The popularity of green bonds – so far at least – has given issuers an opportunity to raise finance cheaply, raising questions over whether investors will earn sufficient returns to compensate for the risks.

Singapore’s inaugural sovereign green bond, carrying a 50-year maturity, was priced late last week and oversubscribed, authorities said.

Some S$2.35 billion ($1.7 billion) of the 50-year bond has been placed with accredited investors and institutions. From 5 August to 10 August, the remaining S$50 million of the bond will be offered to individual investors. The bond was priced at 3.04 per cent, the Monetary Authority of Singapore said.

The rollout of green bonds in different jurisdictions has been a theme within the ESG space. Funds raised by the bonds are used for projects such as renewable energy, energy conservation, carbon capture, and other ventures designed to reduce global warming. According to some estimates, more than $1 trillion of green bonds have been issued since they were first created.

MAS said the bond is the first 50-year bond issued by the Singapore government and is also the longest-tenor green bond issued by a sovereign to date.

Investor demand was strong – the offer was oversubscribed by 2.6 times. The yield of 3.04 per cent represented a “significant tightening” of -11 basis points from the initial price guidance at the start of the book-building, while the placement size of S$2.35 billion was at the top end of the targeted issuance size, MAS said. A consortium of banks acted as bookrunners for the bond: DBS, Deutsche Bank, HSBC, OCBC, and Standard Chartered.

The popularity of green bonds – so far at least – has also given issuers an opportunity to raise finance cheaply, raising questions over whether investors will earn attractive returns. For example, the S&P Green Bond Index shows that total returns, in dollars, have struggled since the index was launched on 31 July 2014; they rose during 2020 and 2021 but fell sharply this year, and have fallen 19 per cent over the past 12 months.