Climate Bonds

Press picking up on Climate Bond Standards: NYT today; FT; Economist

Posted on 28. Nov, 2011 by Sean Kidney in blog

New York Times / International Herald Tribune – http://goo.gl/ZEop9

The Financial Times – http://goo.gl/pTVWu

The Economist – http://www.economist.com/node/21534810

Thanks to Sonia, Sophia and James.

3 simple reasons why Climate Bond Standards are important

Posted on 25. Nov, 2011 by Sean Kidney in blog

Opening speech at the launch of the Climate Bonds Standard by co-founder, Nick Silver

Let me deal with each word in turn: Climate, Bonds and Standards

1. Climate.

Everyone seems to have forgotten about climate change – it’s dropped right down or even off the agenda. We have been distracted by rather serious problems elsewhere.

But let’s put things in perspective. I’m reading an interesting book at the moment about the history of finance; apparently there were banking crisis in England in 1836, 1839, 1847, 1857 and 1866. I’m sure these were very serious and caused much angst at the time but these they did not stop England being by far the richest + most powerful global economic power of the day.

There have also been climate crises in the past too.  For example 55.8 million years ago in thePaleocene-Eocene Thermal Maximum, a large increase in atmospheric CO2 caused the planet to warm up by 6C, leading to extinction of 50% of the species alive at the time.

Now I don’t doubt the seriousness of the financial crisis but financial crises happen at least a few times a century, and mostly, people eventually get on with their lives and forget about them.

In the meantime GHG emissions have been inexorably rising leading us towards an event that happens only every few million years and is inevitably catastrophic.

2. Why bonds?

If we had the will, we probably have the technological capacity to decarbonize our economies without too much difficulty. The main challenge is that all of our capital is locked into a fossil fuel intensive economy – the question is “how do we transfer this into a low carbon economy?”

Bonds are at least part of the solution. They have a long history of being used to finance the transformation of economies when we have had to – mainly, in the past, for the purpose of war.

But bonds are particularly suited to renewable energy and energy efficiency projects: these typically require high initial capital but then have no variable costs and receive an inflation linked income from the energy they produce or save. This is perfectly matched to the profile of a bond. Bonds are also currently greatly in demand from investors; in the developed world we have ageing societies and hence mature pension funds who need inflation-linked fixed income investments to match the payments of their pension liabilities.

Prior to the financial crisis we were in the Age of Equities; we have now entered the Age of Bonds.

However, at the moment the bond market has been flooded by low yielding government bonds – investors have a strong need for higher yielding inflation-linked alternatives.

3. Why standards?

I have noted the high capital, low running cost nature of renewables. This means that the cost of capital is crucial to the competitiveness of renewable energy. The aim of the standard is to ultimate reduce that cost of capital.

How? Firstly there are many investors who would like to invest in sustainable products. These are small compared to the investment universe, but large in absolute terms, but they do require assurance as to the environmental integrity of their investments, which a certification provides.

Secondly, large institutional investors need liquidity – this requires a large universe of standardized products. One day I would like to see “greens” as a standard bond class that forms part of the asset portfolio of all mainstream investors.

Finally, governments and multi-lateral institutions have earmarked large pools of capital for investment into climate friendly projects. I strongly believe that the best use of those funds could and should be to de-risk certified climate bonds, for example by providing insurance, guarantees or first loss provision. That way they can massively leverage private-sector investment rather than frittered away on a few individual projects.

On that none too subtle suggestion — governments using public funds to de-risk climate bonds — I am now delighted and honored that we have the pleasure of being addressed by one politician who definitely hasn’t forgotten about climate change; Greg Barker, UK Minister of State at the Department of Energy & Climate Change.

Climate Bond Standard launch backed by investors and NGOs; Goal to Assure Integrity of Green Claims for Investors, Governments

Posted on 24. Nov, 2011 by Sean Kidney in blog

Climate Bond Standard released, open for business; Goal to Assure Integrity of Green Claims for Investors, Governments

LONDON TODAY –­­­ The Climate Bonds Initiative today released the final approved text of the prototype Climate Bond Standard. See http://standards.climatebonds.net/

The Standard is a screening tool for investors and governments to support investment in delivering a Low Carbon Economy. Bonds complying with the Standard will be certified as ‘Climate Bonds’— a mark that assures their contribution to the delivery of a Low Carbon Economy.

Jack Ehnes, CEO of Standards Board member CalSTRS, said, “We are looking for investment-grade returns that also address climate change. The Climate Bond Standard will allow us to know that investment opportunities put before us will be the right ones to build a Low Carbon Economy.”

The finalized text was approved by the Climate Bond Standards Board, a group of institutional investors and leading environmental NGOs consisting of the California State Teachers’ Retirement System(CalSTRS); the Natural Resources Defense Council; the California State Treasurers’ Office; the Investor Group on Climate Change (IGCC); the Carbon Disclosure Project; and the Ceres Investor Network on Climate Risk (INCR).

Sean Kidney, Chair of the Climate Bonds Initiative welcomed the release saying, “This product allows for a new fixed income asset class to emerge and grow – one that will be focused on recognizing the investments needed to deliver a Low Carbon Economy by 2050 and on limiting the risk of dangerous climate change.”

The release concludes a 6-month development phase including a public consultation period and input from industry experts such as the International Finance Corporation (IFC), Standard & Poor’s, Aviva Investors and KPMG.

In its first iteration, the released version lists wind energy investments currently eligible with an expansion to solar energy and other renewable energy investments to follow in the coming months.

As well as types of investments that are eligible, the Standard will address traceability of funds and types of bonds than can be certified. Eligibility criteria for different types of investment will be released progressively over the coming year.

According to the International Energy Agency, approximately $1 trillion a year is required out to 2050 in mitigation and adaptation investments. Funds under management by global bond traders reached $95 trillion in 2010 and more than $6 trillion of new bonds were issued.

Some $12 billion of bonds backed by investments related to climate change solutions have already been issued internationally according to the Climate Bonds Initiative Issuance List. Growing this “green debt” market will provide institutional investors with opportunities to switch from carbon intensive to low-carbon investments – and fuel the growth of the low-carbon economy.

Nathan Fabian from the Investor Group on Climate Change, pointed to the need for more investment opportunities: “We challenge industry and government to now provide the investment opportunities we need to both deliver secure pensions for our members and address the long-term systemic threat of climate change.” The Investor Group on Climate Change is a Climate Bond Standards Board member.

About Climate Bonds Initiative:

The Climate Bonds Initiative is an investor-focused not-for-profit, promoting large-scale investment in the low-carbon economy. The Climate Bonds Initiative is developing:

• Proposals for governance architecture — regulatory mechanisms, standards, tax policies, green banks — that will support a rapid scaling up of investment.
• Models for engineering investibility in projects and assets necessary for attracting bond financing such as renewable energy, energy efficiency and forestry.

See FAQs at http://climatebonds.net/proposals/standards/faq_standards/

__________________________________________

A launch event is being held in London at 4pm GMT today 24 Nov 2011.

Star speakers are UK Minister for Climate Change, Greg Barker, James Cameron from Climate Change Capital, Christian Kjaer from the European Wind Energy Association, Steve Lambert from National Australia Bank, Nick Robins from HSBC, and Sean Kidney from Climate Bonds.

If you’d like to listen in to the speeches via teleconference, simply email marleen.franke(at)climatebonds.net for details.

__________________________________________

Quotes

“The Climate Bond Initiative is an important project that could help spur the development of green bond markets suitable for institutional investors.

“Efforts to develop scientifically credible, evidence-based standards for what types of projects and technologies are eligible for green bond certification will be an important factor supporting the integrity of these markets. We will closely follow the development of this and other similar projects aiming to address climate change financing, and assess possible investment opportunities that fit with the investment strategy for the Government Pension Fund Global.”

“Despite current circumstances, governments and investors around the world have a prime opportunity to transition to a sustainable, low-carbon economic growth path with the investment and employment benefits that entails. Climate Bond Standards offer a ready-made tool to assist this transition, in California and around the world. We look forward to working with other partners to set practical, integral standards for Climate Bonds.”

“The transition to a low-carbon economy requires a huge range of energy and infrastructure investments. We are concerned that the investments being made are the right ones.

“Climate Bonds Standards will provide a simple tool for investors to screen the opportunitiesthat come before them. Our engagement with the Climate Bond Standards Board is about the investment community taking the lead in identifying appropriate investments.”

“Governments should also support the setting up of a ‘rating agency’ or standard setter to rate and/or certify green projects (such as green bonds or green funds).

“A simple step would be for the OECD member countries to participate in and support investor-driven ratings initiatives such as the Climate Bonds Standards Scheme.

“Governments could also use the eligibility criteria of such schemes as a base reference for preferencing policies around fixed income investments. This would ensure consistency of labelling with international debt issuance: for smaller countries in particular this will support access to internationally focused institutional investors.”

From Della Croce, Kaminker and Stewart (2011), “The Role of Pension Funds in Financing Green Growth Initiatives”, OECD Publishing, Paris.

“Bond finance built America’s highways, Europe’s drains and funded the Allies through two World Wars.  Perhaps now we can raise Climate Bonds to deliver the quick, global transition required to head off runaway climate change.”

“The Climate Bonds Initiative provides a welcome platform to investigate the policy and market framework that will simultaneously raise capital for low carbon solutions and provide attractive risk adjusted returns for investors.”

A cheerier note: China green tax / Australia / new Planetary Stewardship paper

Posted on 16. Nov, 2011 by Sean Kidney in blog

And then you get snippets to cheer you up:

- China’s State Council is studying the introduction of a green tax. They’re also planning to cut emissions the unit of GDP by 16% within 4 years; that’s very ambitious.

- Australia’s Parliament passed carbon tax legislation. And their $10 billion green investment bank (they’re calling it a Clean Energy Finance Corporation) should be through Parliament mid-next year and operational in 2013.

- I read a stimulating new paper on “The Anthropocene: From Global Change to Planetary Stewardship” by a group of the world’s leading climate scientists (e.g. Will Steffen, Hans Joachim Schellnhuber, Katherine Richardson). It’s a robustly drawn picture of where we are in terms of our planetary system, and how quickly moving to effective planetary stewardship is essential to our survival. It reminds us all of why we’re doing what we’re doing; worth a read.

Tough news: global GHG up 5.9% & IEA predicts grim future

Posted on 16. Nov, 2011 by Sean Kidney in blog

Earlier this month two news items rocked me, and I’m still rocking.

The first was the US Government’s CO2 Analysis Centre reporting that global emissions had grown 5.9% in the past year. That’s the highest ever recorded; it was chilling news. A friend called to say he was going ahead with buying land in Canada for his kids; not an option for most people.

The second bit of news was the release of this year’s World Energy Outlook from the International Energy Agency (IEA). It’s a horror. Well, it’s a good report, but there’s some tough news in there. Three snippets:

1. Global primary energy demand will increase by one-third up to 2035, with 90% of the growth in non-OECD economies. Unfortunately we’re still building oil and coal-based systems, which leads the IEA to say “The world is locking itself into an unsustainable energy future which would have far-reaching consequences.”

2. On current projections the use of coal for energy rises 65% by 2035. That is very very bad for emissions growth. Oil demand rises 15% by 2035, with all the net growth coming from transport in emerging economies. What chance going electric?

3. IEA Chief Economist Fatih Birol: “As each year passes without clear signals to drive investment in clean energy, the ‘lock-in’ of high-carbon infrastructure is making it harder and more expensive to meet our energy security and climate goals.”

The IEA cheerily adds: “On planned policies, rising fossil energy use will lead to irreversible and potentially catastrophic climate change.”

I think the IEA might be trying to tell world governments to change their plans.

Clmt Bnds Adv Panel recruits: CPI’s Barbara Buchner, BofML’s Abyd Karmali, Wolfgang Mostert (Venice, London, Copenhagen)

Posted on 15. Nov, 2011 by Sean Kidney in blog

We welcome three new members of Climate Bonds Advisory Panel:

Abyd Karmali, a Managing Director and Global Head of Carbon Markets at Bank of America Merrill Lynch. He serves on Bank of America’s Environmental Council and has worked for two decades on climate change and the carbon markets. He is also President of the Carbon Markets & Investors Association and Chairman of Just Energy, a new Oxfam initiative focused on access to energy.

Dr Barbara Buchner, a Director at the Climate Policy Initiative, Venice. CPI supports policymakers to achieve low carbon growth. Until 2009, Barbara was Senior Energy and Environment Analyst at the International Energy Agency. She is also VP of the European Association of Environmental and Resource Economists and on the Mitigation Board of the Global Network for Climate Solutions.

Wolfgang Mostert, an independent consultant in developing finance frameworks for energy and environment. He has developed solutions and instruments in multiple countries on five continents; and is the author of dozens of reports, including “Publicly-backed Guarantees as Instruments for Promoting Clean Energy” for UNEP-SEFI and “Financing Renewable Energy: Instruments, Strategies, Practice Approaches” for KfW. He was formerly a senior economist at the World Bank and a management consultant for PA Consulting.

Climate Bonds Standard to be launched in London, 24 Nov 4pm, with UK Minister Greg Barker, California Treasurer Bill Lockyer and many more

Posted on 08. Nov, 2011 by Sean Kidney in blog

The Climate Bonds Standard and Certification Scheme will be formally launched in the London at 4pm on 24 November, 2011. The Scheme will provide assurance for investors about the low carbon integrity of bonds for climate change mitigation and adaptation.

Speakers at the launch will be:

Greg Barker MP, Minister of State, UK Department of Energy & Climate Change
Bill Lockyer, California State Treasurer (by video)
Christian Kjaer, CEO European Wind Energy Association
James Cameron, Climate Change Capital
Steve Lambert, GM Capital Markets, National Australia Bank
Nick Robins, HSBC Centre for Climate Change

If you’re in London and would like to attend, please email: melanie.fernandes(at)climatebonds.net