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Green Bonds - AFOLU Update & prospects
Tanja Havemann, Director – ClarmondialPartner to the Climate Bonds Initiative
London, 10th of June 2015
Bonds 101One potential financing solution of many – suitability depends on the situation!Debt: repay loan + interest (commercial)Usually large, mature assets with low risk, long-term (e.g. refinancing)Issued by companies, governments, etc.Important part of portfolio for investors such as pension funds, insurance companies Government-backed may be paired with investment incentivesUsually rated by independent credit rating organizationsMay be traded, depending on capital market rulesLocal or foreign currency May be secured against an asset Islamic finance = “Sukuk”
Social / impact / development bonds are different!
Emergence of labeled bonds
History
Current
Future?
• Development Finance Institutions (e.g. EIB)• Independent second opinions on environmental and social issues• Green Bond Principles• Climate Bond Initiative & Standard (CBI)
• Over subscriptions, investor diversification & stickiness – signaling • Lack of price differentiation• NGO & investor concerns about quality• Climate Bonds Standard - consistent information collection,
transparency and definitions
• Price differentiation for “credible” bonds (standards, second opinions)
• Standards covering more sectors• More information enabling differentiation (“shades of green”)• Increased government incentives
SRI = $13tn global$88tn institutional
$30tn Insurance$27tn Pension$6tn Sovereign wealth$25tn Fund managers, mutuals, foundations
EMs = $5tn
We have investor demand
90% investment grade
Refinance as well as projects
USD$1.2bn
$11bn
$3.1bn
$36.6bn
2015
: $70
exp
ecte
d
Targ
et $
100b
nGreen bonds have grown up
It’s about Use of Proceeds
Transparency, independent review
Vanilla + comparable pricing
In 2014, 65% had independent reviews
Issuer types 2014
Any issuers can go green
Benefits• Investor
diversification • Stickiness• Longer tenors• Multi-asset for scale
Transparency, use of proceeds, consistent science-based approach to eligibility…
Proceeds goto “green”
Any entity
Issuerbenefits
Buyerbenefits
Ring-fenced, transparent Reporting + independent review Refinancing & projects
Governments, DFIs (45% 2014), Muni’s Companies (35% in 2014) Asset backed, e.g. banks, PPPs
Investor diversification & engagement Longer tenors Multi-asset pools
Transparency Fits “ESG” portfolio allocation portion Potential incentives
2014USD
36.6bn
2015> USD 50bn
Opportunities = scale / liquidityExpert groups = science-based definitions
Renewable energyEnergy storageGeothermal
Green buildingsGreen infra
Industrial efficiencyRE supply chain
Rail, BRTsLow emission vehicles, Electric Vehicles
Clean water Storm adaptation
Waste managementMethane reduction
AgricultureSustainable forestryFood supply chain
Reference: www.ClimateBonds.net/Taxonomy
42%
15.5%
0%
7%
7%
8%
13%
% = share of assets for bonds issued this year
Standard definitions & certification
Climate Science frameworkPotsdam Institute Climate Science+ IIASA, PBL, FEEM
Expert Committees
Green Property, Transport, Agriculture, Water++ 80 organizations + academics
Industry Advisory CommitteesInvestors, investment banks, verifiers
Independent verifiersEY, KPMG, Oekem, Bureau Veritas, TruCostSustainalytics, DNV-GL
$34tn Standards Board AFOLU TWG:USAID LEAF, USDA, ICRAF, WWF, University Wisconsin-Madison, VCS, SCOPE, CCROM-SEAP, CATIE, EIB, etc…
AFOLU IWG:Credit Suisse, Rabobank, Banorte, World Bank, IADB, ADM, Hassad Food, Olam, Hancock, Fibria, TNC, etc..
AFOLU sector specific
Agriculture, Forestry and Other Land Uses: all land-use sectors, including near & on-shore fisheries, limited to natural resource managementMitigation & adaptation included equally: investment in natural resource management directly resulting in reduced GHG emissions and, or, meaning adaptation and resilience with the AFOLU sectorsAt minimum, investment should net positive impact on carbon stocks, positive impact on adaptation in a manner consistent with national and sector priorities and other scientifically robust guidelinesPeriodic & independent assessment of activities and outcomesAt minimum no net harm on local communities or ecosystem servicesTo the extent possible, leverage existing standards, best practice and metricsExpected for public consultation this summerThis is a start: regular review and updating of sector specific guidance
Potential examplesBond type Example
issuerRevenues Purpose Examples
Public sector
Government agency
Government budget, SPV with guarantee
National food security
CSA programs, infrastructure (ABS SPV)
Financial institution
Bank From borrowers, backed by bank
Financing to agri-co’s
Syndicated loans to agri-portfolio
Portfolio Asset manager
Commercial activities
Funding for mix of investments
Mixed ag & forestry portfolio
Project Project owner (asset manager)
Project revenues Funding for specific project
Large project
Corporate Food & beverage company
Company (corporate balance sheet)
Source investment
Range of supply chain activities