Green Bonds

The green bond market has grown phenomenally in the past few years. Since the first green bond in 2008, the green bond market tripled to around USD38 billion in 2014, and reached around USD105 billion in 2016. Researches predicted further growth in the 2017 issuance: USD130 - USD150 billion by Climate Bonds Initiative, USD206 billion by Moody’s, USD120 - USD160 billion by Environmental Finance (survey of SRI market participants) . The World Bank has since 2008 issued over USD 10 billion equivalent in Green Bonds through more than 130 transactions in 18 currencies.

A green bond is a financial instrument for raising capital from investors to meet green funding needs and a range of bond issuers have been active in the green bond market. Corporates accounted for one fifth of green bonds, and financials for around one quarter. The major market players have been the public sector, including multinational institutions, governmental agencies, and municipalities . In the German State of North Rhine Westphalia, 93 percent of its budget for protection of natural resources was considered eligible for bond . Globally speaking, biodiversity conservation received 4% of bond proceeds, and sustainable land use benefited 2% .

With green bonds, both issuers and investors demonstrate their commitment to addressing green and environmental issues both externally and internally by financing projects with clear environmental benefits. Green bonds provide access to a deep global pool of capital with a diverse base of investors, for instance green bonds connect investment needs with the demand for sustainability-themed investments from institutional investors, whose asset holdings are projected to increase from USD 93 trillion in 2014 to USD 120 trillion by 2019 in the OECD.

Further reading
Sustainable Forestry 2017: IFC Forests Bond, Environmental Finance, 30 June 2017. The five-year bond pays a coupon of 1.546%. It was originally sized between $75 million and $150 million but was increased to $152 million in response to strong demand. Buyers included US teachers’ pension fund giants CalSTRS and TIAA-CREF, QBE Insurance and emerging markets investor Treehouse Investments.

World Bank: Board Approves over $20 Million for Seychelles’ Sustainable Fisheries and Marine Resources Conservation. The Blue Bond is expected to mobilize public and private investments to finance the Seychelles sustainable fisheries transition and contribute to achieving the country’s Blue Economy Strategy. The Strategy aims to sustainably manage and protect the Seychelles’ marine resources, ensure food security, diversify the economy and create high-value jobs. The Blue Bond financing includes EUR 5 million from the International Bank for Reconstruction and Development (IBRD) and a credit of US$5 million from the Global Environment Facility’s Non-Grant Instrument Pilot.

EIB’s new Nov-47 EUR CAB is the longest ever green bond. The issue has a final maturity date of 15 November 2047, making it the longest ever green bond. The ultra-long 30-year bond carries an annual coupon of 1.5% and was priced at a final spread of mid swaps plus 5bp, equivalent to a spread at the time of pricing of 36.1bps over the August 2046 German Bund.

OECD: Green Finance and Investment: Mobilising Bond Markets for a Low-Carbon Transition. Over EUR 12 billion in insittutional commitments or targets for green bond investment and fourteen green bond funds manages EUR 1.16 billion in May 2016. Potential for low-carbon bond issuance ranges between US$620 billion and US$720 billion per year by 2035.

ADB: The Asian Bond Markets Initiative: Policy Maker Achievements and Challenges, June 2017. From the time ABMI was launched, the total amount of LCY bonds outstanding in emerging Asia has rapidly grown from about $1.1 trillion to about $10.2 trillion in December 2016.

India: Green Bonds: Global Market and Domestic Opportunities, C. Venkat Nageswar, FIMMDA, Workshop I: Definitions, Selection & Verification, 19 January 2017, Mumbai. Yes Bank was first labeled green bond issuer in February 2015 – earlier issuances were unlabeled. Axis Bank listed the first Indian certified green bond in LSE.

SEB: Green Bonds – Key Facts and Findings, Christopher Flensborg & Christopher Kaminker, Workshop I: Definitions, Selection & Verification, Mumbai, January 2017

CICERO: External Review & Second Opinions, Harald Francke Lund. Standard structure of a second opinion report (~10 pages): Summary and recommendations (a concise overview for investors); Introduction and background (aim and approach of the second opinion); Disclaimer (CICERO is not liable for specific project validation); List of documents and brief description of green bond framework; Assessment of framework in terms of Strengths, Weaknesses, and Pitfalls (areas where issuer should be aware of potential challenges); References. ‘Second Opinion’ on IFC’s Green Bond Framework, 23 November 2015

India: EXIM Bank’s Practical Experiences and Lessons Learned, David Rasquinha, EXIM Bank, Workshop I: Definitions, Selection & Verification, Mumbai, January 2017

India: Axis Bank’s Practical Experiences and Lessons Learned, Yousuf Syed, Axis Bank, Workshop I: Definitions, Selection & Verification, Mumbai, January 2017

India: YES Bank’s Practical Experiences and Lessons Learned, Rajnesh Trivedi, YES Bank, Workshop I: Definitions, Selection & Verification, Mumbai, January 2017

India: The Indian Green Bond Market, Richa G. Agarwal, Securities & Exchange Board of India (SEBI), Workshop II: Monitoring, Reporting & Market Aspects, 17 May 2017, Mumbai

IFC: IFC's Green Bonds Experience, January 2017

SEB: Key steps in a typical Green Bond issuance process, Mats Olausson, Senior Advisor, Climate & Sustainable Financial Solutions, Green Bond Workshop II: Monitoring, Reporting & Market, Aspects – Latest Green Bond Market Development, Mexico City, 1 March 2017

IDB: MDBs targets to increase climate finance, Amal-Lee Amin. AfDB: 40% of investments by 2020; ADB: 30% portfolio to US$6 billion by 2020; EBRD: 40% total annual investments in Green Financing by 2020; EIB: 25% total lending volume for climate action; also 35% for climate action in developing countries, starting 2020; WBG: 28% in 2020
CERES: Green Bonds Issued by Mexican Entities, Peter Ellsworth, Director, Investor Program, Ceres. 5 Essential Resources for Green Bonds: The Green Bond Principles; The Investor Statement of Expectations for the Green Bond Market; The Barclays / MSCI Green Bond Index; The Climate Bonds Initiative; impact reporting.

France: Supporting your Sustainable/Green Bond: Bridging the gap between sustainable performance and finance, Vigeo Eiris Enterprise, January 2017

Mexico: Green Bonds Rating Methodology: Debt Securities, HR Ratings, 31 January 2017

CICERO: Second Opinions – what, why, when & how? CICERO’s approach and methodology for Second Opinions – practical experiences in the case of Modern Land, Knut H. Alfsen, Senior Researcher, CICERO, Beijing, March 2nd 2017. CICERO/ENSO have provided Second Opinions to almost 60 issuers since 2007, and 28 second opinions with shades of green.

China: The Research on the Development of Green Bond Impact Reporting System in China, CECEP Consulting., Co, March 2017

China: Green Bond Verification in China, SynTao Green Finance, Workshops II: 2 March 2017, Beijing. Requirement on green bond verification, verification standards

Affirmative Investment Management: An International Specialist Green Bond Investor – Preferences and Requirements, Tess Olson Rong, Workshops II: 2 March 2017, Beijing

SEB: The five pillars of Green Bonds, Samantha Sutcliffe, Senior Advisor, Climate & Sustainable Financial Solutions.

The Development and prospects of Chinese Green Bonds, Wang Yao, International Institute of Green Finance,CUFE, Workshops II: 2 March 2017, Beijing
China's Green Bond Market: What Sectors and Projects are Proceeds Financing, CECEP Consulting.,Co, March 2017. Ecological protection and climate adaptation is the Smallest Theme: profitability is major concern for bond issuance in this sector.

The practice and prospects for green bond market development at home and abroad, March 2017, NAFMII-ICMA Working Group, 8th UK-China Economic and Financial Dialogue

OECD: Green Bonds: Mobilising Bond Markets for a Low-Carbon Transition, 19 April 2017. Since 2007-08, so-called “green bonds” have emerged and the market has risen from USD 3 billion in 2011 to USD 95 billion in issuance in 2016. For policy makers, the report proposes a framework for understanding potential directions of bond market evolution, increased convergence of rules and definitions, and quantitative analysis of the potential contribution that bond markets can make to a low-carbon transition.

ICMA: The Green Bond Principles (GBP), 2 June 2017. The GBP have four core components: Use of Proceeds; Process for Project Evaluation and Selection; Management of Proceeds; Reporting

ICMA: The GBP Databases and Indices Working Group – Summary of Green Fixed Income Indices Providers, June 2017, including Bloomberg MSCI Barclays Green Bond Index, BAML Green Bond Index, S&P Green Bond Index, Solactive Green Bond Index, ChinaBond China Green Bond Index and ChinaBond China Green Bond Select Index.

ICMA: The GBP Databases and Indices Working Group – Summary of Green Bond Database Providers, May 2017, including: Bloomberg, Environmental Finance, Dealogic, Climate Bonds Initiative (CBI).

Export Development Canada: Green Bond Impact Report, February 2017.

Storebrand Asset Management: Green Bonds – Monitoring and Reporting, Helena Lindahl, Sao Paolo, Brazil, April 2017: Storebrands Green Bond Process.

SEB: Market aspects of Green Bonds: Pricing, Mats Olausson, Workshop II: Monitoring, Reporting & Market Aspects, 4-5 April 2017, São Paulo.

SEB: Monitoring & Reporting – What Do the Green Bond Principles Say? What do Issuers Experience?, Mats Olausson, Workshop II: Monitoring, Reporting & Market Aspects, 4-5 April 2017, São Paulo.

SEB: Global Green Bond Market Update and Recap of Workshop I: Define, Select & Verify, Mats Olausson, Workshop II: Monitoring, Reporting & Market Aspects, 4-5 April 2017, São Paulo. Latest Green Bond Market Development: Record issuance of Green Bonds at US$95.13 billion in 2016; five pillars of the Green Bond framework; Green Bond Principles – a voluntary guideline.

SEB: Inaugural Green Bond: A sustainable investment, February 2017. On 10 February 2017, Skandinaviska Enskilda Banken AB (SEB) issued its inaugural EUR 500m (no grow) 5yr Green Bond. On the transaction SEB acted as Sole Structuring Advisor and Joint Lead Manager together with ABN AMRO and HSBC. The Green Bond was priced at a spread of MS+20bps off an order book in excess of EUR 2.1bn. The mandate announcement was released on Wednesday 1st of February and on the following week between the 6th to 9th of February a roadshow was arranged where the issuer met with numerous investors in Paris, Frankfurt, Amsterdam, Helsinki, Stockholm and London as well as hosting a global investor call for investors unable to attend the roadshow. The final order book was very granular with broad participation across Europe. Investors from Germany and Austria (26%) took the largest share of the book, followed by investors from Benelux (20%), Nordics (19%), France (19%), UK/Ireland (10%), Switzerland (3%) and other geographic regions (3%). In terms of investor segments, 45% of the transaction was placed with asset managers, followed by 35% to pension/insurance funds and 20% to banks.

Brazil: Greening Financial Decision Making – Financing the Green Transition, Gabriel Rangel Visconti, Brazilian Development Bank (BNDES). Symposium and Signing Event: Greening Financial Decision Making – Financing the Green Transition, 4 April 2016, Frankfurt

Brazil: Supporting Green Bond Market Development in Brazil, Marina Grossi, Brazilian Business Council for Sustainable Development (CEBDS)

Germany: Sustainability Strategy North Rhine-Westphalia, Axel Bendiek, Treasurer, German State of North Rhine Westphalia, Green Bonds & Green Finance Conference, Beijing 7 April 2016

Sweden: Fossil Free Sweden: Supporting local government climate action through Green Loans & Green Bonds, Björn Söderlundh, Head of Lending, Kommuninvest, Green Bonds & Green Finance Conference, Beijing 7 April 2016

IFC: Green Bond Impact Report: Financial Year 2016

Sustainalytics: Apple Inc. Green Bond Framework Overview and Second-Party Opinion by Sustainalytics, 16 February 2016

Ceres: The 21st Century Investor: CERES Blueprint for Sustainable Investing, Authored by Peter Ellsworth, Kirsten Snow Spalding, June 2013, first printing; June 2014, second printing; June 2016, third printing. STEP 1: Establish a Commitment to Sustainable Investment Through a Statement of Investment Beliefs. STEP 2: Establish Board Level Oversight of Sustainability Policies & Practices. STEP 3: Identify Sustainability Issues Material to the Fund. STEP 4: Evaluate Material Sustainability Risks to the Portfolio. STEP 5: Integrate Sustainability Criteria into Investment Strategies. STEP 6: Require Sustainable Investment Expertise in Manager & Consultant Procurement. STEP 7: Evaluate Manager Performance Against Sustainable Investment Expectations. STEP 8: Establish Engagement Strategies & Proxy Voting Guidelines. STEP 9: Support Policies & Market Initiatives that Promote a Sustainable Global Economy. STEP 10: Integrate Sustainable Investment Approaches Into All Asset Classes & All Strategies.

Mexico: NAFIN: First ever Mexican Green Bond Issuer, Hugo Enrique Aguirre Lopez, Subdirector, International Treasury, NAFIN. On October 29 2015, Nafin returned to the international markets after 18 years of absence with the issuance of the first Mexican Green Bond. March 2016: Launch of the Platform of green bonds by the Mexican Stock Exchange. On March 16 2016, the BMV announced a segment devoted exclusively to the issue of green bonds, becoming the first Latin America stock exchange to launch this initiative. April 2016: Green Bond issuance in Costa Rica for a Development Bank. On April 27 2016, the National Bank of Costa Rica issued the first green bond in that country, representing the 4th issuance of this kind in Latin America. May 2016: Launch of Working Group on green bonds. On May 30 2016, the BMV in conjunction with the Mexican Carbon Platform launched the working group with the aim of boosting the market of green bonds. August 2016: NAFIN issuance: First Mexican Green Bond in pesos. On August 31 2016, Nafin conducted its second issue of a Green Bond in less than 1 year. With this issue Nafin opened the local market of green bonds in Mexico. Sept. 2016: Announcement of the issuance of a Green bond by Grupo Aeroportuario of Mexico City (GACM). On September 6 2016, GACM announced the emission of the third Mexican Green Bond.

WWF: Green Finance & Green Bonds in the Context of International Processes, Santiago Lorenzo Alonso, Global Expert on Climate Finance, Green Bond workshop on definition, selection and verification, 10-11 October 2016, Mexico City. Risk of Green washing What Investors and Issuers Need to be Aware of.

China: China Green Bond Assessment Framework, Chen Bo. GB Policies and Rules.

PRI: Green finance, responsible investment and ESG: International investor perspectives, Jessica Robinson, Associate Director, Head of Asia (ex Japan), PRI, Workshop for Regulators and Financial Institutions on Green Bonds, Beijing, 27 September 2016.

CICERO: Workshop for Second Opinion Providers on Green Bonds, Harald Francke Lund, Senior Adviser, Beijing 28 September 2016.Safeguarding the Green Bond Framework and Environmental Credentials: 59-66% of green bonds have received an external review. Assessing an Issuer’s Green Bond Framework – 2nd Opinions.

Climate Bonds Initiative: Bonds and Climate Change: The state of the market in 2016, published by the Climate Bonds Initiative July 2016 in association with HSBC Climate Change Centre of Excellence. There are $694bn of climate-aligned bonds outstanding, by approximately 3,590 bonds from 780 issuers across climate themes: Transport, Energy, Buildings & Industry, Water, Waste & Pollution Control and Agriculture & Forestry. It includes $118bn of labelled green bonds.

WWF: Green bonds must keep the green promise! A call for collective action towards effective and credible standards for the green bond market. The proliferation of standards, frameworks and guidelines, as well as the diversity of market practices in terms of definitions and requirements for green bonds create complexity and confusion among issuers and investors which could hamper the confidence needed for the green bond market to thrive. Creating a large, liquid market in green bonds – including aggregating small projects – offers a unique opportunity to boost the volume of capital available, as well as reducing the cost of debt for projects that drive the transition towards a sustainable economy. As countries seek proactive solutions to the environmental challenges that are faced, green bonds and their associated standards can play an integral role for both the finance and conservation communities. However lack of standards has led to the risk of ‘greenwashing’, with not all green bonds fulfilling their green promise. Over the past couple of years several green bond issuances have been controversial among stakeholders. As investors and issuers pay more attention to environmental, social and governance issues, green standards can further influence the wider market. The research also finds that most frameworks and guidelines currently only look at the potential environmental impacts prior to issuing a bond, instead of assessing the actual environmental benefits of projects throughout the lifetime of the bond. Focussing on promised environmental impacts rather than actual performance raises the risk of greenwashing if bonds are issued and perceived as green, while only achieving minor or in fact no actual environmental benefits.
OECD: Green Bonds: Country Experiences, Barriers and Options, in support of the G20 Green Finance Study Group. Green Bond Guidelines and Standards: Green Bond Principles; Climate Bonds Standard; Local Currency Market Standards; Harmonization Issues. External Reviews and Ratings: Green Bond Reviews; Green Bond Ratings. Indices and Listings: Green Bond Indices; Green Bond Stock Exchange Lists. Barriers to Scaling-up the Green Bond Market: General Challenges to Bond Market Development; Lack of Awareness of the Benefits of Green Bonds and Existing International Guidelines and Standards; Lack of Local Green Bond Guidelines; Costs of Meeting Green Bond Requirements; Lack of Green Bond Ratings, Indices, and Listings; Lack of Supply of Labelled Green Bonds; Difficulties for International Investors to Access Local Markets; Lack of Domestic Green Investors. Emerging Options: Promoting the Integrity of Green Bonds and Raising International Awareness of their Benefits; Providing Technical Assistance for Developing Local Green Bond Guidelines; Providing Technical Assistance for Local Currency Bond Market Development; Reducing Costs of Green Bond Issuance and Reporting; Developing Green Bond Indices, Ratings, and Stock Exchange Lists; Labelling qualified “green bonds”; Promoting international collaboration to facilitate cross-border green capital flows; Incubating Local Green Investors; Enhancing the Role of MDBs/DFIs and Public Entities in Developing Green Bond Markets.
OECD : A quantitative framework for analysing potential bond contributions in a low-carbon transition. Financial Sector Bonds; Asset Backed Securities; Project bonds; Sovereign, sub-sovereign, municipal and agency bonds.

World Bank: The World Bank Green Bond Impact Report, June 2016. As of June 30, 2016, the International Bank for Reconstruction and Development (IBRD) has issued 125 Green Bonds in 18 currencies raising the equivalent of US$9.1 billion of funding supporting the transition to low-carbon and climate resilient growth. 25 green bonds totaling US$ 2.9 billion had matured by Jun 30, 2016 of which US$1.6 billion has been replaced with new green bonds. In addition, US$0.3 billion of green bonds have been repurchased or called and these amounts have also been rolled-over. World Bank Green Bonds totaling US$5.7 billion were outstanding as of June 30, 2016. The total amount of matured green bonds that may be replaced with new green bonds in future is US$1.3 billion.

ICMA: The Green Bond Principles, International Capital Market Association (ICMA), Beijing, September 2016. Green bond global market overview and green bond principles; market dynamics and key developments

Affirmative Investment Management: Sustainability verification criterion, Tess Olsen-Rong, 13 & 14 December 2016, São Paulo. Green bond market development.

Affirmative Investment Management: ESG Integration in Investment, Tess Olsen-Rong, 13 & 14 December 2016, São Paulo. Green bond market development.

Cicero: Expert Network on Second Opinions and Review of Green Bonds, Harald Francke Lund, Workshop I: Definitions, Selection & Verification, 13 & 14 December 2016, São Paulo

SEB: Green Bonds Workshop 1 – Definitions, Selection and Verification, Mats Olausson, Workshop I: Definitions, Selection & Verification, 13 & 14 December 2016, São Paulo

SEB: SEB Green Bond Strategy, 2 December 2016: Independent Second Opinion from ENSO; Eligible Assets; Selection process; Monitoring of capital flows; Green Bond issuance; Investor reporting; Assurance; Procedures and guidelines implemented to provide transparency and guidance.

SEB: SEB Green Bond Framework, November 2016. The structure of the SEB Green Bond Framework is built around the same principles that SEB developed together with the World Bank in 2007/08 including: Background and Objective; Earmarked account; Specified criteria for Eligible Assets; Selection process; Investor reporting; Second Opinion from independent, external environmental experts.

I4CE – Institute for Climate Economics: Beyond transparency: unlocking the full potential of green bonds, Igor Shishlov et al, June 2016

World Bank: Green Bonds: Working Towards a Harmonized Framework for Impact Reporting, December 2015

China: The People's Bank of China Announcement No. 39 (2015)

China: Preparation Instructions on Green Bond Endorsed Project Catalogue (2015 Edition)

World Bank: What are Green Bonds?. Chapter 1: Understanding bonds; Chapter 2: Understanding Green Bonds; Chapter 3: Benefits and Potential.

BankTrack: Open letter on the 2015 update of the Green Bond Principles, 30 April 2015. A project with egregious environmental, social and human rights impacts - the GDF Suez bond, which – while labelled as “green” - financed (among other projects) the Jirau mega-dam in Brazil.

UNEP: Scaling Up Green Bond Markets for Sustainable Development: An Executive Briefing for the Public Sector to Stimulate Private Sector Market Development for Green Bonds, Climate Bonds Initiative, UNEP Inquiry and the World Bank Group.

India: Issue Paper: Green Bonds in India, Partnership to Advance Clean Energy-Deployment (PACE-D), Technical Assistance Program. In the Indian context, there are certain challenges for the issuance of Green Bonds in the international markets. These include high currency hedging costs; poor sovereign ratings (currently at BBB-); and low tenure (currently, Green Bond tenures are mainly concentrated between 3-10 years, with only some issuances reaching or exceeding 15 years tenure). However, there are opportunities for Indian entities to participate in Green Bonds at this nascent stage —though on a smaller scale issuance, ranging between USD 150-250 million.

ICMA: Municipal Bonds and Infrastructure Development – Past, Present, and Future, An International City/County Management Association (ICMA) and Government Finance Officers Association (GFOA), White Paper, August 2015. In 2014, US state and local governments invested nearly $400 billion in capital projects. Approximately 90 percent of state and local capital spending is financed with debt. If the federal tax exemption for municipal bonds were repealed, state and local governments would have paid $714 billion in additional interest expenses from 2000-2014.

Canada: Green Bonds for a Green Economy: Considerations for Ontario, Dustyn Lanz

  • United Nations
  • United Nations Environment Programme