In June, journalists highlighted the game-changing role that China will play when it finally embraces the green bond market, as well as the need for universal standards in the green space. We also saw quite a few sceptical green bond stories that raised the question of ‘additionality’ and whether the recent flat pace of growth spells the end of the ‘green bond explosion’.
Market analysis
Business Green, How will the law handle Green Bonds? Motoko Aizawa
Motoko Aizawa, Senior Fellow of the Climate Bonds Initiative, discusses the legal implications resulting from the lack of an agreed definition of green bond.
With the green bonds market swelling up and forecast to triple in size this year, we are also hearing murmurs about green washing. If we have another Syracuse-type situation, how would the law handle it today? A number of practising lawyers representing green bonds issuers and underwriters and legal experts came together recently in New York City to discuss this very topic.
Environmental Finance, Redefining additionality with respect to green bonds, Marilyn Ceci
Marilyn Ceci, Head of Green Bonds at JP Morgan, explains her understanding of 'additionality' with respect to green bonds.
While one can argue whether a specific green bond generated environmental benefits that would or would not have occurred otherwise, the important point is that green bonds are being purchased by investors that would otherwise not be engaged in the transaction – thereby spurring demand for a product that, over time, can start to finance new environmental benefits.
They should become available in smaller parcels for individual investors.
Financial Times, The dark side of green bonds, Sophia Grene
Sophia Grene picks up on an important green bonds market discussion, questioning whether the lack of universally agreed standards allows green washing. She also raises the question of ‘additionality’ – do green bonds attract new money to environmentally friendly projects?
First, there is a great deal of latitude in the definition of a green bond, because there is no independent, universally agreed standard. Any company or municipality that wants to raise money by means of a green bond can do so, and all it has to do is convince the buyers it is justified. If those buyers are fund managers attempting to fill up their sustainable investment quota, they may not be motivated to be hypercritical. After all, building a motorway could be justified as “green” if it is intended to cut congestion.
Wall Street Journal, ‘Green bond’ Sales Struggle, Mike Cherney
Mike Cherney writes about the ‘flat pace’ of the green bonds market growth this year and the potential for $70 billion issuance by the year-end.
Bankers, investors and environmental groups are working to add clarity to the green-bond market. Mr. Kidney’s group is rolling out an advisory service for issuers who want to sell green bonds but are unfamiliar with the market. It is also putting out detailed criteria by sector for its own certification program, which is available for green bonds.
Institutional Investor, Green Bonds Not Generating Enough Green, David Turner
David Turner’s analysis indicates that flattening in green bonds sales might be a result of investors searching for higher yields.
Some of the issues in the green bond market right now are at such extremely low yields that they’re starting to become unadvisable,” Ulf Erlandsson, Stockholm-based senior portfolio manager at AP4. (…) Erlandsson’s point is echoed by Sean Kidney, CEO of the Climate Bonds Initiative, who told the conference, “insurers don’t really want triple-A at this stage. There’s not a lot of yield in triple-A. What you want is A- or thereabouts.
Institutional Investor, Investors Finally Tap into U.S Water Market, Kaitlin Ugolik
Droughts and floods hitting California in recent years highlight the need to develop infrastructure that will mitigate the damaging effects of climate change. Green bonds are brought into the picture as a potential funding instrument.
The green bond market has been heating up in recent months, with some analysts predicting that 2015 will be the most active year yet for the asset class globally. In the U.S., Arizona, Massachusetts and Washington State issued new green muni bonds in the first quarter. Most of the funding from these bonds goes toward clean water and low-carbon buildings, according to the Climate Bonds Initiative.
The Australian, Green shoots for green bonds, Liz Moran
As popularity of ‘socially responsible investment’ reaches its peak among investors, The Australian reports on the growth in the green bonds market.
While the market is developing and there’s a limited supply of green bonds, we expect they will be tightly held by investors who need to satisfy fund mandates. In time they should become available in smaller parcels for individual investors.
Green Biz, What Green Bond indices tell us, Michael Puckett
Michael Puckett on the role of indices in driving demand for green bonds.
In July, S&P Dow Jones Indices launched two indices, the S&P Green Bond Index and the S&P Green Project Bond Index. Bank of America Merrill Lynch followed suit with its own index in October. Finally, the ratings agency MSCI partnered with Barclays to launch a suite of indices in November. This activity has coincided with a dramatic growth in the market.
The Globe and Mail, Wall Street fuelling appetite for clean energy bonds, Cordell Eddings
Cordell Eddings of The Globe and Mail praises big banks feeding the growing appetite for socially responsible investments.
“What is called clean or alternative energy now is just going to be called energy in the future, and we want to be a part of that,” said Matthew Duch, a money manager at Calvert Investments in Bethesda, Md., which oversees more than $13-billion in assets, after purchasing Morgan Stanley’s inaugural green bond offering on Wednesday. “The bonds are attractive and you get to be a part of progress.”
The Fifth Estate, News from the front desk
The Fifth Estate interviewed Rob Fowler, advisory team member at the Climate Bonds Initiative. He confirmed bankers’ ‘remarkable’ interest in green bonds issuance.
“All the major banks are very keen to engage. They want to issue themselves and they’re encouraging their customers to get involved. More interest is coming from developers and industrials”, he says. Why? An existing asset can be refinanced at a “pretty cheap rate” he says, or a much lower coupon than for commercial loans. China is the other big mover.
SeeNews Renewables, US$3.5bn green bonds issued in May, TenneT's beats records, Tsvetomira Tsanova
Monthly market overview from SeeNews Renewables.
TenneT Holding BV’s EUR-1-billion green bond is the largest issued so far this year and it was two times oversubscribed, the CBI pointed out. It included two tranches of EUR 500 million each, with terms of six and 12 years and respective coupons of 0.875% and 1.750%. An important investor was German development bank KfW. The proceeds will go to finance over 2.6 GW of offshore wind transmission projects in Germany. The TSO’s CFO said that future TenneT green bonds could also support Dutch offshore wind links.
Asia
Business Spectator, China to boost green bonds; Japan eyes solar bonds
Business Spectator reports on Moody’s predictions that developing countries will play a key role in helping the green bonds market reach $100bn this year.
A report by credit agency Moody’s said developing countries may help the global green bond market reach $100bn this year, triple the $37bn of 2014, citing estimates from the Climate Bonds Initiative.
Time, Could China, the World’s Biggest Carbon Emitter, Ever Go Green? Joanna Plucinska
As China increases its commitments to reduce carbon dioxide emissions, Joanna Plucinska wonders if the world’s biggest emitter can ever go green.
Some hope that the market will start slowly shifting in a greener direction on its own, as Chinese citizens become increasingly frustrated with the environmental degradation of the country. “Everyone’s living in a soup of air pollution and water you can’t drink,” Sean Kidney, the president of the Climate Bonds Initiative, says. Kidney’s organization encourages companies to seek out investments for green projects, then pay investors back incrementally through a “green” bond agreement once the project is implemented.
Insurance Asia News, Insurers to save the planet? Nick Ferguson
Nick Ferguson recaps a briefing that Sean Kidney gave in the PwC offices in Hong Kong earlier this year. He highlights the potential for China to become the biggest issuers in the green space as well as the significance of commitments from the insurance industry.
One of the most encouraging developments, he says, is the leading role played by insurers in promoting green bonds, including strong commitments from Allianz and Aviva at the UN Climate Summit last September. “They said they will double their investments in climate solutions this year and multiply by 10 by 2020. It’s a straightforward quantitative promise,” says Kidney. “Before the UN Summit it was mainly pension funds saying this kind of stuff.”
Launch of the Climate Bonds Standard for Green Buildings
The Fifth Estate, Climate Bonds Standard for low carbon buildings launched, Cameron Jewell
Rules in the standard include criteria for commercial buildings, residential buildings and upgrade projects, and require a building to be in its respective city’s top 15 per cent of performers regarding carbon emissions or for cuts of over 30 per cent in emissions to be made through energy efficiency investment.
Responsible Investor, Climate Bonds Standard for low carbon buildings launched at RI Europe 2015, Daniel Brooksbank
The news comes hot on the heels of this week’s €500m green bond linked to sustainable housing from ABN Amro and last month’s €1bn issue from electricity transmission firm Tennet.
Environmental Finance, Green bond industry groups turn spotlight on property sector, Graham Cooper
The standards “offer certainty for investors that their investments are delivering real climate impacts,” said Climate Bonds Initiative.
Global Capital, Two property green bond standards unveiled, by CBI and GRESB, Nathan Collins
While the announcement of two — potentially contradictory — standards could cause confusion as to what standards investors need to meet, Sean Kidney, CEO of the Climate Bonds Initiative, was keen to emphasise that the two different measures could complement each other, rather than be seen as competing. While Kidney conceded that some investors might be confused by the different standards, he said there was space for both. “The more we can do to drive the bond environment towards low carbon the better, and we have to do a lot,” said Kidney. “The critical message is that there are many different ways to achieve heaven, and there is room for different ways.”
New Bonds
Global Capital, Morgan Stanley joins green bond carnival with its own deal, Jon Hay and Tom Porter
Global Capital reports on first US green bond issued with an independent review.
Sean Kidney, CEO of the Climate Bonds Initiative, a London-based NGO, said: “This is the first time a US bank has issued a green bond using an independent review, which is a norm everywhere but the US. That is a significant breakthrough from my perspective."
Global Capital, BRF takes Brazil green but vagueness raises questions, Oliver West
Oliver West reviews the green bond from the Brazilian food giant BRF. He highlights the ‘vagueness’ of the company’s commitment to monitoring of the use of proceeds.
Kidney said such vagueness should not prove problematic, as any lack of compliance would lead to a “serious reputational problem” that a company such as BRF would not risk. “A number of green groups will examine these things very closely,” he said. “It would have been preferable to do so in a more specific way, but it looks as though the structure is reasonably OK. However, we would expect the verifier of the bond to have another look after 12-18 months.”
Global Capital, Latvenergo goes green for bond debut, Steven Gilmore
Another ‘first’ this month is the green bond from Latvian Latvenergo.
Estonian credits have sold green bonds before, but this is the first green bond from Latvia, according to the Climate Bonds Initiative.
Industry Leader Magazine, Portland City Adopts a New Way to Compensate For Green Project, Anna Domanska
As the growth of US green city bonds continues, Portland is the latest to jump on the bandwagon as the city’s officials start developing guidelines for green bond issuance.
They're being used to remunerate for renewable energy, energy effectiveness projects in buildings, low-emission transit, forestry, and horticulture, and different strategies for adapting to environmental change. As such, investors aren't endorsing lower earnings for purchasing Green Bonds. In any case, there's been heavy investor premium, so backers trust Portland and other issuers that can cut down their expenses by paying lower rates to bond investors.
ABN Amro green bond
Benzinga, Dutch Bank Issues Europe's First Certified Climate Bond, Laura Brodbeck
Laura Brodbeck about the Eurozone’s first green bond issued by the Netherland based bank, ABN AMRO.
Investor interest in the bond caused ABN AMRO to upsize the bond deal from €350 million to €500 million ($556 million USD), making it the largest Certified Climate Bond to have been issued to date. In late May, Australia and New Zealand Banking (ADR) ANZBY issued its own Certified Climate Bond for A$600 million ($464 million USD). Both bonds were well received by all types of investors, though dedicated green investors made up the majority of the interested parties.
Environmental Finance, ABN Amro issues €500m green bond for real estate
EF says that ABN Amro’s green bond certified under the Climate Bonds Standard is setting a benchmark for commercial banks.
Proceeds from the bond, which was nearly twice oversubscribed, will be used to finance mortgages for “highly energy-efficient homes”, loans for solar panels on existing homes and sustainable commercial property. Uniquely, the deal has both a second opinion – provided by sustainability research firm Oekom – and verification from the Climate Bonds Initiative (CBI). So far, those issuers that have opted for CBI verification have not engaged a second party opinion provider.
Global Capital, Green investors drive ABN Amro debut to €500m size, Tom Porter
Buyers included 60% dedicated green investors and another 10% who prefer SRI investments but do not yet have special funds, analysts or requirements, according to the Climate Bonds Initiative. But despite the criticism of the leads for going out in a difficult market, the trade attracted a decent final book of €1bn. Investor feedback from the road show had already led the Dutch bank to increase the deal to benchmark size from €350m. In addition, at around 10bp the new issue premium was at the tighter end of the recent spectrum of FIG trades.
