A recent report prepared for Barclays by Accenture has placed the need for the standardisation of green bonds front and centre for efforts to finance a low carbon economy.
The report estimated that up to €2.9 trillion of procurement and development capital will be needed for the roll-out of low carbon technologies across the EU25 by 2020. They estimate that 'green' bonds in the form of asset-back securities could account for €1.4 trillion of this total. The figure includes the sum of likely project finance debt, asset finance term loans, asset lease financing, and primary bonds that could be securitised into green asset-backed securities.
The report holds up the strong demand from investors for the Alta Wind project development as a signal of the investor appetite for renewable energy asset-backed securities. Alta Wind managed to raise $580 million in 25-year bonds issuance as part of a $1.2 billion capital raising effort in July 2010.
In addition, they highlight the benefits of how a liquid bond market could enable banks to recover their Tier 1 capital ratios according to the Basel III agreement while financing the roll-out of low carbon technologies.
The Climate Bonds Initiative is striving for liquid market of asset-backed securities; the problem is how to get there. In the medium term, a liquid market may develop driven by credit enhancement and risk sharing schemes by governments and supranational issuance. But in the short-term, the opportunities in corporate or covered bond issuance should not be discounted. Here the key issue is confidence that the bonds are truly green and ring-fenced structures may have to be applied as seen in the World Bank issuance.
The Barclays report authors are quite right to support standardisation of green bonds which neatly coincides with the launch of our public consultation on our Climate Bond Standard. But what might be key is that any standards are not only limited to asset-back securities, but also other bond-types, so that they can be fit-for-purpose at this stage of early market development.