Boost for Green Investment in Water Infrastructure and Sustainable Ecosystem, Cities, Agriculture & Energy

New Criteria covers built infrastructure and nature based systems

Learn more: Webinar on Thursday, June 14 at 11:00 EDT/ 16:00 BST/ 17:00 CEST - Register here.

What’s it all about?

The Water Consortium, a global group of climate finance and sustainability organisations, has formally launched the new Water Infrastructure Criteria of the Climate Bonds Standard, marking a major turning point in best practice for sustainable investment in water based infrastructure and green/grey hybrid systems.

Developed in two phases, the first phase of the Criteria covered both traditional “built” or grey engineered water infrastructure for water treatment, flood defence, drought defence, storm water management, and ecological restoration and management.

The final development phase extends the Criteria’s reach to cover nature-based and hybrid water infrastructure, such as wetlands and watersheds that may be used for purposes of water collection, storage, treatment and distribution, flood protection and drought resilience.

This means that for the first time, nature’s water infrastructure such as watersheds, wetlands, and forests, which are essential for the provision of clean water around the world, can be protected, managed and restored, using Climate Bonds Certified green bonds – making them ripe for the investments they direly need.

Mitigation, adaptation and resilience components

Developed for potential green bond issuers and investors, the new Water Infrastructure Criteria defines and evaluates low carbon and climate resilient water infrastructure projects encompassing two broad components: 1) climate mitigation and 2) climate adaptation and resilience. 

The Criteria screens what types of water assets and projects should be included in green bond investment in water projects to qualify for Climate Bonds Certification. Certified projects must contribute to reductions in greenhouse gases over the lifetime of the asset, and must prove sufficient adaptation to changing climatic conditions.

The Criteria now fully recognise that ecosystems (including rivers, lakes, natural watersheds, aquifers and groundwater) are the original water infrastructure and are essential to meet local, national, and global resilience goals. Nature-based solutions are increasingly being integrated within formal water management systems as green and hybrid infrastructure.

First Water Criteria Certified green bonds

The first Climate Certified Water Bond was issued in May 2016 by the San Francisco Public Utilities Commission (SFPUC) and the second bond by the City of Cape Town in September of 2017. Approximately USD1.6 billion of water bonds have been awarded Climate Bonds Certification already.

Who's saying what? (Issuer voices)

Patricia De Lille, Executive Mayor of the City of Cape Town:

“Being located in a water scarce region and in dealing with the harsh impacts of climate change with our worst drought in over 100 years, the City of Cape Town is acutely aware of the need to facilitate investment in water infrastructure. The development of these Water Criteria within the Climate Bonds Standard has enabled us to direct the proceeds of our bond towards critical projects within this space."

"We welcome the expansion of the Criteria and hope it will stimulate much needed global investment in adaptive and resilient water systems." 

Harlan L. Kelly Jr, General Manager, San Francisco Public Utilities Commission (SFPUC):

“Now more than ever, cities must make critical investments in their water and wastewater infrastructure to ensure a reliable system for future generations. Expanding the Criteria for Climate Bonds Certification, especially around the effective watershed management, will help make that happen.”

“As one of the first public utilities to take advantage of green infrastructure financing, the SFPUC knows first-hand the importance of innovative financing techniques to overcome the environmental challenges we’re facing around the world. We are committed to continuing to upgrade and secure San Francisco’s infrastructure so it will serve our residents well into the future.”

Green bonds, a bridge to SDGs 

Increased green bond based water investment also aligns directly with some of the targets and indicators of Sustainable Development Goal (SDG) 6 - Water and Sanitation. The same broad alignment exists, though not as directly, with aspects of SDG 15 - Life on Land.

More green bond finance for water infrastructure, grey/green hybrid systems and nature based systems will help achieve these SDGs and the 2030 agenda. It’s as simple as that.

How Much Water Investment is needed

Projections for global financing needs for water infrastructure vary from USD6.7 trillion by 2030 to USD22.6 trillion by 2050 according to the latest OECD figures, including USD1.7 trillion to meet SDG 6 - Clean Water and Sanitation. SDG 6 also sets out specific targets and indicators to 2030. 

Earlier annual projections can also be found on p14 of “Water Fit to Finance” from the World Water Council (WWC) and the OECD. A May 2016 report by the World Bank suggests that water scarcity, exacerbated by climate change, could cost some regions up to 6% of their GDP, spur migration, and spark conflict.

According to the latest assessment by the World Bank, 4.5 billion people lack safely managed sanitation services and 2.1 billion people lack access to safely managed drinking water services. Water-related hazards, including floods, storms, and droughts, are responsible for 9 out of 10 natural disasters. Climate change is expected to increase this risk, in addition to placing greater stress on water supplies.  

Who’s saying what? (Expert voices)

Amy Hauter, Associate Portfolio Manager & ESG Research Analyst, Brown Advisory:

“Before we invest in a green bond, we need to know that it’s a solid investment, and we need to know it will produce impact. The new Water Criteria will definitely help us do our job better—under these Criteria issuers can communicate clearly about their use of proceeds and as investors, we can better quantify the impact of those activities. We’ll be able to better assess climate and sustainability factors in water infrastructure projects and the increased transparency will, we hope, encourage more investment in climate resilience.”

John Matthews, Water Infrastructure Criteria TWG Lead Specialist & Director of AGWA:

“For years, we have needed a way to communicate not just the need for resilience but what resilience looks and smells like — what it looks like on the ground. And we’ve needed to show how natural capital — lakes, rivers, snowpack, and groundwater — are as much a part of our water management systems as concrete and reinforced steel. Investors need to know that resilience is something that can be reported in a credible, realistic, and transparent manner. That’s what we are delivering today.”

Monika Freyman, Director, Investor Engagement - Water, Ceres:

“The need for widespread investment in new water infrastructure is integral to strengthening climate adaptation, building resilience and the development of sustainable cities. The broad reach of the new Criteria now gives issuers and investors an opportunity to assess the underlying impact of all water-based investment against a science-based standard. It provides a sound platform for increased green bond based investment in water and water assets.”

Cate Lamb, Director, Water Security, CDP:

“Water security, compounded by a changing climate, may well be the defining environmental issue of the 21st century. The challenges posed are significant, the potential impact is huge, but the opportunities of early action are also great.”

“While the solutions may be complex, this new Water Infrastructure Criteria has just made it easier for investors and companies to ensure they are pursuing science-based water secure, climate resilient investments.”

Todd Gartner, Director, Food, Forests & Water Program, World Resources Institute:

“The launch of the CBI green bonds Water Infrastructure Criteria will provide the added validation for development banks and other financial institutions to confidently invest in natural and hybrid water management systems, with clear recognition of the anticipated water, climate and financial benefits and returns.”

Sean Kidney, CEO, Climate Bonds Initiative:

“Scaling up grey and green water infrastructure investment are vital resilience and adaption responses to the climate changes already baked in to future global patterns. There is widespread recognition that water issues are core to social and urban development, industry, agriculture and security policy. Sustainable Development Goal (SDG) 6 relates directly to clean water and sanitation.”

“The new Water Infrastructure Criteria puts before the bond market a rigorous science-based assessment process for water projects. Its uptake by green bond issuers and investors will help the acceleration of climate investment needed by end 2020 and achieving water outcomes integral to urgent climate action and the 2030 sustainability agenda.”

The Last Word – A big thank you to the TWG and Consortium!

The Water Infrastructure Criteria was developed in two stages starting way back in 2015 by a Technical Working Group (TWG) led by Dr John Mathews of AGWA.

The process has been supported by the Water Consortium, which is comprised of the Climate Bonds Initiative, Ceres, World Resources Institute, CDP and the Alliance for Global Water Adaptation (AGWA) which is supported by the Stockholm International Water Institute (SIWI).

We’d like to publicly thank all the TWG members and the Consortium and acknowledge their support.

Want to know more? Register for our Webinar!

A Deeper Blue for Green Bonds: Water Investment Criteria for Nature-based Solutions

Thursday, June 14 11: 00 EDT/ 16:00 BST 17:00 CEST

Registration Link.

‘Till next time,

Climate Bonds+

Sean Kidney launches securitisation briefing paper at 7^th Global Green Securitisation Summit in Mumbai on May 25^th 

Precursor to ‘Securitisation as an enabler of Green Asset Finance in India’ major report due soon from Climate Bonds

Sean Kidney and four of the India Securitisation Awards 2018 winners: Wadia Ghandy & Co., Northern Arc Capital Limited, Catalyst Trusteeship Services Limited, and Vivriti Capital Private Limited (left to right)

What’s it all about?

Securitisation, the process of transforming a pool of financial assets (for example, mortgages or lease receivables) into tradable financial instruments, has great potential to mobilise institutional capital at scale.

At the 7th Global Green Securitisation Summit in Mumbai last week, Climate Bonds released a new India based Briefing Paper in advance of a major new report due out in coming weeks. Sean Kidney was alson the special guest handing the India Securitisation Awards 2018 to the winners (photos above).

India Securitisation

In the past, India’s market’s growth has been hampered by regulatory hurdles including lack of clarity for different structures, tax inefficiencies and barriers to foreign investor participation.

These have now been largely addressed in the 2016 Finance Act and reforms in norms pertaining to participation of foreign institutional investors.

As of now the markets are showing signs of growth.

Figure 1: Annual volume of Indian securitisation market FY12 – H1 FY17

While most transactions in the Indian securitisation market have involved mortgages and vehicle loans, there is great potential for refinancing loans backed by green assets such as renewable energy, energy efficiency and low carbon transport.

The securitisation of microfinance loans is already established in India and green securitisation can be applied to sustainable farming and land management loans to help meet the sector’s financing needs.

Green securitisation can expand banks’ lending capacity by recycling balance sheet capacity and opening up a refinancing route for long-term loans.

Global Green ABS

A securitisation can be defined as ‘green’ when the underlying cash flows relate to low carbon assets or where the proceeds from the deal are earmarked to invest in low carbon assets. 

In 2016, green ABS made up 10% of global green bond issuance. 2017 saw rapid growth, driven mainly by US government agency Fannie Mae, and ABS reached a 22% share in the global green bond mix.

Figure 2 – Global Green ABS 2013 - 2018

India Green Bonds

In India, the green bond market is well established and growing, reaching almost USD4bn in 2017, placing India in the Top 10 of global issuers for the year, a slow but steady increase from the 2015 total of USD1 billion.

Green bonds have help to finance renewable energy, energy-efficient buildings, low carbon transport and resilient water infrastructure. Climate Bonds “State of the Market – India” report from April 2017 provides more background.  

Figure 3: India: Green Bond Issuance CY 2015 -2017

The Climate Bonds team will be in the Americas, Europe & Asia this month. Don't miss the chance to hear our experts discussing the future of green finance.

June 2018 Events

See you around.

'Till next time,

Climate Bonds

Reach of Climate Bonds Standard expands: Branches into Forestry and Land Conservation

Consultation period open from Friday 1st June 2018. Get involved and send us your feedback!

What’s it all about?

At a global level, forests mitigate climate change through carbon sequestration and contribute to climate resilience, balancing oxygen, carbon dioxide and humidity in the air and protecting biodiversity. Forests also have a significant role in reducing the risk of natural disasters, including floods, droughts, landslides and other extreme events.

But, deforestation, clearing land for plantation forestry and forest degradation cause significant global GHG emissions, accounting to 20% of anthropogenic CO₂ emissions.

Net reduction of GHG emissions in the forestry and land use sectors is an essential part of the global response to climate change, and is vital to meeting the Paris targets and assisting meet UN Sustainable Development Goal (SDG) 15 – Life on land.

Investing in forestry and land conservation and restoration represent an investment in people and their livelihoods (around 1.6 billion worldwide depend on forests and other natural landscape to survive). These Criteria give the requirements that must be adhered to help ensure forestry and land conservation and restoration investment is sustainable and supports low carbon and climate resilient outcomes.

SDG15 ‘Life on land‘ & Green Bonds

Currently we’re seeing more bond issuances linked to forestry assets and projects. The Tropical Landcapes Finance Facility (TLFF) launched a USD95m sustainability bond earlier this year, Landshypotek Bank has priced the first green covered bond from a Swedish issuer which is the largest ever green bond in Swedish krona (SEK5.25 billion), partly for sustainable forestry, and Sveaskog has issued two green bonds, one in 2016 and one in 2017, for FSC Certified forestry assets.

Green bonds have also funded land conservation and restoration. Poland’s 2016 sovereign green bond notably included conservation and restoration of natural habitat and national parks. In 2015, the State of Hawaii issued a USD35m green bond to purchase land in Kahuku Koolauloa, Oahu, solely for conservation purposes.

Increasing best practice green bond investment in forestry and land conservation projects not only has a direct climate benefit, but will improve biodiversity and will bolster many of the targets set out in SDG 15. 

The Criteria

The Forestry Criteria and the Land Conservation & Restoration Criteria aim to provide a clear, robust and science-based screening process to identify low carbon and climate resilient forestry and land conservation and restoration investments that are aligned with a 2°C target. The development of a widely-recognised set of Criteria will reduce transaction costs and improve transparency, ultimately encouraging more investment in this sector.

These Criteria outline the requirements that forestry and land conservation and restoration related green bonds must meet to be eligible for Climate Bonds Certification.

Our Forestry Technical Working Group (TWG) and Industry Working Group (IWG) have both worked extremely hard, lending us their expertise and substantial sector experience to develop these Criteria.

Types of Projects

The Forestry Criteria cover projects and activities including, for example, plantation forestry; forest conservation and restoration; and forest supply chains.

The Land Conservation & Restoration Criteria cover projects and activities which either conserve or restore landscapes such as, for example, grasslands.

Both sets of Criteria aim to:

1. Certify relevant assets and projects that are compatible with a 2°C trajectory;
2. Ensure these assets and the surrounding ecosystem are adaptive and resilient to a changing climate;
3. Raise the level of transparency in green bonds.

How long is the consultation period open for?

Public Consultation will close on the 20^th July 2018. Please send your comments to Katie House.

What can I review?

Review the requirements of the Forestry Criteria and the Land Conservation & Restoration Criteria in these documents:

1. Forestry Criteria and Land Conservation & Restoration Criteria summaries - 2-page summaries of the requirements
2. Criteria Document– full requirements of the Criteria
3. Background Paper - background information and full detail of the TWG and IWG discussions and the rationale for the developed Criteria.

Learn more!

Two Webinars will introduce the Criteria and answer your questions – get your diaries! 

Webinar 1:

Date: Monday 18^th June 2018

Time: 4pm (UK time)

Register here.

Webinar 2:

Date: Monday 9^th July 2018

Time: 10am (UK time)

Register here.

What will follow the consultation period?

The TWG will review the Criteria once public consultation is complete, taking into consideration the feedback received, to then submit a final proposal to the Climate Bonds Standard Board for final approval.

Who’s saying what?

Christine Negra, Versant Vision and TWG lead

"These Criteria are the product of hard work by a diverse group of technical and industry experts dedicated to ensuring that certified projects are low-carbon and climate change resilient. Our original approach was for a single Criteria to cover all types of land use including arable farming, livestock, forestry, land conservation, and land restoration."

"We went up a steep learning curve as we attempted to develop rigorous criteria that fit these many different land uses. In the end, Climate Bonds has taken a sub-sectoral approach and the Forestry Criteria and Land Conservation and Restoration Criteria are the first to be released. It will be exciting to see the first issuers using them for Climate Bonds Certification."

Lars Mac Key, Head of DCM Sustainable Bonds, Danske Bank and IWG member

“Sustainable and resilient​ forestry is such an important part of the survival of this planet. It not only sequesters CO2 producing fresh air as a by-product, but ​a sustainably managed​ forest also gives us the material to build a sustainable future. There is a huge potential in forestry green bonds, these Criteria are essential in facilitating for such growth.”

Sean Kidney, CEO, Climate Bonds Initiative

“There has been a demand in the green bond market for forestry and land use opportunities for a long time – both from investors and issuers alike there has been a quest for guidance on what's really best practice in these sectors. The TWG and IWG development work has been firmly rooted in the climate science and produced a robust Criteria that we are now excited to open for public consultation."

"These Criteria will ultimately help issuers better understand what a climate compatible forestry project is and will inform investors and the market around best practice in forestry and land conservation projects. The consultation and feedback process gives all stakeholders their first exposure to the work of the TWG and the shape of what will be coming to market." 

The Last Word

Forestry and Land Conservation & Restoration are two further big steps for diversification of green investments. The resulting Criteria push for the transformational changes needed to limit global warming to 2-degrees and support climate mitigation and resilience.

Do contribute with your expertise and send us your feedback. Please send your submissions and comments to Katie House, Senior Research Analyst (katie@climatebonds.net).

Last but not least…

We would like to extend our gratitude and sincerely thank all TWG and IWG members and their constituent organisations for their invaluable support and guidance in developing the Forestry Criteria and the Land Conservation & Restoration Criteria. You can put a face to a Group here.

Special thanks also goes to The Rockefeller Foundation for its support of the development of these Criteria.

‘Till next time,

Climate Bonds

Lagos event brings stakeholders together around green programme 

Goal to develop local green bond market and attract international partnerships

What’s it all about?

Today in Lagos, Climate Bonds Initiative in partnership with the FMDQ OTC and the Financial Sector Deepening Africa (FSD Africa) is launching the Nigeria Green Bond Market Development Programme (NGBMD), with the joint goal of supporting the issuance of corporate/non-sovereign green bonds and the development of a domestic green bond market in Nigeria.

The launch is one of the major events of the Green Bond Week, that will see local and international green finance stakeholders gather in Nigeria's biggest city to discuss the impact of climate risk on investment portfolios, the role for regulators in developing the local market and a better understanding on the opportunity for green bonds in Nigeria. 

The Hon. Tajudeen Yusuf, Chairman, House Committee on Capital Markets will open the daylong NGBMD event. 

The key note address is from His Excellency, Mr. Akinwunmi Ambode Executive Governor, and Lagos State. Other speakers include Mr. Herbert Onyewumbu Wigwe, CEO of Access Bank, Ms. Mary Uduk Acting Director-General, Securities and Exchange Commission, Ms. Patience Oniha Director-General, Debt Management Office and Mr. Bola Onadele. Koko Managing Director/CEO, FMDQ OTC Securities Exchange.

Who’s saying what?

Justine Leigh-Bell, Director Market Development, Climate Bonds Initiative:

“The Nigeria Green Bond Market Development Program is a big step towards unlocking the full potential for domestic issuance while developing a pipeline of green opportunities and engaging with local and international investors. We are very excited about the future in the region.”

Mr. Bola Onadele.Koko, Managing Director/CEO, FMDQ OTC Securities Exchange:

“As an OTC Exchange with a passion for developing the Nigerian DCM, FMDQ is excited and optimistic that our pursuit to develop a Green Bond market in partnership with reputable institutions such as FSD Africa and Climate Bonds Initiative will help address infrastructure gaps and environmental challenges in a sustainable manner to deliver prosperity for Nigerians.”

The Last Word

Nigeria has one of the fastest growing populations in the world with 300 million expected by 2050. The business capital, Lagos, is set to become one of the world’s 2030 megacities. According to the WEF four of the world’s ten fastest growing cities are in Nigeria. This projected rate of growth brings both development and climate challenges.

In December 2018 Nigeria became the fourth nation globally (behind Poland, France and COP President Fiji) to issue a Sovereign Green Bond and the first African nation to issue a attracting widespread attention and giving added momentum to proposed green issuance by otherAfricannations.

In March this year, Climate Bonds, the Nigerian Securities Exchange (FMDQ) and Financial Sector Development (FSD) Africa signed a Cooperation Agreement to develop green bonds in Nigeria.

The Market Development Program being launched in Lagos this week is an example of the new partnership at work. There’s more to come.

We’ll keep you updated with the latest from Lagos and all the coming announcements.

Look on our Twitter, Facebook or LinkedIn for more from Nigeria over the next few days. 

‘Till next time,

Climate Bonds

NYK issues first green bond from the shipping sector – green enough for now but not for long

What’s it all about 

Global transport and shipping giant, Japan’s Nippon Yusen Kaisha (NYK) closed the first green bond in the shipping sector on 24 May 2018. The JPY10bn (USD92m), 5-year bond benefits from a second party opinion from Vigeo Eiris.

Decarbonising shipping is crucial. Shipping currently accounts for c2.5% of global emissions, but left unchecked shipping emissions are expected to grow by 50-250% by 2050.

Proceeds from NYK’s green bond finance and refinance LNG-fuelled ships, LNG-bunkering ships, ballast water management systems and SOx scrubber systems. From a climate perspective, we focus on the LNG-fuelled ships and bunkering ships.

We take a closer look

This Climate Bonds special briefing offers in-depth analysis of the environmental credentials of NYK’s green bond.

The short summary: NYK’s green bond is included in the Climate Bonds database

The assets financed by NYK’s bond are currently the lowest-emission asset option for long-haul shipping, provided methane slip is kept to an absolute minimum. Annual reporting will be crucial to provide assurance that the expected levels of emission cuts are achieved in practice.

Fuel efficiency optimisation is important, particularly when designing the vessels, but also during operation. While renewable fuels are not yet commercially viable for long-haul shipping, best practice would be to incorporate flexibility at the initial design stage of the ships to easily retrofit the ships to run on renewable fuel in the future.

Read our full CBI special briefing for more.

Where to from here?

The Climate Bonds Taxonomy and Climate Bonds Standard are based on climate science and limiting global warming to below 2-degrees target as set in the Paris Agreement and also takes commercial viability into account.

The governance process includes sector-specific Technical Working Group (TWG) and Industry Working Group (IWG) in the development of Criteria that apply under the umbrella Climate Bonds Standard. 

The groups are composed of recognised subject matter experts, scientific, academic and international agency representatives, NGOs and industry stakeholders. The TWG is responsible for developing the criteria, while the IWG provides feedback on the proposed criteria.

The Taxonomy and Standard are flexible to adapt to increasing ambition. As renewable alternatives start becoming available and viable for long haul shipping – expected in the next 3-5 years or so – new green bonds in the shipping sector will have to offer more drastic emission reductions than we see in this initial green bond from NYK to qualify for inclusion in our green bond database.

Climate Bonds to form Shipping Criteria development process

As advised in our last Newsletter, we’re in the process of establishing a Shipping TWG and also an IWG to develop specific eligibility requirements for shipping-related green bonds.

The Working Groups will consider options at the operational level as well as the asset level, and establish a clear baseline to measure emission reductions against.

NYK has foreshadowed they will be member of the IWG.

If you would like to join the TWG or IWG contribute with your expertise and send us your feedback. Please send your submissions and comments to Katie House, Senior Research Analyst (katie@climatebonds.net).

The Last Word

There’s much more on the NYK green bond in our CBI special briefing. If you want to know more about decarbonisation in shipping and LNG as a transition fuel in the sector read on.

‘Till next time

Climate Bonds

Webinar Invitation: Green Infrastructure Investment Opportunities Indonesia report. 08:00 BST 20 June. 

If you’re a DCM & Emerging Market Analyst, Infrastructure and Infrastructure Debt Specialist, ESG and Sustainable Portfolio Manager, Direct Investment or Project Finance specialist this is for you. Details here.

Highlights:

• Global firsts: forest green covered bond (Sweden) and shipping GB (Japan)

• USD55bn issuance in 2018 to date. Cumulative global GB issuance reached USD406bn, with USD379bn outstanding

• 12 debut issuers from 9 countries in May and over half of monthly issuance contributed by financial institutions, excluding development banks

• January-May issuance up on 2017, if the increasing number of sustainability and social bonds are included (still pending inclusion of Fannie Mae green MBS issuance for April and May)

Go here to see the full list of new and repeat issuers in May and early June.

May at a glance

The first green covered bond secured on FSC-certified forest assets emerged from Sweden. The first shipping green bond was issued by NYK.

Green bond issuance in May totalled USD10.5bn, 28% lower year-on-year for the month. However, issuance from Fannie Mae – which accounted for 16% of last year’s figure – is not included yet. Country and bond type diversity continues increasing with two global firsts in the last two weeks.

USD4.5bn of issuance came from financial corporates, with Manulife contributing CAD600m to volume and the rest coming from Bank of America, which was the month’s largest issuer with its USD2.25bn deal, and debut issuers BBVA and Landshypotek Bank. Overall, financial institutions, including government-backed banks and non-bank lenders but excluding development banks, accounted for 55% of volume, up from 28% in May 2017 (which includes Fannie Mae issuance). Banks, in particular, seem to be taking a more active role in the market.

Development banks, on the other hand, contributed 16% to May issuance in 2018, down from 46% in 2017. As noted in our 2017 Highlights, development banks have an increasing role in supporting the market via risk bridging and initial investment.

Developed markets accounted for 78% of May 2018 issuance volume, with the US, Spain and Sweden topping country ranks. Emerging markets issuance was limited (9%), with China accounting for 3% of the total compared to 19% in 2017. In general, issuance from China has been subdued this year, but issuance from other Asian markets is increasing and diversifying, particularly from Indonesia, Japan and South Korea.

For the year to date, green bonds included in the CBI database are 9% down on 2017, pending the inclusion of April and May issuance from Fannie Mae. However, total issuance – including excluded bonds – is up 5%. Sustainability bonds of USD4.8bn represent almost 40% of excluded bonds. Social bonds – CBI tracks USD6.5bn from Jan-May 2018, up 5-fold on Jan-May 2017 – are not included in these figures. Adding them in, would bring the total’s growth rate to 13% up on 2017.

We expect to see growing use of sustainability bonds: issuance for the first 5 months is up 73% year on year. The climate change mitigation and resilience allocations from sustainability proceeds can be significant. To better track that, we would prefer to see sustainability deals split into green and social tranches.

>The full list of new and repeat issuers here.

>Click on the issuer name to access the new issuer deal sheet in the online bond library.

Certified Climate Bonds

There were no new issuers in the Certified Climate Bonds space between 21 May and 5 June.

On the ABS front, both Obvion and FlexiGroup issued their third Certified Climate Bonds ABS deals during May.

• Obvion’s Green Storm 2018-GRN is a EUR588m (USD685m), 5-tranche green RMBS with a call date in May 2023 and legal final maturity in 2065. The AAA-rated Class A is EUR550m.

• FlexiGroup issued a AAA-rated Class A2-G green tranche of AUD66m (USD49m), secured on rooftop solar loans, as part of FLEXI 2018-1, following the well-established formula from its first two deals. But, for the first time, it also offered a AA-rated Class B-G of AUD15.3m (USD11m), a subordinated green tranche, to investors, which suggests investor appetite for higher-yielding bonds and increased comfort with a somewhat higher risk level.

New issuers

California Statewide Communities Development Authority (USD91.1m) issued a 16-tranche green US Muni deal (longest dated bond: 27-year term). As stated in the prospectus, proceeds will finance construction, renovation and improvement projects at the Marin General Hospital in Greenbrae. The issuer is committed to obtaining a LEED Silver certification level.

Climate Bonds view: This is the fourth California US Muni deal this year, for a total of USD636m, and brings the state’s cumulative issuance to USD6.9bn since the first California US Muni transaction in October 2014.
 

China Resource Leasing (CNY1.3bn/USD213m), China, issued a 4-tranche green ABS with a 9.5-year term. The deal is backed by receivables from 76 leasing agreements in five major industries, including solar, hospitals, built environment and ships. The proceeds will be fully allocated to 27 solar farms and an onshore wind farm in China.

Climate Bonds view: Although the collateral is not necessarily green, the funds raised will be fully applied to finance green assets. Coupled with the disclosure of expected environmental and climate impact, we support this green solar and wind ABS.
 

Far Eastern New Century Corporation (TWD3bn/USD101m), Taiwan, issued a 5-year green bond in January 2018 and DNV GL provided an assurance report. Proceeds will be allocated to four projects: 
1) waste polyester recycling facilities, which aims to reduce the use of PCR (polymerase chain reaction) products; 
2) polymer batching facilities that could improve energy efficiency and reduce industrial solid waste;
3) anhydrous dying facilities that could save water use and reduce waste water discharge; and,
4) a green building project, which has been certified against Taiwan’s Construction and Planning Agency Green Building Standard, Gold.

The issuer has disclosed very detailed information on the expected positive environmental and climate impact. For example, it is estimated that introducing anhydrous dying facilities alone will save 31K tons water per year and avoid 33.8K tons of waste water discharge per year.

Climate Bonds view: We support green bonds financing for industrial efficiency improvement, waste management and pollution control, especially when the expected impact is clear.
 

Helios (USD255m), a subsidiary of US solar service provider Sunnova Energy, issued a 3-tranche, 32-year Solar ABS in 2017. The securitisation is backed by a pool of 13,838 leases, power purchase agreements (PPA), EZ Pay PPAs, and 20 hedged solar renewable energy certificate contracts related to residential PV installations in 14 US states, Puerto Rico and Guam, with California, New Jersey and Puerto Rico accounting for two-thirds of the assets.  In October 2017, Hurricane Maria damaged a significant percentage of assets located in Puerto Rico, but Sunnova expects to recover repair expenses through its insurance policy.

Sunrun (USD111m), USA, issued a 2-tranche Solar ABS with a 30-year tenor in 2015. The issuer’s inaugural deal is backed by a pool of leases and power purchase agreement contracts related to residential solar PV systems.

Climate Bonds view: The deals were previously treated as unlabelled, but we have now decided to include all solar ABS, where the collateral is solar assets, in our database. Solar ABS underpins the adoption of residential rooftop solar in the USA and its territories. We would hope to see more solar ABS in other markets as well.
 

Huadian Fuxin Energy Corporation (CNY840m/USD131m), China, issued a 12-tranche green ABS in March 2018 and Zhongcai Green Financing provided a second party opinion. The subordinated tranche has a 12-year tenor, while the senior 11 tranches have an initial term of three years and will be redeemed and refinanced every three years on adjusted terms in accordance with an expected rate of return mechanism. ABS summary features are available here.

The deal is secured on the feed-in tariff receivables from solar and wind power projects of seven subsidiaries of Huadian Fuxin Energy Corporation Limited. The underlying assets comprise benchmark price, as well as partially and purely subsidized electricity revenue rights. The proceeds will be used for the development and operation of green industry projects.

Climate Bonds view: This is one of the more complicated funding structures we have seen for solar and wind assets and has been designed to match the cash flows of the seven subsidiaries, providing an example of how corporates can aggregate smaller funding requirements and combine different types of revenue streams across their group. While we are comfortable with the underlying assets’ green credentials, we would hope to see more documents being made publicly available by the issuer.
 

JRTT – Japan Railway Construction, Transport and Technology Agency(JPY24.5bn/USD228m) issued a 20-year green bond in February 2018. The deal will finance the development of the Eastern Kangawa Lines “Enhancement of Convenience of Urban Railways” project. The lines will link the western part of Yokohama City and the central part of the Kangawa Prefecture with the Tokyo metropolitan area. The project is expected to reduce around 1800 tons of CO2 per year and 18 tons of NOx per year.

Climate Bonds view: This is JRTT’s second green bond following their debut JPY20bn (USD176m) issuance in November 2017. The deal was previously placed as pending due to lack of clarity on proceed allocations. Thanks to the provision of additional documentation by the lead underwriter, Mizuho, we were able to confirm the bond’s compliance with the Climate Bonds Taxonomy and include it in our database.
 

Japan Retail Fund Investment Corp (JPY8bn/USD73m) issued a 5-year green bond. This is the first Japanese REIT to tap the green bond market and it focuses on retail assets. Proceeds will be used to acquire buildings, which have achieved 3, 4 or 5 stars under the DBJ Green Building Certification Programme or B+, A or S rank under the CASBEE Certification Rank. The deal benefits from a Sustainalytics second party opinion.

Climate Bonds view: Introducing energy efficiency measures in buildings is paramount to reduce CO₂ emissions. Eligibility thresholds for both DBJ Green Building Certification Programme and the CASBEE Certification Rank are on the middle-to-upper end of the scheme levels. We strongly encourage issuers to aim for high-end certification levels to maximise the environmental impact of energy efficiency related investments.
 

Kungsleden (SEK2.5bn/USD304m), Sweden, issued a 2-tranche green bond with a 4-year tenor. The property manager’s deal benefits from a CICERO second party opinion. Proceeds will be allocated to green buildings, solar, wind and geothermal energy and electric vehicle infrastructure. Building eligibility criteria require a minimum green certification of LEED Gold, BREEAM Very Good, Miljöbyggnad Silver or EU GreenBuilding. Additionally, for LEED and BREEAM, at least 70% of the points in the energy category have to be achieved. Energy efficiency projects and renovations of commercial properties must lead to at least a 25% energy use reduction.

Climate Bonds view: This deal was previously pending inclusion in our database due to lack of information. Once the second party opinion was made publicly available we were able to confirm that the proceeds of the bond are in compliance with the Climate Bonds Taxonomy.
 

Landshypotek Bank (SEK5.2bn/USD605m), Sweden, issued a 5-year green covered bond – the first green covered bond and largest green bond from a Swedish issuer. The cover pool comprises mortgages on FSC and/or PEFC certified forestry assets, however the green bond framework also includes wind and solar assets, buildings with an EPC rating class of A or B – which translates to at least 25% less total energy use per heated square meter than required by the Swedish National Building code – and building retrofits, which aim to achieve at least 30% improvement in energy use. In its second party opinion, CICERO awarded the framework a Dark Green shading.

Climate Bonds view: Forests are valuable assets to maintain biodiversity and to absorb sizable amount of carbon dioxide emissions. It is very gratifying to see that forests represent the cover pool of the first green covered bond issued in Sweden, and we hope to see more issuers following suit.

>  Climate Bonds has opened a public consultation on our new Forestry and Land Conservation/Restoration Criteria. Register for the 18 June webinars here.
 

NYK – Nippon Yusen Kaisha (JPY10bn/USD91.5m), Japan, issued a 5-year green bond, a first for the shipping sector. Proceeds will finance and refinance LNG-fuelled ships, LNG-bunkering ships, ballast water management systems and SOx scrubber systems. Vigeo Eiris provided the second party opinion and stated “LNG is the best available option for full scale application to reduce emissions in the global shipping industry, especially for long-distance navigation purposes”.

Climate Bonds view: The decision to include the bond in our green bond database hinges on GHG emission reductions and NYK's adoption of fuel efficiency optimisation alongside the switch to LNG, measures to keep methane leakage to an absolute minimum and a commitment to provide impact reporting using operational data. On its own, the switch to LNG does not provide sufficient emission cuts. Renewable fuels are not yet a commercially viable option for long-haul shipping, so best practice would be to incorporate flexibility at the design stage to easily retrofit the vessels to run on renewable fuel in the future, i.e. to avoid lock-in of fossil fuel technology. The decision to include this bond was not a simple one – our special briefing provides details.

>  Climate Bonds is currently establishing a Technical Working Group (TWG) and an Industry Working Group (IWG) to develop specific eligibility Criteria for Certification of shipping-related green bonds under the Climate Bonds Standard. If you would like to join the TWG or IWG please contact Katie House, Senior Research Analyst (katie@climatebonds.net).
 

Stena Metall Finans (SEK800m/USD91m) issued a 5-year green bond, becoming the first Swedish issuer from the waste management sector. The deal will finance waste recycling projects and assets related to the Sterna Nordic Recycling Centre located in Halmstad, Sweden. CICERO provided the second party opinion.

Climate Bonds view: Recycling is key to sustainable resource management. This month has also seen repeat issuance from waste management company Renewi (formerly Shanks Group) and we would hope to see more deals from the sector.

>  Climate Bonds criteria for recycling and waste management are under development.
 

Taipei Fubon Commercial Bank Co (TWD1bn/USD190m), Taiwan, issued a 2-year green bond in March 2018 to finance the development of renewable energy and energy technology, including the construction of solar and wind power stations and the procurement of corresponding equipment. The renewable energy plants can generate around 14GWh – 22GWh per year. Deloitte provided an assurance report, confirming compliance with ICMA GBP, and the deal complies with the green bond requirements set by the Taiwanese government. 

Climate Bonds view: The expected outcome is to initiate growth in clean technology development, diversify energy production sources and improve environmental quality in the region. Going forward we would hope to see longer dated paper which can provide security of financing for renewable energy and other green projects.
 

Taiwan Business Bank (TWD1bn/USD190m), Taiwan, issued a 3-year green bond in January 2018. Proceeds will be allocated to three major areas: 1) renewable energy and technology development; 2) energy efficiency and savings using energy storage equipment, energy monitoring devices, peak demand shift devices and energy efficiency equipment; and, 3) waste control and management, comprising waste and wastewater treatment, pollution control, resource recycling and noise control. KPMG provided an assurance report. The deal complies with the green bond requirements set by the Taiwanese government.

Climate Bonds view: The wide range of projects and ambitious allocation programme leads us to believe that this is the start of an initiative to create momentum in clean energy transition by improving of energy efficiency and pollution control in industry and other business sectors. We would hope to see more and longer-dated bonds raised to finance such projects.
 

Vastra Gotalandsregionen (SEK1bn/USD113m), Sweden, issued a 10-year green bond and obtained a second party opinion from CICERO. Proceeds from the region’s debut green bond will be allocated to buildings that have obtained a Miljöbyggnad Silver certificate or above. Eligible projects also include buildings with at least 25% lower energy input per square meter per year than required by applicable regulations or major renovations, which aim to achieve at least a 30% reduction in energy usage.

Climate Bonds view: Setting high green building certification levels and a minimum energy performance improvement of 25% or above are aligned with best practice. Achieving Miljöbyggnad Gold would demonstrate an even greater commitment.

Repeat issuers – 21 May to 5 June

• Credit Agricole CIB: USD25m (previously pending)

• EBRD: SEK1bn/USD114m

• EIB: EUR500m/USD577m

• Export-Import Bank of Korea: USD400m

• Harvest Capital: CNY1bn/USD157m

• Humlegarden Fastigheter AB: SEK400m/USD45m

• Korea Development Bank: KRW300bn/USD0.3m

• New Jersey Infrastructure Bank (formerly New Jersey Environmental Infrastructure Trust): USD36m

• Obvion (Certified Climate Bond): EUR588m/USD685m

• Renewi (formerly Shanks Group): EUR550m/USD648m

• Renovate America/Hero Funding: USD206m

• Skanska: SEK1bn/USD114m

• TenneT Holdings: EUR1.25bn/USD1.5bn

May trends

Pending and excluded bonds

We only include bonds with at least 95% proceeds dedicated to green projects that are aligned with the Climate Bonds Taxonomy in our green bond database. Though we support the Sustainable Development Goals (SDG) overall and see many links between green bond finance and specific SDGs, the proportion of proceeds allocated to social goals needs to be no more than 5% for inclusion in our database.

Green bonds in the market

• Vacse AB: closing 7 June

• Bank of China: priced a Certified Climate Bond and a sustainability bond on 31 May

• ICBC: priced a Certified Climate Bond on 5 June

• Louisiana Local Government Environmental Facilities and Community Development Authority: closing 12 June

• Basque Government: closing 15 June

• KBC: roadshow expected to start on 11 June

Investing News

The People’s Bank of China (PBOC) – China’s central bank – plans to expand the guarantee scope of its medium-term lending facility to include green bonds as an eligible collateral.

The EU is set to announce legislative proposals on sustainability taxonomy.

Robeco & RobecoSAM join forces to introduce new SDG bond fund.

Luxembourg signs deal to provide EUR1m to IFC’s green cornerstone bond fund programme.

Nasdaq Helsinki launches Sustainable Bond Market and MuniFin becomes the first green bond issuer to be listed on the segment.

Green Bond Gossip

Kenya is planning to issue a sovereign green bond.

Norwegian bank DNB has published a green covered bond framework.

City Bank, Bangladesh: private placement with IFC

According to an S&P Global article in its Leveraged Commentary & Data, the first green CLO is on its way.

Wunder Capital looking at Commercial & Industry solar ABS launch in 2019.

Ambitious plans for offshore wind developments in Taiwan are expected to bring at least NTD400bn (USD13.35bn) in lending opportunities.

Reading and Reports

The Intergovernmental Panel on Climate Change (IPCC) has invited governments to comment on the Final Draft of the Special Report on Global Warming of 1.5^oC (SR15) ahead of the approval plenary in early October.

The Portfolio Carbon Initiative – a collaboration between World Resources Institute (WRI), UNEP Finance Initiative and 2 Degrees Investing Initiative – have published Exploring Metrics to Measure the Climate Progress of Banks.

The UK’s House of Commons Environmental Audit Committee recommends that the Government should make it mandatory for large companies and asset owners—such as pension funds—to report their exposure to climate change risks and opportunities by 2022.

17 organisations promote regenerative agriculture.

Global electric vehicle production is set to quadruple by 2020, to 4.5 million units, according to McKinsey.

Climate Bonds Reports

“Green Bond Pricing in the Primary Market: October – December 2017” report

“Securitisation as an enabler of green asset finance in India” briefing paper

“NYK issues first green bond from the shipping sector – green enough for now but not for long” special briefing

Moving Pictures

Flashback to Climate Bond March Conference. Six minutes with Mr. Bola Onadele. Koko, Managing Director/CEO, FMDQ OTC Securities Exchange talking green finance in Nigeria and West Africa. (6:05mins)

The future of food and water – selections from LinkedIn

Watch how this desert farm is harvesting food using just solar power and seawater.

This invention can turn seawater into drinking water and could provide a cheap alternative to energy intensive desalinisation.

Cochin International Airport in Kerala, India, is the world’s first airport fully powered by solar and uses the land between panels to grow vegetables.

‘Till next time,

Climate Bonds

MARKET NEWS

Financial Times, Boom in green bonds attracts green rating agencies, Kate Allen

Third party verifiers of the green bonds aren’t subject to any regulation – FT journalist asks whether more scrutiny is needed.

"Sean Kidney, chief executive of the Climate Bonds Initiative, a UK-based non-profit organisation, pointed to a concern for investors in such situations: “Because the [assessment] fees are paid by the issuer of the bond, you have the same potential conflict of interest [with third-party verifiers] as we had with the credit rating agencies before the financial crisis.”

Bloomberg, Europe’s Largest Asset Manager Sees ‘Tipping Point’ on Climate, Anna Hirtenstein

Encouraging remarks from the firm that runs the world’s largest green bond fund. 

“We are really observing a tipping point among the institutional investors on climate change,” said Frederic Samama, co-head of institutional clients at the Paris-based firm. “Until recently, that question was not on their radar screen. It’s changing, and it’s changing super fast.”

Financial Times, Oil and gas groups must do more to support climate accord 

In an open letter published in FT sixty major institutional investors called on the oil & gas industry for faster action to reduce emissions.

"As long-term investors, representing more than $10.4tn in assets, the case for action on climate change is clear. We are keenly aware of the importance of moving to a low-carbon future for the sustainability of the global economy and prosperity of our clients."

Eco Business, Forests and wetlands are water infrastructure. New green bond helps finance their protection, Todd Gartner and John H. Matthews

Authors explore the issues surrounding the water infrastructure development and point to the new Climate Bond Standard’s criteria that gives assurance to investors that projects they fund are truly green. 

"The Climate Bonds Initiative’s (CBI) new Water Infrastructure Standard enables water projects—including projects that utilize natural infrastructure—to be certified as green bonds. This provides an avenue for hybrid and natural infrastructure projects to attract the financing they need to address growing water challenges."

Environmental Finance, Green bond experts rebut GPIF charge they are a 'lose-lose' product, Graham Cooper

Frederic Samama from Amundi Asset Management and Christopher Flensborg from SEB respond to recent comments from CIO of Japan’s Government Pension Investment Fund, who claimed that green bonds are a ‘lose-lose’ product.

"He [Flensborg] also pointed to two important benefits for issuers: the process of preparing to launch a green bond often improves communications within issuing companies, and if companies offer comparable green and non-green products at the same price "green will win", especially among younger customers, he said."

Markets Media, European Green Bond Market Set To Grow And Diversify, Shanny Basar

Overview of Climate Bonds Initiative’s report ‘The Green Bond Market in Europe’ released in May.

"In Europe 145 entities have issued green bonds, a third of the global total, with 48 from the energy sector and 35 from financial institutions."

AltEnergyStocks, The Greenium: Growing Evidence of a Green Bond Premium

Our latest quarterly report shows a mounting evidence of a green bonds premium.

"USD green bonds again had larger oversubscriptions and achieved larger spread tightening during book building than vanilla equivalents."

The Investor, Why real estate finance is going green

Although green bonds do not constitute ‘a cheap debt’, they do ‘play a material part’ in the real estate market, according to experts.

"29 percent of the proceeds [of green bonds issued in 2017] were used to fund green building projects, according to the Climate Bonds Initiative. Total real estate green bond issuance more than doubled to US$45 billion from US$19 billion in 2016."

Global Banking & Finance Review, Green bank borrowing sets down roots, Miroslav Petkov

Author, Director in the Sustainable Finance Team of S&P Global Ratings, calls on banks to ramp up their efforts in strengthening the green bonds market.

"Green bonds also represent only around 0.5% of banks’ total current borrowings, and a nominal amount of total bond issuance (about 1% in 2017). What’s more, green bonds have not yet become a regular channel for raising capital for many banks. The large majority of the top 200 banks – about four-fifths – haven’t yet issued any green bonds."

The Financial, Luxembourg Provides €1 Million to IFC Program to Support New Markets for Climate Finance

A new partnership between Luxembourg and IFC will supply an additional €1 million for climate finance initiatives in emerging economies – among them developing green bond policies.

"The government of Luxembourg will provide €1 million to IFC’s Green Cornerstone Bond Fund Support Program, a technical assistance program managed by IFC to complement the Amundi Planet Emerging Green One Fund—the world’s largest targeted green bond fund focused on emerging markets, according to IFC."

IISD SDG Knowledge Hub, Adaptation Finance Update: Green Bonds on the Rise but Will Adaptation Projects Benefit?, Beate Antonich

The adaptation finance update from IISD warns that insufficient share of green bonds proceeds is allocated to adaptation projects in developing countries.

"Huarong Xiangjiang Bank, China, issued a three-year bond of US$396 million for allocation to clean energy, energy saving, pollution prevention and climate change adaptation(…) . However, according to the Climate Bonds Initiative, adaptation still constitutes only a small share in the use of proceeds in China’s green bond issuance."

REGIONAL LOOK AT GREEN BONDS

IRELAND

Independent.ie, Ireland an ideal 'global lab' for green industry, Fearghal O'Connor

Speaking to Independent, CEO of the Climate Bonds Initiative, Sean Kidney says Ireland is perfectly positioned to become a hub for green finance and renewable technologies.

"Kidney believes that Ireland can be a major beneficiary of what will amount to "an extraordinary investment boom.""Ireland is a highly-developed, highly-educated environment with high-tech skills and a global financial centre," he said. "It has the opportunity now of being both a green finance centre and a green technology centre.[…]”

UNITED KINGDOM

Cuts to taxpayer-funded support for renewable projects and sale of the Green Investment Bank, among others, led to a dramatic fall in investment in the UK’s low-carbon economy. The environmental audit committee said that current strategy would not allow the country to meet its carbon reduction goals and called on the government to issue a “sovereign green bond”. See some of the media reports.

The Guardian, UK must secure billions in investment to meet climate targets, MPs warn, Fiona Harvey

"Mary Creagh, chair of the EAC, said: “The clean growth strategy was long on aspiration, short on detail. The government must urgently plug this policy gap and publish its plan to secure the [billions of pounds of] investment required to meet the UK’s climate change targets, and explore how a sovereign green bond could kickstart its strategy.”

Investment & Pensions Europe, Clean energy investment needs policy clarity on carbon price, say MPs, Susanna Rust

"The politicians also lent qualified support to green bonds, saying that if they made additional capital available for low-carbon or sustainable projects they could have “transformational public benefits”.

Edie.net, MPs decry 'worrying collapse' of clean investment

"This follows a report from the Government’s green finance advisers which suggested that a sovereign green bond similar to the one issued by the UK’s French counterparts – which was €9.7bn – should be considered as one of the measures of a UK green capital raising plan."

Financial Times, Bank of England urged to focus on green objectives, Delphine Strauss

The report by the campaign group Positive Money calls on the Bank of England to prevent green bonds market from falling prey to greenwashing.

"Its proposals also included a call for the BoE to set standards for commercial banks to ensure the growing market in green bonds does not fall prey to “greenwashing”, and to develop macroprudential regulation of the climate risks companies and investors are exposed to."

MIDDLE EAST

Arab News, ‘Goodwill’ bonds that will spark a Middle East transformation, Richad Soundardjee

Author, CEO of Societe Generale Middle East, lines up multiple responsible investment initiatives that take place in Saudi Arabia, UAE and in Egypt. He argues that it’s natural for these to be funded by innovative financing tools such as green bonds.

"Green bonds are a powerful way to bring long-term transformation across the public, private and social sectors of a nation. They are attractive as they widen the investor pool, while bringing a level of commitment and discipline that serves the issuer’s long-term interest and positioning." 

JAPAN

Global Capital, Japan looks to tap new investor base in SRI market

At the Global Capital roundtable, Japan’s leading issuers, bankers and analysts talked about standards, incentives for selling green bonds and mulled whether state subsidies for mitigating extra issuance cost are needed to boost the market.

"[…] The risk-weighting of green bonds could also be reduced encouraging banks to more readily invest in these deals. Direct subsidies are only one tool the government could use to encourage the development of green bonds. There is so much more that can be done."

CHINA

China Securities Regulatory Commission (CSRC) announced it will increase its focus on green financing and expand the development of green bonds. Reuters, Global Capital and Xinhuanet (among others) covered the story.

Reuters, China stock regulator vows more environment focus, green finance

"[…] It also promised to “actively support” green bonds, encourage environmentally friendly companies to use the capital market and look for new ways to finance environmental protection."

Global Capital, China Policy Round-up

China will more actively use its capital markets to promote green development, the China Securities Regulatory Commission said in a May 21 statement.

Xinhuanet, Economic Watch: China eyes clean development via green finance

"Data from the Climate Bonds Initiative showed that China issued green bonds worth 4.4 billion U.S. dollars in the first quarter of this year, ranking second globally."

Investment & Pensions Europe, Bank analysts estimate $600bn of green bonds from Asia by 2023

Bank of America Merrill Lynch estimates almost $300bn of green bonds will be issued in China in the next 5 years.

"Analysts at the investment bank estimated that, by 2020, China will have issued $55bn of green bonds per year, Japan and India $15bn each, and Australia and South Korea $10bn each."

Asia Times, Green bonds get glowing green light, Gary Kleiman

Author looks at findings of the green bonds report from ASEAN+3 – the research sponsored by the Chinese government in order ‘to help bolster its neighbors’ “modest” participation’ in the green bonds market.

"In 2016 China’s renminbi-denominated volume in the instrument was $35 billion, and elsewhere only Japan and South Korea managed more than $1 billion, while Malaysia, the Philippines and Thailand had only single issues."

KENYA                                                        

The Kenyan government has announced plans to issue a sovereign green bond that would fund the green infrastructure projects in the country.

Reuters, Kenya aims to issue green sovereign bond in 2018/19, George Obulutsa

"Kenya plans to make a “green” bond issue in the 2018/19 (July-June) fiscal year, senior government officials said on Thursday, as the country diversifies its borrowing on financial markets."

Xinhuanet, Kenya mulls sovereign green bond to plug 2018/2019 budget deficit

"Paul Muthaura, the CEO of CMA, said it will monitor the use of proceeds from the green bonds to ensure they comply with the Green Bond Principles as well as Climate Bonds Standard."

Daily Nation, The green bond has plenty of benefits, Purity Wanjohi

"This will make Kenya the first country in East and Central Africa to issue a green bond and the second country in Africa after Nigeria."

Business Daily Africa, Why fund-raising via bonds is better than bank debt

CANADA

Financial Post, Canada slow to embrace green bond market, even though investors are eager to buy, Barry Critchley

While investors ‘crawl over each other’ when green bonds are issued, author wonders why Canadian issuers are still reluctant to scale up the local GB market.

"One explanation is that it takes effort to set up such a program. For instance, a third-party report is required to certify the capital raised will be used for green projects. As well, the rules require the proceeds not be mixed with the issuer’s other cash balances."

SOME KEY COVERAGE PIECES OF MAY’S GREEN BOND ISSUANCES

BANK OF AMERICA – $2.25bn

Bloomberg, Bank of America Raises $2.25 Billion in Largest Green Bond Deal, Will Wade

Bank of America Corp. has issued a $2.25 billion bond to support clean energy projects, making it the largest so-called green bond issuance that the bank has done to date.

BANCO BILBAO VIZCAYA ARGENTARIA (BBVA) – €1bn

Reuters, BBVA issues 1 billion euro green bond

Banco Bilbao Vizcaya Argentaria (BBVA) (BBVA.MC) said on Thursday it has issued a 1 billion euro (881 million pounds) green bond, the largest ever by a Eurozone financial institution.

International Financing Review, BBVA cracks open Spanish Green SNP market

KOREA WATER RESOURCES CORPORATION (K-WATER) – $300m

Global Capital, K-Water turns on tap on green bonds, Morgan Davis

"Investors poured into Korea Water Resources Corp’s $300 m green bond on Tuesday, satiating their thirst after a rare opening from the state-owned issuer. The deal got a boost of liquidity after the bookrunners tapped a growing pool of green-focused investors."

TENNET – €1.25bn

Reuters, Dutch grid operator TenneT issues 1.25 bn euros of green bonds

Dutch state-owned grid operator TenneT IPO-TTH.AS has issued has issued green bonds worth 1.25 billion euros ($1.5 billion) for investments in renewable energy transmission, it said on Wednesday.

PV Magazine, TenneT issues €1.25 billion in green bonds, Mark Hutchins

The issuance is backed by five major banks – BNP Paribas, Deutsche Bank, ING Bank, Lloyds and Rabobank.

Grab your cuppa at 16: 00 BST (4pm UK time) on Monday 18^th June.  Come join us for the first of two webinars to discuss the new Forestry Criteria!  

Public consultation process on our Draft Critieria issuers and investors in green forest bonds 

Webinar 1

Date: Monday 18^th June 2018

Time: 16:00 BST (pm UK time)

Register here.

This will be the perfect opportunity for you to ask questions directly to the experts that helped us develop the Forestry Criteria.

Webinar presenters:

Christine Negra - Technical Working Group Lead

Sergio Carvalho -Technical Working Group Member

Katie House - Climate Bonds

Ujala Qadir - Climate Bonds 

The public consultation for these Criteria will end 20th July 2018 (with one more webinar happening on July 9^th).

If you’d like to read the Forestry Criteria ahead of the webinar, all documents can be found here.

Please send your comments to Katie House

We are looking forward to hearing from you!

Who’s saying what?

Jacob Michaelsen, Head of Sustainable Bonds, Nordea

“It is great to see the Climate Bonds Forestry Criteria and Land Conservation & Restoration Criteria open for public consultation.”

“Forestry is clearly an important area to focus on for the green bond community and we are certainly seeing growing interest in this sector. With the two criteria now open for the public to review we expect that the interest and activity will only increase.” 

Register here.

We hope to hear from you on Monday, 

'Till next time, 

Climate Bonds

Climate finance flows could be used to help developing tropical forest countries tap the bond markets, scaling up the amount of capital available to them for conservation

It has become clear that without urgent changes to land management practices, particularly in tropical forest countries, we will simply not be able to hit the emissions reduction targets set out in the Paris Agreement to keep global warming ‘well below 2°C’.

Transforming our energy systems to be carbon neutral by replacing fossil fuel with renewables is a critical first step but can only take us so far. But, alongside transitioning to all-electric transport systems and decarbonising industrial processes, we must also support nature to play its part.

Recent research, led by The Nature Conservancy, shows that changes in the way we manage land can contribute 37% of the emissions reductions we need to help meet the Paris goals by 2030. We now have a good understanding of the green technologies needed to achieve these reductions and they are available now, when we need them most.

Natural Climate Solutions can contribute 37% of the emissions reductions to meet the Paris goals by 2030 (Bronson et al, PNAS, 2017)

The tropical conundrum

Agriculture and the degradation and deforestation of land generates just under a quarter of all greenhouse gas emissions. Yet the future growth and prosperity of many countries depends to a significant extent upon the continued growth of their rural economies – sectors like farming and forestry. As developing economies often lack the finance and investment needed to sustainably develop their land, what can be done?

First, governments must legislate to protect their valuable natural infrastructure. And then they must enforce that legislation. Brazil has done that with the Forest Code and while this has had some effect in slowing the rate of degradation of the Amazonian rainforest, it has not been enough.

Ultimately, what is needed to bring a stop to the destruction of tropical forests is investment in regulation and enforcement; investment in creating the jobs in rural areas that are a more attractive proposition than engaging in the destruction of the forest; and investment by farmers in sustainable agricultural practices, allowing them to increase output and profits without increasing the footprint of their farms.

Where is that investment going to come from? 

Thirty-nine governments from developed nations have committed to find $100 billion per annum from 2020 to help developing countries make the necessary transitions in their economies as part of the Paris Agreement outcomes.

Governments of developing tropical forest countries are doing their bit too. 193 nations made commitments, known as nationally determined contributions (NDCs), under the Paris Agreement in 2015: for example, Indonesia has committed to a 29% reduction in emissions from land by 2030, but offers to improve on that to a 41% reduction if it receives assistance from developed countries (meaning monetary incentives).

As well as committing funding to assist tropical forest countries in the transition to greener economies, several wealthy nations have already agreed substantial amounts of funding to incentivise them directly to make the required changes in their land-use practices – essentially paying them not to deforest. These are called Results-Based Payments agreements.

Norway has signed $1 billion Letters of Intent with both Indonesia and Brazil, as well as several smaller agreements with other countries such as Guyana, Liberia and Peru. The World Bank’s Forest Carbon Partnership Facility Fund includes country donors such as the UK, Norway and Germany, who together have pledged a further $5 billion up to 2020.

But to date, only relatively small amounts of committed Results-Based Payments have been disbursed. We see a possible path forward that could quickly unlock billions of dollars more.

How to unlock billions more?

Interest rates are still at historically extremely low levels and international sovereign bond markets are welcoming to new issues launched by many developing countries.

TNC’s proposal is that developing tropical forest countries take advantage of friendly conditions and raise billions of dollars of long-term capital through issuing Sustainable Land Bonds (SLBs), with maturities of 10-30 years.  

Sustainable Land Bonds (SLBs) would be backed by the full faith and credit of the issuing country, but differ from regular sovereign bond issues in two important respects:

• The proceeds would be utilised to finance the transformation of rural economies onto a low-carbon, sustainable footing, thereby reducing net greenhouse gas emissions.
• The issuer would simultaneously enter into a long-term Results-Based Payment agreement with a third-party that partially or even fully offsets the interest payments on the SLB, provided that pre-agreed levels of land-based emission reductions are achieved.

Figure 2. Sustainable Land Bonds outline structure

A country’s emissions targets will need to be consistent with its NDC and thus contribute to meeting its objectives under the Paris Agreement. That means improving the way land is managed, without compromising forestry and agricultural production.  Essentially a country is arranging to be paid for doing things it already committed to do.

Or, put another way, it has entered into an arrangement to reduce the interest cost on its financing, potentially to zero, if it hits its emission reduction targets – and is putting those funds to work in the rural economy, one of its greatest assets.

Why link the two?

It could be argued that the two elements of a SLB financing could be undertaken separately. However, by linking the two, a little chemistry occurs.

The issuing country makes a concrete and highly visible statement of its intention to invest in harmonising growth in its rural economy and meeting its commitments under the Paris Agreement relating to land-use change.

In turn, this encourages finance ministries, environment ministries and planning bodies to engage closely on investment in the rural economy and to see it as an opportunity with high returns and low funding costs. This allows a country to take the initiative in its discussion with results-based payers and put a results-based payment formula on the table for investors to consider.

Mainstream bond investors, fund managers, underwriters and traders will be given a fly-on-the-wall view of how tropical forest country governments can grapple with deforestation challenges given enough investment and can be inspired to seek similar or better solutions.

We need the intellectual capital from finance experts applied to the conservation business.

There has never been a more important time to invest in nature, or a better opportunity to bring the invaluable assets of tropical forest countries – their ‘green infrastructure’ – together with financial capital from wealthy developed nations. This is a chance for those who are willing to invest in nature and people to take action in the pursuit of our most urgent and material global challenge.

Learn more!

The Nature Conservancy in partneship with the Climate Bonds Initiative has released a full report on Sustainable Land Bonds. 

Download now.

'Till next time,

Stuart J Clenaghan, Senior Fellow of the Climate Bonds Initiative and a Senior Adviser to The Nature Conservancy (Guest Author)

Tianjin Green Supply Chain Service Center (TGCC) signs MoU with CBI. New partnership to develop green finance and green services in China  

What’s it all about?

Tianjin Green Supply Chain Centre (TGCC) and the Climate Bonds Initiative have announced a new Partnership after formally signing a Memorandum of Understanding (MoU) earlier in 2018.

TGCC is part of the APEC Green Supply Chain Cooperation Network, the first center to be established and endorsed in the APEC Leaders Declaration of 2014.

The fourth largest city in China, Tianjin has been successively approved to be the national circular economy demonstration pilot city, national low-carbon pilot city and carbon emissions trading pilot city and has also taken a lead in promoting government procurement of green commodities and green finance.

TGCC is one part of these many faceted pilot programmes with its supply chain management mission to reduce environmental pollution and improve energy efficiency. You can find some more background on its role here.

MoU Focus on Green Finance

The new agreement will see both parties working together to support green finance developments domestically. The Climate Bonds Initiative will provide consulting services, training and work with TGCC to help develop domestic green bond issuance.

Who’s saying what?

Sean Kidney, CEO, Climate Bonds Initiative:

“We welcome this partnership with TGCC and the opportunity to cooperate on green finance developments. Tianjin has a leading role in China’s efforts to address climate change issues and TGCC plays an important part in this. By working together and sharing our knowledge we can support policy innovations, new investment, encourage green growth and positive environmental and climate outcomes.”

Ms. Mu Lingling, General Manager, Tianjin Green Supply Chain Service Center

“TGCC is excited to be working together with the Climate Bonds Initiative. This announcement is another sign of our commitment to China’s green transition and to realizing the national strategic target of energy conservation and emissions reduction.”

The Last Word

Greening supply chains is not usually the stuff of headlines.

But in this case the decision to establish the TGCC had the support of the Ministry of Environmental Protection of the People's Republic of China, the China Council for the International Co-operation on Environment and Development (CCICED), the ASEAN Environmental Protection Centre and the Environmental Defense Fund and point in an APEC Declaration.  

Both TGCC’s domestic expertise and Tianjin’s significance to China’s foreign investment and green programs should not be overlooked by Blog readers.

Expect to see more announcements in 2018 as we continue our development work in China.

Meanwhile we welcome Tianjin Green Supply Chain Center to our Partner network.

‘Till next time,

Climate Bonds

First Chinese issuer on LSE International Securities Market 

Second Climate Bonds Certified Green Bond from ICBC

Triple-tranche floating rate notes raise USD1.58 billion equivalent from international investors

Confirms London’s status as a leading international green finance centre

The Industrial and Commercial Bank of China - London branch (ICBC London) has listed a USD1.58 billion equivalent green bond on the London Stock Exchange International Securities Market (ISM) today.

This is the second Climate Bonds Certified Green Bond from the world’s biggest bank. The first was a USD2.1bn green bond issued in September 2017.  

The LSEG has announced that today’s listing, part of ICBC’s USD10 billion MTN programme, is the largest ever green bond listing on the London Stock Exchange and the first Chinese issuance on ISM. The ICBC London dual-currency green bond includes a three-year floating rate dollar tranche which raised USD500 million, a five-year floating rate dollar tranche which raised USD500 million and a three-year floating rate euro tranche which raised EUR500 million.

Climate Bonds understands that the bond priced at the tightest level ever achieved by ICBC in a USD and EUR comparable floating rate note (FRN) format and the decision to list in London was influenced by the outcomes of the December 2017 UK-China Economic & Financial Dialogue.

The new ICBC London Green Bonds are backed by a range of low carbon transport, wind, solar and marine renewables assets from China, Pakistan and the UK, and include:

• Three railway lines in China
• Multiple onshore wind and solar farms across different provinces in China and in Pakistan
• The Beatrice Offshore Wind farm project in Scotland

The renewable energy developments have a combined generating capacity of approximately 3.7GW.

The asset mix is reflective of  the global impact of ICBC’s expanding green financing program & ICBC’s ongoing commitment to green credit, which amounted to over RMB1 trillion (USD 174bn) at the end of 2017. 

Sean Kidney, CEO, Climate Bonds Initiative:

 “ICBC, the largest listed company and the largest bank in the world, is again demonstrating global best practice with this latest Climate Bonds Certified green bond.”

“The record size and London listing from ICBC is a pointer for large institutional investors to the scale of green finance opportunities increasingly evident in China & now appearing throughout Asia as emerging economies address their combined climate, green infrastructure and sustainable development challenges.”

“ICBC is the world's biigest bank. More banks in the Top 100 should be taking note of their leadership on green bonds, best practice in Certification, and green underwriting.”

“The big question now facing many banks in the Top 100 is not if should they follow the ICBC example, but when?” 

The Last Word

The bond has been Certified by the Climate Bonds Initiative, verified by Zhongcai Green Finance and the use of proceeds for the transaction are aligned with UN Sustainable Development Goals (SDG), 6, 7 and 11. CICERO & Zhongcai Green Finance have also provided second party opinions on the company’s Green Bond Framework.

In addition to Climate Bonds Certification the issuance also aligns with the ICMA Green Bond Principles 2017 and the People’s Bank of China (PBoC) Green Bond Categories, in line with ICBC’s commitment to global best practice in green bond issuance. 

做得好 !

‘Till next time,

Climate Bonds

P.S.: Background to ICBC

Industrial and Commercial Bank of China (ICBC) was established on 1 January 1984. On 28 October 2005, the Bank was wholly restructured to a joint-stock limited company. On 27 October 2006, the Bank was successfully listed on both Shanghai Stock Exchange and Stock Exchange of Hong Kong Limited.

ICBC operates in 45 different countries and has ranked at 1st place in The Banker’s Top 1000 World Banks, the Forbes Global 2000 and the Fortune Global 500 Sub-list of Commercial Banks. ICBC has had a presence in London since 1995 and ICBC London (plc) was established in 2003. More information on ICBC Green Finance is available here.

Foresight, a leader in renewable energy infrastructure and private equity investment, takes another step in building a smarter, greener future

What’s it all about?

Foresight Group (Foresight) is the latest financial institution to join the Climate Bonds Initiative Partners Program. Partners assist in developing climate finance solutions in local markets and help define policy agendas for national, regional and sector-based programs.

Based in the UK and with operations in Europe, North America, South East Asia and Australia, Foresight is a leading independent infrastructure and private equity investment manager.  

The Group has been investing in the renewable energy and recycling sectors for more than a decade, and since 2011 has been at the forefront of solar investment in the UK. Foresight today manages approximately £2.4 billion in infrastructure assets, of which £1.6 billion is solar infrastructure.

This partnership will give Climate Bonds and Foresight the opportunity to work on a joint basis with a focus on the increasing role of infrastructure investment in mitigating climate impacts and building resilience.

Who’s saying what?

Federico Giannandrea, Head of Southern Europe, Foresight

“Sustainable development is a reality for all kinds of businesses and at Foresight our vision is focused on investing for a smarter future. We recognised the significance of climate factors many years ago and as a result have pursued investment opportunities in renewable energy management projects around the world."

"We're looking forward to working with CBI in this partnership, it’s a further sign of our commitment to a sustainable future and support for increasing climate based investment."

Serena Vento, Head of Partnerships, Climate Bonds Initiative

“Climate Bonds are very pleased to have Foresight Group joining our Partner Program. As an owner and manager of significant clean energy assets in the UK and Europe, their market knowledge and infrastructure investment experience will be a positive as we work together on building opportunities in green markets and green energy. 

The Last Word

We all know there’s an enormous transformation required globally in energy production and distribution. Partnering with Foresight provides an avenue for us to work together building the markets to support that transformation. It’s another step along the way.

Welcome!  

‘Till next time,

Climate Bonds

London Branch of BoC, 4^th Biggest Bank in the World, issues 2nd Certified Green Bond 

Continuation of offshore green issuance program

Bank of China's latest green bond, this time from its London Branch is an expansion of its offshore bond program that started in 2016.

The USD1bn Climate Bonds Certified green bond was twinned with a Hong Kong branch HKD3 billion (USD380 million) Sustainability Bond, a first in the Asian market.

BAML, BoC, BNP Paribas, Citicorp, Commerzbank, Credit Agricole CIB & HSBC acted as joint lead managers on the green bond deal.

Eligible green projects include renewable energy, energy efficiency, pollution prevention, clean transportation, sustainability water and wastewater management, and green buildings.

BoC is the oldest bank in China and the fourth largest in the world. This latest green bond follows their November 2017 USD1.45bn equivalent Climate Bonds Certified issuance, and is the fourth offshore green bond from BoC since their June 2016 market debut. Overall the Bank of China has issued over USD6bn of offshore green bonds in two years.

This series from BoC and growing issuance from other Chinese banks and corporates is a reflection of leading financial institutions gearing up to meet the capital demands of large-scale environmental and infrastructure projects. 

Sean Kidney, CEO, Climate Bonds:

“China was No2 spot in our Top 10 list of global issuers for 2017. There’s more to come as the major Chinese Banks increase their green programs." 

The Last Word

Our Green Bond Market 2017 report ( 点击下载中文报告)  reviews all of the 2017 activity and our Q1 2018 China Newsletter ( 2018年1月-3月 总第6期) is here with the latest. 

But let’s look ahead.

The big Chinese Banks are also the world’s biggest banks. They dominate the leader board. Increasingly they are going offshore, seeking institutional capital, often with CBI Certified green bonds.

Both developments are to be encouraged.

More of the world’s top 100 banks issuing green bonds and following best practice in 2018 would have a huge ripple effect. One the that could make a green wave to 2020.

做的好，中国银行！

'Till next time,

Climate Bonds

P.S. Want to learn more how big banks can support large-scale green investment? Hurry and register for our webinar Green Infrastructure Investment Opportunities in Indonesia. Don’t miss it!

Climate mitigation and adaptation underpin meeting the UN Sustainable Development Goals

This is the first instalment in a briefing series exploring the synergies between green bonds and the SDGs

Proliferation of thematic labels

Alongside the rapid growth of green bonds, new thematic bonds are appearing in the market. These include social bonds, sustainability bonds, Environmental Social and Governance (ESG)-bonds and the latest addition, Sustainable Development Goal (SDG)-bonds.

All of these replicate the green bond model by introducing disclosure and reporting requirements for the issuer to connect investors with assets that deliver a positive sustainability impact.

The UN SDGs specify the global sustainability targets that are critical for our future societies and economies. Core to the 2030 Agenda, the SDGs is a list of 17 goals that cover both green and social themes.

Finance sector support

The SDGs are gaining widespread support across a broad market base, including stakeholder groups, investors, corporates and international development bodies. A group of over 20 UNEP-FI banking members have foreshadowed a new alignment of business models against both SDGs and the Paris Agreement.

Australia based NAB have gone a step further, with its recently released NAB SDG Green Bond Framework, which advises that it will seek Climate Bonds Certification for future issuances to ensure alignment and best practice. The International Capital Markets Association (ICMA) at their GBP AGM in Hong Kong last week released a new tool; a mapping of SDGs against thematic-labelled bonds.

In the IISD Knowledge Hub, climate finance, resilience and adaptation stories have the relevant SDGs listed next to each of them and a graphic illustration showing how green finance, climate action and SDG agendas are intertwining. 

Interplay between green and social goals

The 17 SDGs are interdependent: for example, food production (SDG2) is an individual goal, but food production is connected to life on land (SDG15), in the sea (SDG14), as well as water (SDG6) and climate action (SDG13).

Similarly, climate mitigation and adaptation is presented as a stand-alone goal (SDG13), but it is also a crosscutting action.

Achieving the climate goal is reliant on approaching the other SDGs with a climate lens, especially Clean Water & Sanitation (SDG6), Affordable and Clean Energy (SDG7) Industry Innovation & Infrastructure (SDG9), Sustainable Cities (SDG11) and Life on Land (SDG15).

In turn, the level of climate action achieved will impact all the other SDGs and if and how they will be achieved. Reducing exposure and vulnerability to climate-related extreme events is a sub-goal of the overarching goal of no poverty (SDG1). Food security (SDG2) is expected to worsen with climate change. Health (SDG3) is another example where climate change is estimated to have severe negative impact. Meeting the Goals will involve investment in climate resilience, as well as mitigation.

All the SDGs are impacted by climate action

The list goes on: all the SDGs bear some relation to climate action since climate change is a global issue that impacts all countries and sectors. Climate is a crosscutting theme relevant to all the SDGs.

In the words of the UN:

“Climate change presents the single biggest threat to development (…) Urgent action to combat climate change and minimize its disruptions is integral to the successful implementation of the SDGs.”

Six SDGs that get the biggest boost from green bonds: 6, 7, 9, 13, 11 & 15

All the goals are underpinned by a series of targets, some financial and some outcome based out to 2030. Our ongoing analysis of green bond investment led Climate Bonds to identify in our January Seven Super Trends the following SDGs where increased green investment and growth in green bond markets provides direct benefits, particularly in emerging economies...

Clean water and sanitation (SDG6)

Clean water and sanitation (SDG6) accounts for 11% of green bond issuance to date. An example is Cape Town’s Certified green bond, which financed clean water and sanitation assets (SDG6) that are both low carbon and climate resilient. 

Clean energy (SDG7)

Clean energy (SDG7) remains the largest share of the green bond market (40%), though the share has fallen as the market has diversified over the last years. Nigeria’s sovereign green bond for example allocated the majority of proceeds to renewable energy expansion (SDG7).

Sustainable industry, innovation and infrastructure (SDG9)

Low carbon buildings are the second largest segment of the green bond market to date (24%), followed by low carbon transport (15%). Low carbon building and transport infrastructure contribute to sustainable industry, innovation and infrastructure (SDG9).

India Railways Finance Corporation offers up a best-practice example of a green bond from the transport sector with proceeds allocated to electrified rail, a low emission transport solution. Lithuania’s sovereign green bond financed energy efficient multifamily housing.

Sustainable cities and communities (SDG11)

Many of the assets financed by green bonds are located in cities and they address the Goal of sustainable cities and communities (SDG11). Municipalities and city-linked entities, such as utilities and transport companies, are a significant issuer of green bonds.

Cape Town’s green bond for water would also tick this box on supporting sustainable cities (SDG9) as well as climate action (SDG13) - illustrating how a single asset contributes to many of the SDGs at once.

Climate Action (SDG 13) 

The rapidly growing green finance sphere is already providing capital for assets that simultaneously contribute to climate action (SDG13) and many of the other SDGs. In the green bond market the vast majority of use of proceeds to date is allocated to climate mitigation and adaptation / resilience, with only a small share allocated to other green assets, such as parks.

Life on land (SDG15)

A smaller share of green bonds (3%) is also financing sustainable forestry and agriculture, contributing to life on land (SDG15). Poland’s sovereign green bond included sustainable agriculture, afforestation and conservation and restoration of natural habitat.

Applying a climate risk lens to all thematic bonds

While many of the SDGs have a social primary focus, a climate-resilient and mitigation lens needs to be applied in order for the social goals to be achieved. Several of the SDGs can be ticked off in an unsustainable manner (not supporting a low carbon future), by hitting social goals in the short term, but failing to deliver positive impact in the medium- to long-term.

Climate risk disclosure is crucial

Disclosure of how climate adaptation is addressed in all social assets will enable investors to analyse the green credentials also of SDG-bonds and sustainability bonds. Disclosure allows investors to make informed decisions about investing in assets designed to remain operative in more extreme weather conditions.

Variable levels of low carbon disclosure

To date, there are varying levels of disclosure on the climate performance of assets financed by SDG-bonds, ESG-bonds and sustainability bonds.

The ESG-labelled covered bonds from Münchener Hypothekenbank with proceeds for cooperative housing lack disclosure on the energy efficiency performance of the buildings, which meant its climate profile could not be assessed.  

The sustainability bond from Indonesia’s Tropical Landscapes Finance Facility (TLFF) finances sustainable agriculture, conservation of nature corridors for endangered species and restoration of degraded land. Despite the bond being labelled a sustainability bond and not a green bond, the disclosure allowed an analysis of the deal’s climate profile.    

Scaling investment to meet SDGs

Green bond investment can be increasingly integrated into at least the clean water (SDG6), clean energy (SDG7), sustainable industry, innovation and infrastructure (SDG9), sustainable cities and communities (SDG11), climate action (SDG13) and life on land (SDG15) Goals. This diversity will attract additional capital from institutional investors. However, capital is yet to be mobilised on the scale required.

The investment shortfall in climate-aligned assets will have huge social implications, as made clear by the UN:

“Achieving the SDGs will be almost impossible if average global temperatures are allowed to rise above the 2°C limit.”

The very latest IPCC report leak on the 1.5 degree target puts an even more dire position.

The Last Word: More green bonds = More progress on SDGs

The definitions of 'green' that have been developed for the green bond market should be applied and disclosed across thematic bonds to ensure alignment with global climate targets.

Issuance of bonds aligned with global climate targets needs to continue growing from millions to trillions to meet the full set of SDGs. Mission 2020 calls for USD1 trillion of annual green bond issuance by 2020.

To reach climate targets, it’s the assets that matter – the label is a communication tool to drive disclosure and connect with investors. Whether bonds carry the ESG, SDG, social, sustainability, social or GREEN bond label, a climate risk lens must be applied to ensure the broader goal of 'sustainable development' can be achieved. 

In future instalments of this briefing series, we’ll explore other aspects of the synergies between green bonds and SDGs. Meantime you can read more in our briefing paper.

Download now.

‘Till next time

Climate Bonds

Highlights:

• China giants ICBC & BoC issue Certified Bonds in record month for Certification, year to date
• Global firsts: green bond from a pension fund (Canada) and Hydro ABS (China)
• 6 new issuers from 5 countries to date month
• Agency MBS, covered bonds, hybrids & perpetuals and other structurally diverse deals amount to USD16.7bn in 2018 so far

Go here to see the full list of new and repeat issuers in June.

At a glance

Industrial and Commercial Bank of China (ICBC), and Bank of China (Boc), 1st and 4th  largest in the world by assets, issued Certified Climate Bonds from their respective London Branches in June, capping off record certification volumes. Certified issuance accounts for 52% of the USD9.5bn volume to 20 June and also includes two Norwegian covered bonds, as well as NAB’s first SDG Green Bond.

68% of monthly issuance to date has come from Developed Markets. Debut issuers Canada Pension Plan Investment Board (CPPIB) and DNB Boligkreditt made up almost a third of June figures so far.

Emerging Markets issuance to date this month has come solely from China. China is also leading country issuance for the month at this stage (32%), with ICBC’s and Bank of China’s offshore issuance accounting for 84% of the nation’s green bonds. With an additional dual-currency green bond from ICBC Asia already in the market, China is well positioned to stay high in the rankings.

EUR and USD-denominated issuance prevails at 74% so far this month, partly driven by Chinese offshore deals, followed by CAD-denominated green bonds at 12%.

And a special shout out to Australia’s NAB and NZ Auckland Council, both finalising new and innovative certified green bond deals.
 

Bond diversity increasing 

Senior unsecured bonds continue to dominate the green bond market, but bond structures are becoming increasingly diverse. So far in 2018 we have tracked USD16.7bn of structurally diverse deals. Agency MBS are the most popular format within this universe (26%), driven by Fannie Mae’s green issuance (only Q1 issuance is included at this stage). Covered green bond issuance come in second (21%), boosted by deals from three Nordic mortgage banks: SpareBank 1 Boligkreditt, Landshypotek Bank and DNB Boligkreditt.

> The full list of new and repeat issuers here.

> Click on the issuer name to access the new issuer deal sheet in the online bond library.

Certified Climate Bonds

SpareBank 1 Boligkreditt - EUR1bn (USD1.2bn), Norway, obtained post-issuance certification in June under the Low Carbon Buildings (Residential) Criteria of the Climate Bonds Standard for its green covered bond issued in January 2018. Multiconsult provided the Post-Issuance Verification Report.

The certification complies with Climate Bonds’ newly approved proxy for the Norwegian residential market:

1. EPC C label for houses and apartments
2. Building codes 2007 (TEK07) for houses
3. Building codes 2010 (TEK10) or 2017 (TEK17) for apartments. Apartments under TEK07 do not qualify unless they have an EPC label of C or higher.

DNB Boligkreditt (EUR1.5bn/USD1.7bn), Norway, issued a 7-year green covered bond and obtained certification under the Low Carbon Buildings (Residential) Criteria of the Climate Bonds Standard. Proceeds will finance new or existing residential buildings that comply with Norwegian building codes TEK10 or TEK17 and comply with CBI’s proxy methodology for Norwegian residential buildings.

Sustainalytics provided the Pre-Issuance Verification Report.

Existing issuers with issuance under new Criteria of the Climate Bonds Standard

Bank of China (USD1bn)issued a 5-year Certified Climate Bond, becoming the first green bond issuer to obtain certification under the Water Infrastructure Criteria. The deal is also Certified against the criteria for Marine Renewable Energy (newly added to the framework), Low Carbon Transport and Wind. The bond will finance 8 onshore and offshore wind projects in the Netherlands and Southern China, 2 sewage treatment renovation projects in Eastern China and 6 metro projects in Eastern and Northern China.

EY provided the Pre-Issuance Verification Report.

ICBC (USD1bn; EUR500m/USD578m) issued its second Certified Climate Bond in a dual-currency, three-tranche deal (longest dated bond: 5-year term) – more details available here. Issued by ICBC London branch, it is the largest green bond listed on the London Stock Exchange and the first Chinese issuance on LSE’s International Securities Market. The deal is Certified under the criteria for Solar, Wind, Marine Renewable Energy (newly added to the framework) and Low Carbon Transport. The bond will finance 3 railways in China, onshore wind and solar farms in China and Pakistan, and the Beatrice Offshore Windfarm project in Scotland.

Zhongcai Green Financing provided the Pre-Issuance Verification Report.

National Australia Bank (NAB) (USD750m) issued the 5-year bond under its new SDG Green Bond Framework and as part of a wider USD1.6bn offering. The bond is Certified under the criteria for Wind, Solar, Marine Renewable Energy (newly added), Low Carbon Transport and Low Carbon Buildings (Commercial). This is the fourth NAB-related Certified Climate Bond.  Proceeds will be allocated to offshore and onshore wind and solar farms (Australia, New Zealand, UK, Ireland, Europe), electrified passenger rail infrastructure and rolling stock (Australia, UK), and commercial buildings (Australia).

DNV GL provided the Pre-Issuance Verification Report.

NAB’s new framework links category eligibility to the existence of Certification Criteria under the Climate Bonds Standard AND aligns the categories to SDGs. Climate mitigation and adaptation underpin meeting the UN Sustainable Development Goals. Green bonds can serve as a bridge to achieving SDGs.

> Climate Bonds views on the link between green bonds and SDGs will be explored in a series of briefings. The first briefing entitled Green bonds as a bridge to the SDGs was published yesterday.

New issuers

Canada Pension Plan Investment Board (CAD1.5bn/USD1.1bn) issued a 10-year green bond, becoming the first pension fund to enter the market. This is also the largest green bond from a Canadian issuer. CICERO provided a Second Party Opinion. Proceeds will be allocated to solar and wind assets, sustainable water and wastewater management, and LEED Platinum certified green buildings. CICERO notes the issuer has not implemented a system to measure the environmental impacts of the financed projects, which has implications on transparency.

Climate Bonds view: Pension funds have a critical role to play in mobilising capital flows towards green and climate-related investments through their asset allocations and fixed income portfolios.  CPPIB has a flexibility many pension funds don’t in being able to issue bonds directly and is paving the way for the Canadian market.  We agree with CICERO that impact reporting is essential to provide evidence on the investment projects’ green credentials and hope to see issuers committing to high reporting standards going forward.

Louisiana Local Government Environmental Facilities and Community Development Community (USD12m) issued a green US Muni bond with a 19.4-year tenor. The deal will finance the placement of granite rock barriers approx. 100-150 yards off the coast of the Cameron Parish Gulf Shoreline to address and prevent the effects of coastal erosion. In the official statement, the issuer states that a Parish-specific Coastal Erosion Master Plan was developed by the Corps of Engineers in 2017. They found that several locations are experiencing significant erosion rates and around 1.5 to 2 miles of structural protection is needed to provide critical coastal defence.

Climate Bonds view: This is the first green bond from Louisiana and is also one of the few bonds with proceeds allocated towards resilience projects/assets.

Vacse (SEK500m/USD58m), Sweden, issued a 4-year green bond which benefits from a CICERO SPO. The deal will finance green buildings, solar or geothermal energy and clean transportation infrastructure. The minimum eligibility criteria for properties are: i) green building certification of LEED Gold, BREEAM-SE Excellent or Miljöbyggnad Silver for new buildings, and BREEAM-In use Very Good or Miljöbyggnad Silver for existing buildings, and ii) at least 20% lower energy usage for new and 25% for existing properties than is required by the Swedish National Building Code. Other assets/projects related to improving the energy performance of existing buildings – such as LED lighting, geothermal heating/cooling and ventilation system upgrades – are also eligible.

Climate Bonds view: Combining high green building certification levels with a minimum energy usage improvement threshold provides a better assurance of the energy performance levels of the financed properties.

Macquarie Group(GBP500m/USD669m), Australia, issued a GBP2bn loan facility which includes two GBP250m green tranches: a 3-year revolver and a 5-year term loan. This is the first green loan deal from an Australian asset manager. Proceeds will be allocated to:

• renewable energy (solar, wind, tidal, sustainable biomass),
• waste management (recycling, solid waste incineration, organic waste treatment, power generation, landfill gas collection),
• clean transportation and
• green buildings with at least a GBCA 6 star, BREEAM Excellent, LEED Gold certification or an equivalent regional standard.

Investments in technology, products or systems which enhance the energy performance of assets within these categories are also eligible. Projects directly related to fossil fuels, nuclear and biomass suitable for food production are explicitly excluded from the Green Bond Framework.

Climate Bonds view: The list of indicators that will be used in the issuer’s Impact Report includes “additional energy saving or operational performance data” under the green building category. This will provide more transparency around the actual environmental sustainability and mitigation benefits of the financed projects.

For waste-related projects, we are starting to see the need for more information to ensure that the financed projects and assets are compliant with a low-carbon transition. In this case, we would like to see details related to landfill gas collection projects to ensure that this process is not used to extend the lifetime of a landfill facility. Climate Bonds is in the process of developing more stringent eligibility requirements for including waste-related bonds in its database.

> Climate Bonds Criteria for recycling and waste management sectors are under development. Our next newsletter due out in July will have an update.

Chouzhou Commercial Bank (CNY1.5bn/USD235m), China, issued a 3-year green bond which benefits from an EY assurance report. The proceeds will be allocated to 3 major areas under PBOC’s green bond catalogue: resource conservation and recycling, low-carbon transport, and ecological protection and adaptation. More than 50% of the proceeds will finance ecological protection and adaptation. In the bond prospectus, the issuer gives two examples of eligible projects: a wastewater treatment project, which is expected to improve regional biodiversity and a land rehabilitation project, converting abandoned limestone mines into sustainable agricultural land by filling the pits with earth and water.

Climate Bonds view: Specifying if agricultural land would be used for crops or livestock would help assess the level of environmental benefit better. In any event, though, we support issuance that aims to renew local resource use, address the environmental impact of disused land and assets and increase climate resilience. The issuer has made the promise to implement a stringent due diligence process, which we strongly support and would hope to see detailed environmental impact reporting on the back of this.

Hengan Electrical Engineering Co., Ltd (CNY400m/USD63m), China, issued a 9-year, two-tranche green ABS, with two subsidiaries as originators. The deal is secured by 9 years worth of feed-in tariff receivables from 5 hydropower stations owned by the two subsidiaries. The proceeds are to be used for hydro power generation in the Yunnan region. CECEP provided an external review for this deal and disclosed the expected climate impact of the projects to be financed, including the avoidance of 111.1K tce and the reduction of 187.5K tons of CO2.

Climate Bonds view: In spite of the limited details available due to the deal being a private placement, we believe in its green credentials as both the underlying asset and use of proceeds are green.

Repeat issuers: June 6^th– June 20^th

• MTR: HKD200m/USD25m
• Jernhusen AB: SEK150m/USD17m

Trends

Pending and excluded bonds

We only include bonds with at least 95% proceeds dedicated to green projects that are aligned with the Climate Bonds Taxonomy in our green bond database. Though we support the Sustainable Development Goals (SDG) overall and see many links between green bond finance and specific SDGs, the proportion of proceeds allocated to social goals needs to be no more than 5% for inclusion in our database.

Green bonds in the market

• ICBC (Asia): closing 21 June
• Alexandria Real Estate Equities: closing 21 June
• Renew Financial: closing 22 June
• IFC (private placement Philippines): closing 22 June
• Mitsubishi Estate: closing 26 June
• Auckland Council: closing 27 June

Investing News

37 of the largest European banks launched a new green mortgage scheme aimed at testing the World Green Building Council's new European energy efficiency criteria.

The ClimateWise Insurance advisory council launched a tool to help investors and regulators quantify the potential financial impact of the transition to a low-carbon economy.

The Monetary Authority of Singapore (MAS) and IFC signed a Memorandum of Understanding to grow the Asian green bond market.

The Shanghai Stock Exchange and Luxembourg Stock Exchange launched the Green Bond Channel, enabling international investors to access information on Chinese domestic green bonds listed in Shanghai.

The Securities and Exchange Commission of Nigeria is preparing to launch guidelines to facilitate the issuance of green bonds.

UBS Global Wealth Management has partnered with Hermes Investment Management to develop an SDG fund as part of what is expected to be the UK’s first 100% sustainable portfolio.

Wilmar International signed a USD200m loan with the Oversea-Chinese Banking Corporation that pegs its interest rates to its sustainability performance, the second deal of the kind from the Singapore-based agribusiness company. The meeting of the targets will be assessed annually by Sustainalytics.

Michigan company CMS Energy entered into syndicated sustainability-linked revolving credit facilities this week, with interest rates mainly linked to the company’s renewable energy generation targets.  

Green Bond Gossip

North American Development Bank has arranged meetings with investors on 25 June to discuss a debut Swiss franc green bond.

LBBW has mandated lead managers for its first green Pfandbrief secured on green mortgages.

Korea East-Power established a Sustainability Bond Framework in preparation of its debut sustainability bond.

Hong Kong MTR’s new Green Finance Framework expands the scope of their green bond program to include green revolving and term loans. The company is discussing with HSBC the arrangement of a debut green loan.

Société Générale obtained approval from Taiwan’s Financial Supervisory Commission to issue Taiwan dollar-denominated green bonds.

Nigeria’s Debt Management Office plans to issue a second sovereign green bond by the end of the year.

In a digital poll at Environmental Finance’s Fixed Income Conference in London this week, 33% of participants said they believed that the green bond market will grow to between USD200bn to USD225bn this year. A further 40% of the market expected annual issuance of more than USD225bn. The audience polls also revealed that 56% consider green bonds as being an "additional" form of finance.

Reading and Reports

PRI’s “ESG, Credit Risk and Ratings: Part 2 – Exploring the Disconnects” reports the findings of roundtable discussions between investors and credit rating agencies focused on the role of ESG factors in credit risk analysis.

The Nature Conservancy and Climate Bonds Initiative have published a paper on sustainable land bonds entitled “Sustainable Land Bonds: How governments can finance climate commitments and strengthen rural economies”.

The International Capital Market Association (ICMA) released guidelines to help issuers and investors identify how green, social and sustainability bonds contribute to the Sustainable Development Goals.

Don’t miss this ESG podcast where the Securities Commission Malaysia outlines plans for green Islamic finance (part 2).

Moving Pictures

Take 1:12min to find out about Microsoft’s underwater data centre which uses zero energy to cool servers.

Take 1:19min to discover the 10 rivers responsible for 90% of plastic in the world’s oceans. And then you may want to watch this experiment demonstrating the impact of environmental degradation (4:20min).

‘Till next time,

Climate Bonds

2018 meeting of new Committee: Focus on developing new products and investment pathways for Sustainable Agriculture

What’s it all about?

The Brazil Agriculture Committee, result of a partnership between the Climate Bonds Initiative and Sociedade Rural Brasileira (SRB) gathered this week for the first time in 2018 at SRB in São Paulo with support from the Gordon and Betty Moore Foundation.

The São Paulo meeting set the priorities for the year, and explored financial solutions and pathways to mobilize capital for sustainable agriculture at scale in Brazil that also supports low carbon national development.

Present in the meeting were key stakeholders in the agribusiness sector including representatives from finance, law firms, trading companies and agricultural producers.

Who’s saying what?

Dulce Benke, Director, Sociedade Rural Brasileira

"One of the main contributions of this implementation group would be a model that could be replicated in other regions of Brazil. It would be a project aimed to identify what would be the need of the field, what is the gap we find in a specific region, looking at what we can improve in sustainability, efficiency and technology."

Justine Leigh-Bell, Director of Market Development, Climate Bonds Initiative:

“The meeting today was important for setting foundations and priorities for developing a low carbon agriculture investment pipeline for Brazil, which is credible and attractive to investors. CBI brings the experience on what has been happening in the international market and supports Brazil positioning itself as a green finance powerhouse and becoming a world leader in sustainable agriculture. 

The Last Word

There are many opportunities in the pipeline for Brazil. Continuing the engagements that bring issuers, investors and industry stakeholders together is crucial to green finance development. 

In August, the Brazil Green Finance Initiative will have their second meeting for the year where representatives from domestic pension funds, insurance companies, banks, major industry sectors and investors will work cooperatively to strengthen the development of a local green finance market and attract international capital flows to fund the development of Brazil’s future economy.

Stay tuned!

‘Till next time,

Climate Bonds

Formation of Technical Working Group first stage in Criteria development for key part of clean energy systems

Further step in Climate Bonds 2018 program to expand reach of the Climate Bonds Standard for green bond investment in new sectors

What’s it all about?

The Climate Bonds Initiative has announced the formation of a new Technical Working Group (TWG) to develop new Sector Criteria to stimulate investment in low-carbon electricity transmission, distribution and storage infrastructure (Electrical Grids).

Why Grids?

At present, most attention in the electricity sector has been focused on low carbon and renewable electricity generation assets. Consistent methodologies for assessing climate change risks to existing and future grid infrastructure are lacking.

Yet grids are changing. Microgrids, smart grids, super grids, distributed energy systems and new forms of storage are emerging as the nature of energy generation and energy management changes.

To accommodate large scale renewable energy integration, existing transmission must be updated and expanded and additional distribution and storage infrastructure is required. According to the International Renewable Energy Agency (IRENA), transforming the global electrical grid system will require investments of USD 9 trillion by 2050, – a doubling over current and planned policies.

The purpose of the Criteria will be to provide a science-based framework for determining when electrical grid infrastructure projects and assets are compatible with a low carbon, climate resilient economy, align with the Paris goal of limiting warming to less than 2 deg and are eligible to be Certified under the Climate Bonds Standard.

Our Technical Working Group (TWG)

The new TWG convenes expert representatives from nine organisations, including universities, NGOs, consultancies, multilateral banking institutions and industry associations, who have widespread and direct expertise of global electrical grids.

The work of the TWG in developing the Criteria will be pivotal to enabling investors, issuers, regulators and governments to assess the green credentials of projects and assets in the electrical transmission, distribution and storage sector. 

New members are still welcome to join the TWG, if you are interested please contact Ujala Qadir and explain why you'd be a good candidate to participate.

IEA projections

According to the the International Energy Agency, around 40% of the global power sector’s investment needs up to 2040 will be taken up by extending the energy network, adding 75 million km of new line.

Defining the characteristics of low carbon and climate resilient electrical grid systems, compliant with a 2 degree climate scenario, is an integral part of both energy transition and attracting green finance.

The Last Word

As the Criteria are being developed by the TWG, they will incorporate feedback from an Industry Working Group (IWG) consisting of bond issuers from the electrical grids sector, investors, verifiers and other intermediaries. Once developed, the Criteria will be released for public consultation, hopefully in October 2018, and finally submitted to the independent Climate Bonds Standards Board for approval.

Stay tuned!

‘Till next time,

Climate Bonds

Climate Bonds representatives will be in Central Asia and the Far East this month and the familiar territory of Brussels and Paris. 

If you're in London on the 17th don't miss your chance to see CEO Sean Kidney give a keynote address to the Green Finance Initiative Summit at Guildhall.  

There's still a few spots left. Otherwise look for any of our people at the other events. They'll be happy to have a chat. 

July 2018 Events

'Till next time,

Climate Bonds

The European Commission has convened a Technical Expert Group (TEG) on Sustainable Finance to assist on the implementation of their Action Plan on Financing Sustainable Growth, we will be meeting for the first time tomorrow

During my journey today, I’ve penned a few thoughts to share with Blog readers…

I’m speeding from Kazakhstan into Brussels for the first meeting of the EU Technical Expert Group on Sustainable Finance (TEG) this Thursday, 5^th July.

35 external experts have been selected for the group, spanning asset managers, insurers, banks, stock exchanges, data providers, investors, civil society and academia.

We’ll be meeting frequently over the next year.

It’s an exciting development, a continuation of the process that started with the High-Level Expert Group (HLEG) formed in late 2016. The HLEG took just over 14 months from formation in late 2016 to its final report.

The following high-level Action Plan on Financing Sustainable Growth was launched in March - a response to our HLEG final recommendations.  

The pace of the Commission, moving from Expert Group to high-level recommendations to technical legislation, clearly shows that sustainable finance is a priority area.

What the TEG work will involve

The experts are split into four sub-groups. I’m a member of the sub-group tasked with developing an EU Taxonomy for environmental activities. Our task is to deliver a taxonomy for climate mitigation and adaptation, while in parallel looking at broader environmental investments (air pollution, biodiversity conversation and so on).  

The taxonomy sub-group will work closely with the other sub-groups, particularly the one that is looking at an EU Green Bond Standard. The remaining two sub-groups are looking at low carbon indices and metrics for climate-related disclosure.

We will be tackling climate mitigation by March 2019 and climate adaptation and other environmental activities by June 2019.

Note again the tight timetable. Other governments and regulators should be adopting a similar pace.

A quick look at the six climate action Milestones identified by Christiana Figueres and M2020 points to how much ground we ALL (governments, regulators, banks, asset managers and asset owners) need to cover over the next 30 months.

Four principles to underpin the EU Taxonomy

There are a handful of foundational principles that will need to underpin an EU sustainable finance taxonomy:

• Science-based: We need to leverage climate science and decarbonisation trajectories.

• Paris-agreement aligned: Limiting global warming to at least below 2 degrees with ambition towards 1.5 degrees, means incremental progress is simply insufficient.

Locking in a low level of ambition on emissions performance into the built environment or new infrastructure assets for 20-30 years will not deliver the urgent and rapid cuts that the science tells us we need.

• Expanding capital flows and investment: Shifting capital allocations to green investment and green infrastructure is an urgent task.

Leveraging existing labelling schemes and the work that has been done so far on taxonomies will enable us to finalise a robust EU sustainable finance taxonomy more quickly.

The HLEG developed a framework for an EU sustainable finance taxonomy which the TEG can make use of. The bonus with leveraging existing initiatives is it avoids a fragmentation of the market.

• Easy to use: Keeping transaction costs as low as possible is essential to scaling investment in green.

One approach is establishing clear sector-specific performance thresholds rather than relying on individual issuer emissions savings metrics.

That’s how we’ve done it with transport under the Climate Bonds Standard, for example. Transport assets that fall below a certain level of emissions per passenger kilometer qualify – which in practice means all electric rail is green, for example, . That’s an easy rule of thumb for issuers and investors to follow.

The threshold reduces over time.

Final Thoughts – To 2020 and Beyond

The development of an official EU taxonomy on sustainable finance is a significant benchmark. Don’t underestimate the wider potential.

A clear taxonomy is another ramp up mechanism to help scale both the green bond market and other green finance instruments.

Building the framework for investment while maintaining a strong environmental ambition is the crucial combination we need to see.

A taxonomy also offers a blueprint for planners and developers: it tells them which assets are aligned with building a sustainable Europe.

But that’s just a beginning.

It’s not just an important step for the EU, it’s a step towards a harmonized global taxonomy on green – and that’s what we also need to see. Governments and regulators worldwide should see the TEG process in the context of regional and then international taxonomy harmonization. A process that will help align capital flows into climate and green objectives all through the 2020s.

The more immediate expectation is that the global financial sector, the big banks and issuers, will meet the short-term milestones like the USD1 trillion in green bonds by 2020. And that the biggest global emitters will clearly demonstrate to investors and regulators that the brown to green transition is actually appearing on their balance sheets and in their capex programs.

The 2020 decade is what the TEG is aimed at. You’ll have to wait a year’s time for the final report and I'll keep you updated on progress along the way. 

Sean