- Independent review/ secon opinion
- Green Bond Principles: explained and link to website
- A history of the green bond market
Rapid growth of the green labelled market
The green bond market has taken off in recent years, with the market really starting to take off in 2015 when USD 42 billion was issued; almost four times the 2013 issuance (USD 11 billion).
This momentum has continued strong, with over USD 250 billion in green bonds currently outstanding. There are projectections for issuance to reach USD 130 billion in 2017.
Using debt capital markets to fund climate solutions
Green bonds were created to fund projects that have positive environmental and/or climate benefits. The majority of the green bonds issued are green “use of proceeds” or asset-linked bonds. Proceeds from these bonds are earmarked for green projects but are backed by the issuer’s entire balance sheet. There have also been green "use of proceeds" revenue bonds, green project bonds and green securitized bonds.
Types of green bonds
Green Bonds are standard bonds with a green as a bonus feature
The green “use of proceeds” bond market has developed around the idea of flat pricing; where the bond price is the same as ordinary bonds. Prices are flat because the credit profile of green bonds is the same as other vanilla bonds from the same issuer. Therefore green bonds are pari passu to vanilla issuances.
Investors with $45trn of assets under management have made public commitments to climate and responsible investment - green bonds can help them achieve their pledges in fixed income
The key difference between conventional and green bonds is the specified use of proceeds. Investors are increasingly focused on integrating Environment, Social and Governance (ESG) factors into their investment processes. Green bonds meet these Environmental objects. Investors in green bonds benefit from:
- Funding green projects without taking any additional risk or cost.
- Greater transparency into a bond’s use of proceeds
- Meeting commitments as signatories of PRI (link is external) and IIGCC (link is external)
- Reporting on climate impact of fixed income investments to their end asset owner
Huge demand for green bonds with most of the issues oversubscribed
The huge demand for these bonds is coming from a range of investors. Some examples include:
- Mainstream Institutional investors; Aviva, BlackRock, State Street
- Specialist ESG (Environmental, Social, Governance) and Responsible Investors; Natixis, Mirova, ACTIAM
- Corporate Treasury; Barclays, Apple
- Sovereign and municipal governments; Central Bank of Peru, California State Treasurer
- Retail investors; World Bank issuances for retail investors through Merrill Lynch Wealth Managers and Morgan Stanley Wealth Managers. IFC and SolarCity issuances for retail investors through Incapital.
Benefits for issuers outweigh costs
Green bonds have some additional transaction cost because issuers must track, monitor and report on use of proceeds. However, many issuers, especially repeat green bond issuers, off-set this initial cost with the following benefits;
- Highlights their green assets/business
- Positive marketing story
- Diversify their investor base (as they can now attract ESG/RI specialist investors)
- Joins up internal teams in order to do the investor roadshow (environmental team with Investor relations and other business)