While the EIB, along with the World Bank Group and the African Development Bank, has been issuing climate bonds, other development banks are not so convinced. The huge German development bank KfW, for example, sees little material benefit in green bonds; their German Government rated borrowing costs can't really get lower and they don't need to find new investors. And they're right - from a bank treasury perspective it's merely a distracting idea.
But the easy discoverability for investors provided by thematic labelling of bonds will make a real difference to growing a market for lower-rated corporate and asset-backed climate and green bonds; we've seen the beginning of that with last November's corporate green bonds, and with HannonArmstrong's $100m December asset-backed "Sustainability" bond.
Kickstarting bond markets usually requires a big pile of high-grade "anchor" and liquid issuance, typically government - or development bank. That's the chief value of the EIB, IFC and World Bank issuance we've seen in recent years, and that's what would be the value of KfW Climate Bonds. But no matter; I'm more concerned here with arguing that the development banks of countries committed to addressing climate change should not be using public funds to support coal. That's an argument that's largely been won with the EIB, the EBRD and the World Bank (subject to loopholes emerging) ... but ...
At a very interesting and impressive KfW event on climate finance in Berlin a few weeks ago, it was suggested to me that, anyway, "all KfW bonds are green". Not really. KfW's extensive lending in small and medium sized enterprise, municipal infrastructure and export finance are obviously not necessarily green.
But there's a more important reason: KfW still has a coal loan book.
Now that IS a surprise!
A bit like finding out that the green clean German Government still subsidizes coal mining in the Ruhr Valley (true story, but, under pressure from the European Commission, at least they will stop by 2018).
Don't get me wrong - KfW is a "Hero" bank. It has done an extraordinary amount of lending and investing to support renewables, it runs the world's premier energy efficiency lending program, and its work in areas from sustainable agriculture to climate-resilient water infrastructure is world-leading. I absolutely love KfW, and f I was a German citizen I would be enormously proud of it work.
But it's continued coal lending means it has a dark side.
At the moment, KfW is involved in the construction of nine new coal power plants, two coal infrastructure projects and two coal mines. Yes, new. According to the World Resources Institute it ranks 7th for coal lending among international financial institutions. You can find out more from the campaign Climate Alliance Germany is running.
In some countries, like India and China, there are robustly argued cases for funding new, super-efficient coal-fired power plants because their emission profile is so much lower than what they replace.
There are a few problems with this argument, like plant owners in China turning off all those wonderful carbon scrubbers that make them emissions-efficient because it frees up more electricity to sell; and the problem that to meet required global emission reductions we have to start cutting out all coal-fired power stations over the next 35 years (the average life of a coal-fired power plant is 40 years). In Warsaw last November the International Energy Agency argued that, to stop global temperatures rising more than 2 degrees Celcius, and we can't build any more plants other than those already being built. China alone has 450 on the drawing board.
So should German public money be helping that along in with coal investments in Europe, in South Africa, In India?
With that dark side, standard KfW bonds are most certainly not green.
