GREEN BONDS DEFINITIONS & ORIGIN
- No specific market definitions of ‘Green bonds’ or regulatory reporting
- Issuer(s) can define what they think constitute the notion of GB…
- Environmental stewardship is a differentiating factor
- There does exists:
- The Green bond principles (by the international capital market associations, 2014, updated 2018)
- It faciliatates guidance and transparency of the market
- Focuses on the ‘usuage of proceeds’, project evaluation and selection process and reporting management process
- The Green Evaluation Analytical Approach (2017, April, Standards & Poor (S&P)–a point-in-time assessment of the relative environmental impact of financing transaction or portfolio.
- There are now green loans and green CLO—collateratised loan obligations
- fixed income debt instruments like any other bond. ‘Offer a stated return, and a promise to use the proceeds to finance or refinance, in part or fully, new or existing sustainable projects.’
- Green bonds fund environmental, social and governance improve- ment or projects:
renewable energy and energy efficiency projects, clean public transportation, pollution prevention and control, conservation, sustainable water and wastewater management, and green buildings that meet internationally recognized standards and certifications
- ESG (2006 UN Principles for Responsible Investment) Initiative (PRI—6 core principles to encourage investors to integrated environmental, social and governance into investment decision making and ownership practices)
- UN SDGs, 2015. ‘bolstered the importance of ESG investing by providing a global framework for financing sustainable development’ (p.45 S &P Global) also supported private sectors involvement to address funding gap.
- Green, Social and Sustainability Bonds market offer ways to capitalise on ESG trend and can add value to portfolio
ØOffshoots of GB: forest bond, water bond
- Outstanding issues: comparability of data, reporting formats and contents, frameworks and impact reporting.
- Controversies: environmental and climate integrity of projects
Evolution of green Bonds…
Now around almost 20 years:
- Issued as a way for projects to raise finance with the goal of cut/reduce emissions… using green project finance covering…
- Renewable Energy/Energy Efficiency/Low-carbon/ water efficiency
First issued by European Investment Bank (EIB), 2007 (Climate Awareness bonds, July 4 Euro 600 million)
World Bank 2008 (December)
Total yearly issuance $1 billion, 2007-2009.
Other early actors: EBRD, IFC, AB, AfDB, and a few Norwegian finance institutions since 2010
2014: Green Bond Principles (Jan 2014—4 banks—best practices in GB markets focusing on disclosure and transparency) – led to GB took off: total issuance $36 billion with addition of non-MLI: Bank, corporates, and local governments non
Note: Multilateral lending Institutions (MLI) aka ‘supranational institutions’ role continue in terms of off shoot development; but only a few dominate the GB sectors and their share is declining (now about 5% or $8.6 billion (of 167 million, 2017) with EIB is the largest issuer of MLI’ GB (S&P 2019).
Mariama Williams ,South Centre.