a pioneer of the green bond market. You can find The Green Bond report at sebgroup.com and here.