Green Bonds in April have seen new currencies, new issuers and the first ever green covered bond. Green bonds policy was high on our agenda with a roundtable at the World Bank/IMF Spring meetings, the release of our report for the EU on mobilising private finance for climate, and green bonds events took place in London and Amsterdam.
Standards:
IFR, Green Bonds: Stand up or die, Keith Mullin
Reflecting on the state of the green bonds market, Keith Mullin articulates his disappointment in market players’ reluctance to set universal standards for ‘green’:
(…) I’m a little perplexed by the market’s unwillingness – or fear – to tighten standards to the point that they become rules. Everyone speaks of the market needing firm standards on all sides to put it on a solid footing. But at the same time everyone seems visibly afraid of setting standards too high or making rules of the game too complicated or expensive for fear of killing the market. (…)
Bloomberg, Goldman Seeks Better Standards in $80 Billion Green Bond Market, Justin Doom
Another high profile support for the cause of Standards for green bonds came from investment powerhouse Goldman Sachs when its head of the Environmental Markets Group, Kyung-Ah Park called for stronger rules in the market at the BNEF conference in New York. Bloomberg reports:
Kyung-Ah Park, who leads the bank’s environmental markets group, said investors are reassured by the green bond label but often don’t know exactly what they’re getting, much as grocery shoppers gravitate toward food labeled organic even if they don’t know why it qualifies.
Business Green, How Green Bonds can keep water resources flowing, Sean Kidney and Justine Leigh-Bell
Looking back at the drought that hit Brazil earlier this year, Sean Kidney and Justine Leigh-Bell explore how green bonds can become a solution for funding the necessary adaptation projects. They stress the importance of defining what water assets can qualify as ‘climate resilient and low carbon’:
But for investors to make informed decisions about how to allocate money to support more sustainable water projects, they need a framework that maps out the different types of eligible projects. This framework should enable them to understand which interventions are genuinely low carbon, which are exposed to high levels of water risk and which are resilient to risks.
Law360, Green Bonds Flourish As Market Struggles To Define Standards, Zachary Zagger
Zachary Zagger explains how lack of international standards in the green bonds market creates challenges for lawyers guiding corporations looking to issue a green debt:
While the flexibility of green bond projects is part of the reason for their popularity and why more corporations are jumping on the bandwagon, the need to protect investors is of top concern to attorneys as the market balloons.
“I think we have a big challenge when you see the numbers that are predicted for the market, but I think with lawyers being conservative by nature, they are thinking of what can go wrong,” said attorney Tallat Hussain “One of the things we don’t want to face is the 'greenwashing' that we have seen in some instances where verification became a significant issue.”
Renew Economy, Emerging frameworks for green bonds could boost finance for renewable energy, Elena Basic and Mark Robinson (DNV GL)
Authors see development of Standards as the next step for the green bonds market:
Since the label appeared a few years ago enthusiasm from nuanced investors worldwide has ensured a warm reception. Next, frameworks and standards now being drafted should deliver credibility for the mainstream and globally connect many more investors to sustainable activities, including renewable energy. CBI is developing the Climate Bonds Standards (CBS), which is the first and for now only set of standards published for green bonds. Compliance criteria are set for the use of proceeds, eligible asset types, and management of proceeds and reporting.
Environmental Finance, The evolution of green bond standards, Peter Ellsworth
Peter Ellsworth of Ceres (disclosure: the Ceres rep on the Climate Bond Standards Board) talks of the risk that ‘greenwashing’ poses for the green bonds market and joins the ‘Standards’ discussion:
Third-party assurers, by providing the market with opinions about green bond issues, will begin signalling a de facto standard. Similarly, formal certifiers, such as the Climate Bonds Initiative, will set a high but reachable bar for issuers to aspire to. And NGOs, as well as the press, can contribute to market integrity by calling attention to green-washing.
Market developments
CFA Institute, Bonds and Climate Change, Sean Kidney
In an article that can be considered a green bonds primer, Sean Kidney explains the role of green bonds in executing the transition to a low carbon economy. This is a narrative of opportunity and he stresses the role of governments in pushing through the necessary green infrastructure deals:
A green infrastructure investment boom that helps avert a climate change catastrophe is the narrative needed to restart the world’s economies. The challenges to realizing the funding needs required to achieve a green economy can be met, but it will require some risk bridging, as governments always do with infrastructure projects, using regulatory, pricing, and balance sheet support. Governments need to plan for and push through the necessary green infrastructure deals that suit the investment preferences of investors and are easy for investors to find. That is the role of green bonds.
Environmental Finance, Why the green bond market was 'half full' in Q1
Environmental Finance reinforces its support for green bonds in an upbeat commentary of the market performance in the 1st quarter of 2015:
Appetite from investors remains strong. Underwriters say that the second and third quarters are likely to see activity pick up. And 2015 is likely to be the year in which the market spreads its wings and ventures into new territories and finds new issuers.
Global Capital, Pure play green bonds: good or bad?, Jon Hay
Jon Hay picks up on an interesting discussion that sparked at the Green Bonds Principles annual conference in March. Christopher Flensborg @ SEB raised a question of whether pure play companies should be allowed to issue a ‘green bond’ without going through the same process of earmarking proceeds as other issuers do. A range of different market approaches is presented:
Sean Kidney said: “At the end of the day, what matters is the asset base. If Vestas had approached us for certification [as a green bond], we would have welcomed it because manufacturing [renewable energy equipment] assets are as important as generation. We would certify it because it has a balance sheet full of qualifying assets.”
Global Capital, Green bonds: tail must not wag the dog, Jon Hay
John Hay continues his venture on the topic of pure play companies issuing green bonds and clearly states his view on the matter:
The purpose of green bonds is to finance pure play green companies and projects. Making them perform transparency rituals about their use of proceeds that go beyond what any normal company would do when it issues a normal bond puts up barriers to such companies raising capital from the very investors who should be most keen to finance them. The techniques for non-pure play issuers should not be allowed to come between pure play green companies and the bond market. That really would be the tail wagging the dog.
Environmental Finance, JP Morgan steals underwriting crown for Q1 green bonds, Sophie Robinson-Tillett
EF reports on the findings of our Q1 2015 underwriters’ league table that put JP Morgan in the lead for the first time:
JP Morgan has been crowned the biggest underwriter of green bonds in the past quarter, taking pole position for the first time. Figures from NGO the Climate Bonds Initiative (CBI) show JP Morgan underwrote some $950 million of green notes in Q1 of this year – more than any other bank.
Bloomberg, Record $30 Billion in Green-Bond Sales Set to Feed New SEB Fund, Charles Daly
Bloomberg comments on SEB’s launch of a green, global bond fund:
Investors are just as alarmed as everyone else by evidence the environment is suffering and are looking for ways to reflect this concern in their holdings, Marianne Gut, portfolio manager at SEB, said in an interview. “When people talk about the projects behind green bonds, they become happy, which is rare in the world of fixed income,” she said.
SeeNewsRenewables, OVERVIEW - USD 7.15bn green bonds issued in Q1, Vestas' one of the biggest, Tsvetomira Tsanova
An overview of market developments and the biggest issuances of Q1 from SeeNewsRenewables:
Overall, renewable energy projects and activities in different parts of the world will get a nice piece of the USD-3.54-billion green bond pie in March. The Overseas Private Investment Corporation (OPIC), for example, issued a USD 46.5-million green guarantee linked to a 50-MW wind project in Pakistan and a USD-37.4 million green guarantee linked to the 141-MW Luz del Norte solar project in Chile.
Global Capital, Beyond green: public sector pioneers explore new SRI ideas, Craig McGlashan
McGlashan explores themes within ESG investing and looks at the potential for the market of social bonds to grow in the context of the explosive rise of the green bonds theme. The opinions presented lead to a conclusion that for a social bond model to grow it’d need to enjoy a similar level of standardisation as green bonds do. Sean Kidney suggests that the guidelines set in the Green Bonds Principles could be applied to social bonds too:
“It’s important to note that the green bond principles don’t try to tackle the definition of ‘green’,” he says. “That’s why we’re doing our work in the area as a complement. They tackle the reporting aspects, which absolutely should be applied to social bonds as well, and are being applied. So you could easily call it the green and social bond principles without any trouble.”
Huffington Post, Bonding the Future: Green Bonds for a Greener Planet, Scott M. Stringer
Comptroller of the City of New York about the city’s ‘Green bonds program’ in his own words:
A Green Bond program would help lower the City's carbon footprint and fund future resiliency projects -- from hardening our sewage treatment plants and installing bioswales, to undertaking energy efficiency and conservation projects in City buildings. Green Bonds would also help to attract a new generation of investors who want to see social return on their investments as well as financial gain.
New bonds
Financial Times, Transport for London joins green bond bandwagon, Joel Lewin
FT enthusiastically about the latest green bond from the Transport for London (TfL):
Transport for London, which runs the UK capital's underground and buses, has become the latest outfit to join the green bonds bonanza with a £400m, ten-year bond. (…) Conor Hennebry, who heads UK capital markets at Deutsche Bank and worked on the TfL deal said: The charge that it's gimmicky had some validity until recently, but this deal could not have been done to this size and at this price without a significant green investor base
The first ever green covered bond issued by the German real estate and mortgage bank BerlinHyp was the big news of April. EF and IFR both cite Bodo Winkler, head of investor relations and credit treasury at Berlin Hyp.
Environmental Finance, Poor investment landscape highlights perks of green bonds, says Berlin Hyp, Sophie Robinson-Tillett
“We really opened up our investor base with this,” said Bodo Winkler, head of credit treasury and investor relations at Berlin Hyp, adding that 48% of buyers had a social and responsible investment mandate, and many were completely new accounts for Berlin Hyp.”
IFR, Pfandbrief market goes Green with Berlin Hyp debut, Helene Durand
“This was a major project for the bank that involved a lot of extra work, including documentation, getting a second party opinion, as well as conducting an extensive investor roadshow,” said Bodo Winkler, head of investor relations and credit treasury at Berlin Hyp. “However, it paid off and we believe that the Green Pfandbrief market has a bright future and this will add something to the covered bond market.”
Asia
China Spectator, Asian investors go green, Stephen Williams
Head of capital financing Asia Pacific at HSBC, Stephen Williams, stresses the importance of driving Asia’s growth towards sustainable low-carbon economy and highlights China’s recent shift of focus from the quantity to the quality of economic growth:
For Asia, green bonds offer a double opportunity. As well as promoting environmentally responsible development, they can accelerate the creation of deeper and more effective capital markets in the region. Asian investment is currently largely funded by bank loans, but the next wave of growth will require more sources of capital. For China specifically, the country’s huge pool of savings and limited investment opportunities create the perfect match for the development of a corporate green bond market
IFR Asia, Green is good, Steve Garton
While the appetite for socially responsible investments becomes apparent among global investors, Steve Garton wonders if Asian portfolio managers will also be interested in their money generating ‘more than just returns’:
So far, European and US investors have dominated the green deals that have made it to the Asian capital markets, but there are signs that a regional investor base is beginning to develop.
Yes Bank, a private-sector Indian lender, launched India’s first Green bond in February, raising Rs10bn (US$160m) from a 10-year issue in the local rupee market. The issue was doubled from its initial target in a sign of the depth of domestic demand.
Global Capital, Japan’s top issuers mull next steps in global debt markets
Global Capital gathered senior officials from some of the biggest public sector issuers in Japan including Development Bank of Japan, Nomura and Japan Bank for International Cooperation to discuss green bonds. While Japan’s first green bond issued by DBJ in October last year targeted the euro market, roundtable participants wonder if there is a potential to replicate the European momentum among local investors:
Matsui, DBJ: We are going to continue to issue green bonds or other SRI types of the bond over the next several years. There is a large investor base that wants this sort of product in the world, especially when denominated in euros, and that investor base looks likely to grow rapidly. (…) We want other Japanese private issuers to follow this global movement of issuing green bonds. It has come to my ears that some Japanese private corporations are looking deeply into green bond markets, however, it seems they need more time to structure and issue green bonds.
Energy Live News, Credit markets set to go green, Laura Buckley
The media traction caused by ‘Corporate Bond Market Shows Its Green Shoots ‘ and ‘Growing a green bonds market in China’ published in March both pointing to China as the biggest potential area for market growth, spills over to the month of April:
The report suggests China could be the biggest driver as it has “several promising areas for growth”, where the green bond market could grow a lot, “as Beijing steps up its anti-pollution drive and investment in renewable energy.” China boasts the world’s third-largest bond market and around $7.8 billion (£5.1bn) in outstanding Chinese corporate bonds are linked to green themes, according to Climate Bonds Initiative.
EU report
In April, European Commission published a report ‘Shifting private finance towards climate friendly investments’ co-authored by the Climate Bonds Initiative, 2 degrees Investing, CDC Climat, Frankfurt School of Finance and Management, and Triple E Consulting. The report provides EU policymakers with an actionable toolbox for mobilizing private ffinance for climate-friendly investments.
I&PE, Commission urged to include climate risk assessment in IORP II, Jonathan Williams
The wide-ranging report, commissioned by the Directorate-General for Climate Action, highlighted the absence of large-scale projects, the less favourable risk/return profile and high transaction costs as holding back growth of climate-friendly investments.
Business Green, Nine steps for turning Europe into a green bonds powerhouse, James Murray
The report, entitled Shifting Private Finance Towards Climate-Friendly Investments, concludes that in some respects the climate bonds concept is pushing against an open door, as leading institutional investors pledge to prioritise emissions reductions
Environmental Finance, EC calls for green bond securitisations and better non-financial reporting, Sophie Robinson-Tillett
The report highlights the need for the green bond market to scale up in Europe, in part by developing more viable securitisation structures, such as covered and asset-backed issues.
Recycling & Waste World, European Commission launches report on mobilising private finance for climate friendly investments, Geraldine Faulkner
Sean Kidney, CEO of the Climate Bonds Initiative and co-author of the report, said: "Every category in the basket of actions has something to offer to the proposals currently set out for the EU Capital Markets Union and Juncker's Investment Plan for Europe placing the recommendations squarely on the mainstream financial policy agenda. This gives EU policymakers more than enough options to give a boost to sorely needed green infrastructure in the EU."
Energy Live News, EU plans for privately-funded green investments, Laura Buckley
The report says: “Because of the enormous scale of investments required for combating climate change along with constrained public sector resources, the mobilisation of private sector capital is essential – in the developed world as well as in the developing world.
