Climate bond lectures in Stockholm & Oxford, Wed 2 June
Posted on 31. May, 2010 by Sean Kidney in blog
FYR, this week will see two separate public lectures on ideas being promoted by the Climate Bonds Initiative, both on Wed 2 June. Feel free to let colleagues know.
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In Stockholm, Advisory Panel member Prof. John Mathews, Eni Chair of Competitive Dynamics and Global Strategy at LUISS Guido Carli University in Rome, will be talking at the Stockholm Resilience Centre on:
“Climate Bonds: mobilizing private finance to drive an energy industrial revolution”
Time: 12.00 noon to 1.00 pm.
Location: Library (Room 248), Stockholm Resilience Centre, Kräftriket 2b, Stockholm
The talk is part of a series of “Brown Bag Lunches” organized by the Stockholm Environment Institute, the Stockholm Resilience Centre, The Beijer Institute of Ecological Economics, Albaeco and the Natural Resource Management Group at Dept. of Systems Ecology at Stockholm University.
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In Oxford, Climate Bonds Initiative Chair Sean Kidney and Christopher Flensborg, Coordinator of Capital Markets for Swedish bank SEB, lead manager of the World Bank’s Green Bonds programme, will talk at the Said Business School on:
“Green Bonds in Climate Finance: The key financial instrument to pay for global decarbonisation?”
Time: 4.00 to 6.00 pm.
Location: Seminar Room A on the ground floor of the Said Business School.
Climate Bonds Initiative welcomes IETA proposal for green bonds program
Posted on 26. May, 2010 by Sean Kidney in blog
In Cologne yesterday the International Emissions Trading Association (IETA) released a discussion paper proposing a new international scheme of green bonds linked to carbon credits.
The scheme would involve emerging nations issuing green bonds for projects that combine economic development and emissions reduction objectives.
The bonds would be backed by rich countries wanting to support climate change mitigation. Funds would be linked to emission reductions by being ring-fenced or asset-backed.
In a briefing to the Climate Bonds Advisory Panel in London, IETA CEO Henry Derwent explained that the return to investors would be made up of low-coupon conventional financial returns, with an upside of getting a marketable stream of carbon reduction units.
Guarantees mean that countries get access to capital at developed market rates, but failure to meet carbon reduction plans would mean higher rates and a cut in further access to loans.
Climate Bonds Initiative Chair, Sean Kidney, welcomed the IETA proposals. “To move forward from our dire global CO2 position we need visionary approaches. These must allow emerging nations to achieve their development objectives at the same time as keeping emissions down.”
He added “Rich countries may argue they don’t have available funds, but they could provide selective guarantees and other mechanisms that will make the difference to the flow of institutional investment.”
“Without that support, we face a grim global picture; but with that support we can deliver a sustainable, low-carbon future for both emerging nations and the developed world.”
“The IETA proposal has the potential to be an important part of doing that.”
AXA IM fixed income CIO calls Climate Bonds a “major new asset class brewing”
Posted on 19. May, 2010 by Sean Kidney in blog
AXA Investment Managers (AXA IM) is one of the biggest asset managers in the world. At the end of 2009 AXA IM had EUR 328 billion of fixed income assets under management.
In a paper published this week, Christopher Iggo, AXA Investment Managers‘ CIO Global Fixed Income, said:
“AXA IM expects that climate bonds will become one of the most important debt securities to be found in the global financial system and that 2010 will see a significantly increased overall level of issuance.”
UK Coalition confirms Green Investment Bank
Posted on 12. May, 2010 by Sean Kidney in blog
The formal coalition agreement between the UK Conservative and Liberal-Democrats, released today, lists two key initiatives that have been part of Climate Bonds Initiative proposals:
- The creation of a green investment bank.
- The provision of home energy improvement paid for by the savings from lower energy bills.
Also in the agreement is the provision of a floor price for carbon, something investors have been calling for.
All three are important and necessary changes relevant to governments everywhere.
Highlights of Climate Bonds Initiative Advisor Panel April meeting
Posted on 04. May, 2010 by Sean Kidney in blog
1. IFC on their US$200 mil of Green Bonds
2. Climate bond tipping points and issue volumes
3. Climate Bonds Standards
4. Transition to a low carbon economy: what is missing?
5. Green investment banks
6. New Climate Bonds Initiative Advisory Panel members
1. IFC issues US$200 mil of Green Bonds
Our guest for the evening, Shilpa Patel, Climate Change Chief at the International Finance Corporation (IFC), told us that the IFC had just issued a $200 million Green Bond; it’s a regular IFC bond but proceeds are ring-fenced and only applied to climate-friendly investments. The bond is a test; if the market is receptive, as it looks like it will be, expect a lot more Green Bonds.
Shilpa’s view is that these bonds are a great investment for mission investors and others looking for something to say about their commitment to sustainability in their annual reports.
Issues Shilpa underscored:
- Asset backing will be important in the future.
- Issues that have arisen with the bonds are (a) additional operational costs associated with ring-fencing without the ability to charge a premium and (b) how do you define climate friendly investment? How far upstream and downstream to include in the analysis of “climate friendly?” Which GHG accounting methods should be used?
Shilpa believes that if there are industry standards developed for Climate Bonds, that would be extremely useful to protect the integrity of the process and to drive scrutiny.
2. Climate bond tipping points: the importance of issue volumes
It was noted that one key to investors increasing their interest in climate bonds will be getting some into the benchmark indeces. That will require issues of between US$500 million and US$1 billion, depending on the index. Getting into an index would mean all fixed term investors would have to look at why not to invest in them. Watch this space.
3. Climate Bonds Standards
Work is underway, led by Prof. Cynthia Williams and Sean Kidney, developing a project to set standards for the labeling of climate bonds. This work has looked at existing models where public private partnerships have created standards – e.g. the privately-developed International Financial Reporting Standards (IFRS) which have become global financial standards in use in 120 countries. The team is currently engaging some cornerstone stakeholders that need to be involved in standards development to give them legitimacy.
There was some discussion about whether to include ratings agencies and project developers in the initial coalition behind the standards.
Arguments to exclude rating agencies were centred around the fact that their current role is to evaluate financial strength whereas the standards we are referring to are an environmental rating. Arguments for their inclusion included the potential for payback coming directly from the project thereby creating a different process for them to rate, the potential to use their experience in developing the rating process and the relationship between climate resilience and financial strength. For project developers it may be more appropriate to involve them at a later stage in order not to have the standards compromised by developers’ financial interests, which may lead to weaker standards.
Experience from developing forest bonds identified the need to reflect what the underlying bond is doing and to allow for regional diversity and not be too prescriptive. Country examples instead of set global standards were suggested, working together to develop an operational response rather than a standard.
The issue of whether the bond should be binary (climate-change-mitigating/not) or graded was raised. CBI expects it to be necessary to have both – with some standards (e.g. for certain renewable energy assets) being able to have a binary standard and more complicated areas requiring a gradation.
4. Transition to a low carbon economy: what is missing?
Is it projects or finance? There was an initial suggestion that a lack of projects was an issue and that the projects that are there are difficult to get at scale.
A strong case was made that the projects are there but the finance is not and there is a need to package for institutional investors. Difficulties in obtaining finance for early stages of projects was also identified as was the problem of obtaining finance for small projects —needed is a policy incentive to encourage aggregation.
5. Green investment banks: extending overseas
All three main political parties in the UK election have backed a Green Investment Bank of some sort, so the country is likely to see one in the near future. This is something we have been pushing for over the past year, working closely with groups such as the TransformUK coalition, Climate Change Capital, Green Alliance, the Aldersgate Group and E3G. Key players on our side have been James Cameron, Sean Kidney, Sean Hanafin and Nick Silver. The debate now will be about how to structure the UK bank and what size it needs to be.
Focus now will be on promoting the model in countries outside the EU. A lack of reliable specialist banks in various countries, in particular to aggregate projects, is seen as a potential barrier to expansion of this market.
In the case of climate bonds, one model being explored is where banks would provide initial project finance, with the green investment institution concentrating on buying the debt from the originating banks to securitise them and sell as bonds. The original bank then has available capital to invest in more projects. The green investment institution would be able to test the investment to confirm that it is green and safe.
Lessons can also be learnt from microfinance. Here getting the intermediaries has been difficult. The role of government was debated, with some seeing the potential for greater certainty in maintaining feed-in tariff policies if they were part of the scheme. Others saw advantages in keeping the government out of the process. It was agreed that green bank structure would need to be tailored to individual countries.
6. New Climate Bonds Initiative Advisory Panel members
- Bryn Jones, investment manager, Rathbones
- Christoph Harwood, Marksman Consulting
- Paul Dickinson, Carbon Disclosure Project
- Vicki Bakhshi, F&C Investments
EIB issues €300 million of “Climate Awareness Bonds”
Posted on 01. May, 2010 by Sean Kidney in blog
Hard in the heels of the IFC’s US$200 million Green Bond last month, comes the AAA-rated European Investment Bank (EIB) with a third issue of its “Climate Awareness Bonds”.
Denominated in Australian dollars and South African Rand, yesterday’s issue is for the equivalent of €300 million. They will be sold largely to Japanese retail and institutional investors.
Bond proceeds will be ring-fenced for the EIB’s renewable energy and energy efficiency lending programs. Lead manager is Daiwa Securities.
In the past three years EIB has raised almost €1 billion with Climate Awareness Bonds.
This is the second EIB issue this year that’s been ring-fenced for climate programs. In February 2010 the EIB issued “Earth’s Future Bonds”, also aimed at Japanese investors. Lead manager was HSBC. Although the EIB haven’t disclosed the amount issued, except to say there were available in three currencies, IFR Asia estimates the total at EUR 150+ million.