Climate Bonds Blog
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.
Environmentally-themed Uridashi bonds (non-JPY denominated bonds sold directly to Japanese individual investors) have been popular in Japan for some time, making it by far the biggest market for such bonds. We've now seen issues by everyone from the World Bank and the ADB to Norway's Kommunalbanken, who have just issued USD180 million worth. Nikko AM has two retail funds that predominantly invest in World Bank Green Bonds collectively now at half a billion US dollars.
In what some people read as a sign of pent-up retail interest, UK green energy supplier Ecotricity has said that they're recent green bond offering to customers has been so successful they're going to become a permanent fixture.
The first bond was two times oversubscribed, raising £10 million. See the full story an 'Environment Finance'.
Speaking at a State Street Global Advisors Green Bonds Summit in Boston, Climate Bonds Initiative Chair Sean Kidney announced that the Natural Resources Defence Council (NRDC) had joined the Governing Authority of the Climate Bonds Certification and Standards Scheme.
The Standards Scheme will help spur the growth of the global green bonds market by giving investors and governments an easy way to assess the integrity of environmental claims.
Mr Kidney said: "According to the International Energy Agency we need at least a trillion dollars a year to be flowing into low-carbon industries if we're to avert catastrophic climate change. That money will come largely from bond markets. We need to ensure it's invested properly."
Ireland has set out plans to create a green version of its job-spawning International Financial Services Centre (IFSC), and hopes that it could create 7,000 jobs over the next five years.
A lot of the initiatives are aimed at the carbon markets and green equity funds, but Paul Harris, head of natural resources risk management at Bank of Ireland Global Markets, and a member of the Green International Financial Services Centre (IFSC) Working Group, has one eye on future environmental bonds markets.
CBI network member Ben Caldecott has published a piece on green bonds in the British Guardian newspaper (http://www.guardian.co.uk/environment/cif-green/2011/jan/11/what-are-gre...).
Environmental Finance has just published an article. Responsible Investor briefly reports on the project. And Verdantix list Climate Bonds as one of their Ten Predictions for Sustainable Business in 2011.
From the Verdantix report: "Climate bonds will spur financial innovation for sustainability. Broader marketing of climate bonds – debt finance for climate change mitigation and adaptation projects –will increase financing options available for low carbon infrastructure." etc.
The Climate Bonds Initiative has now secured funding for a project to develop an international standards and certification scheme for Climate Bonds.
One of the issues the Climate Bonds Initiative has canvassed in the past has been the need for standards around the labeling of "green" debt.
The aim of the certification project is to develop a means to give assurance for investors and NGOs about whether funds are being invested in credible manner. This will support liquidity, so that investors can buy and sell climate bonds knowing that if they stick to certified bonds they can be assured different bonds will have the same level of environmentally credibility.
Responsible-Investor.com reported this week that Danone, the French dairy products and bottled water giant, has been looking at the idea of issuing corporate bonds that would have an increased payout if they didn't meet environment, social and governance targets.
Would investors be interested if this approach were used for climate bonds, with penalty rates triggered if bonds don't live up to their environmental promises?