GLOBAL - Climate-themed bond opportunities for fixed income investors are greater than expected, according to a new report by the Climate Bonds Initiative in collaboration with the HSBC Climate Change Centre of Excellence (CCCE).

The report, identifying seven climate themes - energy, transport, building and industry, climate finance, water, waste and pollution controls, and agriculture and forestry - attempts to gauge the size of the overall market, which according to Nick Robins, director at CCCE, at $174bn (€140.2bn) was "much broader and deeper than expected".

Sean Kidney, chair of the Climate Bond Initiative, said: "The climate-themed bond market is dominated by $119bn of transport bonds, almost entirely from railway bonds, and $29bn of low carbon energy bonds.

"Together these themes make up 85% of the market," Kidney added. "A large amount of bonds in low-carbon energy and finance could be included if utilities and banks clearly linked corporate bonds to climate-aligned assets."

He added that around $370bn of conditionally-aligned bonds existed if one took into account waste and water company issuance and called for greater transparency from issuers on what constituted "climate-aligned activities".

Robins said further: "This re-framing of the investable universe should help to overcome the perception among mainstream investors of climate-themed bonds as a niche market and allow them to signal to fund managers the desire for greater diversification."

The report found that 67% of the market originated in Europe, followed by the US with 17% and Russia, Canada and China all with 3%, respectively. UK institutions were the largest single issuer climate-themed bonds with 23% of the global total.

The report noted estimates from the International Energy Agency that $1trn in investments was required yearly until 2050 to transition to a low-carbon economy, while traditional sources - such as government and bank finance - would be further strained due to austerity and new regulations, such as Basel III.

"Institutional investors with their $71trn in assets - including pension funds and insurance companies - potentially have an important role to play in financing clean energy programmes," Kidney said.

"They have also realised that high returns in equity can be illusory and have been busily shifting across to the bond market, which is now worth $99trn compared to $55trn for equities - a reversal of where we were a few years ago."

Robins says: "As markets and technologies mature, investor attention will focus increasingly on bond markets as an expression of the climate investment theme. We are in a period when bonds are seen as a safe haven in turbulent times."

Kidney said further that due to their disaggregated nature compared to the traditional energy markeys, renewable energy was at a disadvantage. Therefore, promoting the aggregation of the small projects into ones "suitable" for large investors was a "a must".