The Japan Bank for International Cooperation (JBIC) announced last month it would invest $636 million in the controversial Vung Ang 2 project, through its Growth Investment Facility.

In response to questions from opposition lawmaker Mizuho Fukushima, seen by Climate Home News, the finance ministry revealed the loan came from a part of the facility targeted at “environmental preservation”.

Launching the facility in May 2018, Japanese finance minister Taro Aso told a meeting of Asian Development Bank governors it would “provide support for a variety of infrastructure projects that contribute to environmental preservation” like public transport and wind power.

However, the bank’s press releases show the “development of quality infrastructure for environmental preservation and sustainable growth” (QI-ESG) fund has supported five gas-fired power projects, compared to two in wind power and one in solar panel manufacturing. A total of 220 billion yen ($2bn) had been allocated to 11 projects as of November 2020, the finance ministry told Fukushima.

A policy presentation dated August 2020 by a senior JBIC official lists gas and high-efficiency coal-fired power generation as eligible for “environmental” funding, despite the fact burning fossil fuels is the main driver of global warming.

South Korea pursues Vietnamese coal plant, drawing international criticism

Vung Ang 2 is a planned 1,200 MW plant in central Vietnam. It will be built next to the existing Vung Ang plant. According to local media, in 2017 local residents blocked coal trucks leading to this plant in protest at the pollution and road damage they cause.

The plant will emit several times more sulphur dioxide, nitrogen oxide and fine particulate matter than would be allowed if it were in Japan, according to analysis from the Center for Research on Energy and Clean Air.

Ayumi Fukakusa, a campaigner from Friends of the Earth Japan, said: “It is, in the first place, unacceptable that JBIC support new coal projects, moreover with the fund which was advertised as ‘green and quality infrastructure'”. She said there was a “double standard”, with Japan pledging to reach net zero emissions domestically by 2050 but financing coal abroad.

JBIC finances its activities partly through issuing bonds, which are guaranteed by the Japanese government, making them a safe investment.

Ulf Erlandsson, a former pension fund manager who set up the Anthropocene Fixed Income Institute as a climate watchdog for international bond markets, called on investors to boycott JBIC.

He told Climate Home News: “We already have argued for JBIC to be excluded from international bond portfolios due to its coal financing. With the information that JBIC explicitly uses funds indicated as ‘ESG’ to provide such funding, we are comfortable putting JBIC in a frontrunner position for the ‘most egregious greenwashing of the decade’ award.”

Zsolt Lengyel, secretary of the Institute for European Energy and Climate Policy, said this “outrageous” case showed a need for more accountability from sovereign issuers to bond buyers.

“Finance streams must show real life impacts including their climate impacts. These must be verifiable and verified independently. This transaction is a proof that we lack such systems. Unless we build them fast, we will cripple the energy transition and be swept away by gargantuan greenwashing,” said Lengyel.

Japan net zero pledge puts coal in the spotlight

Analyst Simon Nicholas, from the Institute for Energy Economics and Financial Analysis, said that Vietnam does not need more coal power. “JBIC is encumbering Vietnam with old power technology at a time when the country is reducing focus on coal and seeing renewable energy installation skyrocket,” he said. “Vietnam installed almost 5GW of utility-scale solar power in 2019 and an astonishing 9GW of rooftop solar in 2020. Wind power is also expanding fast in Vietnam. Such renewable energy growth undermines the rationale for further coal-fired power development.”

Japanese public banks have previously counted coal power projects towards the country’s climate finance pledges. Japan International Cooperation Agency (JICA) loaned $1.4bn to support a coal plant in Bangladesh, claiming this funding was “contributing to the mitigation of climate change” because the plant was less polluting than other coal plants.

Japanese “climate finance” has also backed coal plants in India, Indonesia and Vietnam, Associated Press revealed in 2014. The Japanese foreign ministry at the time defended using climate funds in this way. “We don’t have anything to hide or disguise,” the official said.

A JBIC spokesperson declined to comment.

The post Exclusive: Japan uses ‘environmental’ fund to finance Vietnamese coal plant appeared first on Climate Home News.

Lagarde, a veteran French conservative politician and former head of the International Monetary Fund (IMF), is seeking approval from the EU parliament to head the ECB – the most powerful economic institution in Europe.

Answering questions from members of the EU parliament’s economic and monetary affairs committee, Lagarde suggested the bank should “move towards more green products” and pledged to “continue to look at that and how the ECB can be an actor in this”.

While the amount of carbon assets in the ECB’s portfolio “can’t change overnight”, Lagarde said a “move to a gradual transition to eliminate this type of assets” was “something that needs to be done”.

Natural disaster spike to drive 2020 insurance rate rise

Cautious not to make “premature commitments”, Lagarde told MEPs that the ECB could not exclusively invest its €2.6 trillion portfolio in green bonds “because there is not enough of a market”. However, she added that if the ECB “signals that it will be increasing and will be intensively looking at [green bond investments] then it’s also something for the market to register”.

In written answers to MEPs’ questions last month, Lagarde said that discussions on how central banks and banking supervisors “can contribute to mitigating climate change is at an early stage but should be seen as a priority”.

Lagarde faces a confirmation vote in parliament next month. Addressing MEPs, she reaffirmed that “climate change and environmental risks are mission-critical” to the ECB and should be “at the core” of any institution’s mission.

As head of the IMF, Lagarde campaigned for greater disclosure of the risk climate change poses to the financial system. Under her leadership, the fund was also highly critical of fossil fuel subsidies.

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ECB investment decisions are governed by the long-standing principle of market-neutrality, which proscribes the bank from preferring one sector over another. The former French finance minister suggested a classification system currently being developed by the EU parliament to define what constitutes a green asset, would need to be “superimposed” with market-neutrality.

For Stanislas Jourdan, head of Positive Money Europe, a campaign group that has called for the ECB to do more to promote green finance, market-neutrality is “inconsistent with the ECB’s strategy to shift market participants’ behaviour on sustainability”. He believed moving beyond the market-neutrality approach was “the cornerstone” for greening the bank’s investments.

“It was positively surprising that she would be ready to move on this,” he said. “I think she completely confirmed that she is ready to make headway in the right direction.”

Pierre Monnin, a fellow at the Council on Economic Policy specialising in the environmental and social effects of monetary policy, told Climate Home News Lagarde’s answers to climate questions were “definitely more progressive than the responses that [outgoing ECB president Mario] Draghi use to give on the same issues”.

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Monnin welcomed Lagarde’s indications that she is ready to consider options to decarbonise the ECB’s portfolio. “This could already have an impact on financial markets,” he said.

The private sector is shifting away from products with high climate risks, with investors concerned that the transition of the global economy towards greener markets could leave assets stranded or reduced in value.

A report published on Wednesday by S&P Global Ratings showed the responsible loans market grew dramatically over the last year, jumping from $32 billion in 2018 to a value of $111.5bn as of July 2019.

Lagarde’s comments come after campaigners published a blueprint for a Green New Deal for Europe this week, recommending that the union finance its green transition through bonds issued by the European Investment Bank and by mobilising public banks to issue green bonds.

European Commission president-elect Ursula von der Leyen, who is due to take office on 1 November, previously pledged to develop a “green deal” for Europe in her first 100 days in office. Although details of her proposal remain unclear, Lagarde welcomed the move.

The post European Central Bank should ‘gradually eliminate’ carbon assets: Lagarde appeared first on Climate Home News.

The initiative aims to scale up finance for projects that are resilient to the impacts of climate change and support the transition to a low carbon economy.

Unveiling the pledge in London, former UN climate chief Christiana Figueres said green bonds issuance needed to hit $1 trillion a year by 2020 to support international climate goals.

“When green investments move from business plans into budgets and balance sheets a wealth of opportunity will be unlocked across the value chain,” she said.

Former UN climate chief Christiana Figueres (Photo: UN Photos)

“Organisations committing to the Green Bond Pledge will benefit from these opportunities and help the necessary acceleration of capital flows – before 2020 – to deliver a sustainable future for everyone.”

Figueres is spearheading the campaign as part of her Mission 2020 programme to mobilise short-term action towards the long-term goals of the Paris Agreement.

The green bond pledge

We agree that all infrastructure and capital projects will need to be climate resilient and where relevant, support the reduction of greenhouse gas emissions.

We welcome the role that green bonds can play in helping to achieve the financing of that infrastructure.  

As a signatory to this pledge, we support the rapid growth of a green bonds market, consistent with global best practices that can meet the financing needs we face and issue, whenever applicable, bonds for infrastructure as green bonds.  

We pledge to support this goal by establishing a green bonds strategy that will finance infrastructure and capital projects that meets the challenges of climate change while transforming our community into a competitive, prosperous and productive economy.

Rahul Ghosh of ratings agency Moody’s told the Climate Bonds Initiative (CBI) conference he expects $250 billion of green bonds to be issued in 2018, up from $155bn last year.

The pledge builds on CBI’s work to align the $90tn global bond market with climate goals. It has developed guidelines in several sectors for what counts as “green”. For example, buildings must meet certain energy efficiency standards to qualify.

These standards are not universal and criteria are still evolving. CBI does not endorse any kinds of fossil fuel energy applications, while China counts things like efficiency upgrades to traditional power generation as “green”.

@CFigueres opening the #CBI18 “We need to reach 1 trillion investments in green bonds by 2020 … the decarbonisation of the economy has to happen as soon as possible” @ClimateBonds pic.twitter.com/GJWONh880A

— Chiara Soletti (@ChiaraSoletti) March 20, 2018

Climate and business leaders declared their support for the green bonds pledge.

Figueres’ successor at the UN climate body, Patricia Espinosa, said finance was key to meeting the goals of the Paris Agreement. “Green bonds are among an array of exciting and rapidly growing, new financial instruments that are going to help us get there,” she said.

Indian business mogul Anand Mahindra, who will co-chair a major climate action summit in California this September, agreed: “Greening financial flows now, and over the years and decades to come, can help take climate planning to the next level and in doing so, make a powerful and practical difference to people’s lives.”

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In its first international bond for two decades, Power Finance Corporation (PFC) raised money for projects covering solar and wind power, energy efficiency and electric vehicles.

The projects will be independently verified and certified by the Climate Bonds Initiative (CBI), to ensure they are sustainable, according to the framework document.

PFC chair Rajeev Sharma said: “The funds raised will help promote renewable energy projects across the country and aid in achieving the government’s target of 175GW of installed renewable energy capacity by 2022.”

The Climate Policy Initiative estimates meeting India’s renewable goal will require an extra $189 billion of investment over the period 2016-22.

Institutional investors have been reluctant to invest in renewables in India, perceiving the sector as risky, according to the thinktank.

Green bonds are a way of packaging projects to spread the risk and make a more appealing proposition for banks, pension funds and other big lenders.

Globally, the volume of bonds issued in 2017 that align with CBI standards passed the $100 billion mark this month. India is the ninth biggest national issuer, lagging behind China, France and the US.

PFC is one of India’s biggest non-bank lenders, backing both clean and dirty energy. The proceeds of this bond are ringfenced for growing its green portfolio. CBI will not certify any projects involving coal-fired assets, a spokesperson confirmed.

“The PFC green bond is another indicator of where the Indian market is going,” said Sean Kidney, chief executive of the CBI. “Large public organisations are seeking international investors, are increasingly adopting best practice, issuing certified green bonds and also listing internationally.”

The post India raises $400m green bond to fund renewables drive appeared first on Climate Home News.

With technical support from the World Bank, the Pacific island state aims to raise 100 million Fiji dollars ($50m) to build resilience to climate change and support a shift to 100% renewable energy.

In a statement issued by the bank, Bainimarama touted the move as an example of financial innovation to protect the vulnerable.

“The Fijian people, along with every Pacific islander, live on the front lines of climate change,” Bainimarama said. “The rising seas, changing weather patterns and severe weather events are threatening our development, our security and the Fijian way of life, along with the very existence of some of our low-lying neighbours.

“I have made access to climate finance a key pillar of our upcoming COP23 presidency, and we are proud to set an example to other climate-vulnerable nations by issuing this green bond to fund our work to boost climate resilience across Fiji.”

Fiji is recovering from a direct hit by Cyclone Winston in 2016, the strongest tropical storm recorded in the southern hemisphere. The economic losses were estimated at nearly a third of the country’s GDP – and climate change is predicted to increase the intensity of storms.

Green bonds are a mechanism to raise funds for climate-friendly projects, offering a kind of low-risk package that appeals to institutional investors. A small but emerging sector of the market, “green” bonds are set to reach $134.9 billion in value this year, according to the World Bank.

Profile: The Fijian negotiator to lead a ‘visionary’ COP

The announcement coincided with Fiji hosting a preparatory meeting for next month’s UN climate summit, which Bainimarama will preside over in Bonn, Germany.

In a speech to the “pre-COP” meeting, Bainimarama stressed that parties to the Paris climate agreement must hold themselves to its toughest warming limit.

“We can no longer ignore this (climate) crisis,” he said, as reported by Reuters. “An absolute dedication to meet the 1.5C target is what we need and what we must take to Bonn.”

That is at the higher end of the range of ambition expressed in the Paris, where 195 countries agreed to hold global temperature rise from pre-industrial levels “well below 2C”.

A study last month claimed it was still geophysically possible to stay within 1.5C, albeit politically and technologically challenging. Other analysts are sceptical, given the world has already warmed by 1C and coal power plants are still being built, locking in future carbon emissions.

The Intergovernmental Panel on Climate Change is due to release a special report on the 1.5C threshold next year, summarising the available evidence.

Fiji’s government has campaigned hard at home to enrol the population in the COP23 presidency, hosting community awareness-raising events. On Tuesday, as the pre-COP meeting closed, the Fiji Sun reflected this enthusiasm, running a front page dominated by the words: “Bonn here we come”.

The post Fiji announces $50m ‘climate bond’ ahead of COP23 presidency appeared first on Climate Home News.

It is a remarkable surge since clean energy company Goldwind released the country’s first green bond in July 2015.

The figures compiled by Climate Bonds Initiative and China Central Depository and Clearing Company (CCDC), a state-owned financial institution, reflect a top-level sustainable finance push.

“Developing green bond markets could help us mobilise more private capital into green projects to deal with climate change and environmental challenges,” explained Liu Fan, vice president of CCDC. “We will continue to provide support for sustaining the growth of the green bond market in China.”

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After decades of rapid coal-fuelled development, China is facing smog riots and food insecurity.

As its contribution to a UN climate deal, Beijing has committed to reduce carbon intensity (greenhouse gas emissions for each unit of GDP growth) 60-65% by 2030 from 2005 levels.

The People’s Bank of China estimates between 2 and 4 trillion yuan ($320-640bn) of investment is needed annually to clean up the economy.

Its chief economist Ma Jun said: “This report shows that the green bond market has had a strong start in China, now the world’s largest green bond market. Green bonds already make up 2% of Chinese bonds, whereas globally the figure is less than 0.2%.

“But the potential is tenfold, because 20% of investments in China need to be green to meet our national objectives. So we expect the green bond market to continue to have very strong growth.”

Source: China Green Bond Market 2016 report

International standards for what may be classed as a “green” bond have been under development since 2007. These offer investors assurance that their money is going to projects with a verifiable environmental benefit.

Globally, $81bn worth of green bonds last year were aligned with those standards, including two thirds of the Chinese offerings.

Rules within China are more relaxed, counting retrofits to fossil fuel power stations and “clean” coal as eligible investments. Of the $36.9bn Chinese green bonds released last year, $12bn only met these looser guidelines. But the report said many of these had the potential to be brought into line with international norms.

Sean Kidney, CEO of the Climate Bonds Initiative said Chinese policy was helping to scale up the market. “I’m confident that the exciting domestic policy developments will allow China to continue to be a global leader in both these areas in 2017.”

The post China is taking the green bond market by storm appeared first on Climate Home News.

CEOs of major corporations may not have the answers to these questions now, but by 2017 they will be expected to do so under radical – if voluntary – plans to be announced on Wednesday.

That’s when a G20-mandated panel of experts chaired by Bank of England governor Mark Carney will publish guidelines on how it wants business to tackle climate risk.

It may have a dull name, but the Financial Stability Board’s Task Force on Climate-Related Financial Disclosure could deliver one of the strongest signals yet to business that climate change matters.

“We think companies will pay more attention to this,” an analyst with a major consulting group told Climate Home on Monday, alluding to previous demands for risk disclosure from green groups.

One member of the 31-strong panel confirmed to Climate Home that companies would be asked to use the 2C warming limit outlined in the Paris climate deal as a benchmark.

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Two other panellists – Mike Wilkins from ratings giant S&P and Jon Williams from consultancy PwC – told Bloomberg that development of long term scenarios around 2C would be a recommendation.

That means they’ll need to explain how targeted greenhouse gas cuts will impact their bottom line: a painful reality check for many companies with large oil, gas and coal investments.

Exxon Mobil is already fighting claims from New York’s attorney general it misled investors over the company’s future profits in a carbon-cutting world.

Coal giant Peabody faced a similar suit in 2015, and perhaps for good reason. While these companies make bullish projections, major banks seem less sure of their prospects.

A 2015 report from Barclays said the fossil fuel sector could lose US$34 trillion in revenues by 2040 if countries implement the Paris climate deal, with oil companies accounting for $22.4trn of that total.

Earlier this year, leading fund manager Blackrock issued an equally bleak projection for coal’s future, warning “investors can no longer ignore climate change”.

ICYMI, IEA cuts coal demand forecast for fifth year in a row: https://t.co/MGuaMJFLCl pic.twitter.com/ASs7t8drYg

— Climate Home News (@ClimateHome) December 13, 2016

While the FSB study is firmly under wraps till Wednesday, it’s possible to glean an outline of its key aspects from what task force members have said recently.

Steve Waygood, chief responsible investment officer at Aviva Investors, wants a sector-by-sector approach where physical, liability and transition risk for investors, lenders and insurers are disclosed.

In a report launched at last month’s COP22 UN climate summit, Waygood and Stephanie Maier, Aviva’s head of strategy and research, argue investors urgently need more information.

“We believe asset owners should ask for information on how their asset managers integrate climate risk into their investment process across all asset classes, including security selection, portfolio construction, and portfolio risk management,” they say.

“The world’s institutional investment community has a financial interest, as well as a fiduciary and moral duty to future generations to promote a rapid yet well managed transition to a net zero climate economy.”

Report: Fund managers who ignore climate risk breaching ‘fiduciary duty’

What’s important is that businesses can demonstrate they understand the challenges posed in a world with tougher climate policies and hotter temperatures, says Stephanie Pfeifer.

CEO of the Institutional Investor’s Group on Climate Change, Pfeifer represents 130 companies accounting for $14 trillion and has long championed more rigorous disclosure rules.

“Failing to address climate change presents huge systemic risks to the global economy and financial stability,” she told Climate Home.

“That is why European investors have keenly supported the work of the Task Force on Climate Disclosures and will welcome – and scrutinise – its proposed four-fold framework for standardised forward-looking quantitative and qualitative corporate climate disclosures related to governance, strategy, risk management and targets.”

Risks Pfeifer wants companies to reveal every year as part of their annual accounts include the dangers their supply chains face from extreme weather.

For instance, this year’s sustained drought in Pakistan and parts of India sent cotton prices to a decade high, forcing the countries to import supplies and raising costs for clothing suppliers.

Who says nothing good happened in 2016? US solar power smashes records: https://t.co/oRbKc8IIK9 pic.twitter.com/YYMsKu3u9y

— Climate Home News (@ClimateHome) December 13, 2016

While coming clean doesn’t guarantee businesses will cut their carbon footprint, having these costs detailed on the annual accounts will force boards to “pay more attention” to climate risk, says Paul Simpson, CEO of CDP, an organisation that promotes climate disclosure.

“My view is that many companies do it voluntarily, but that the FSB will catalyse this and assist more to do this,” he said.

“If you’re an investor you want to know the risks and opportunities in a portfolio – people are trying to work out how this will change in the future – and the Paris climate deal is a plausible scenario.”

The impacts of the FSB report will take time to filter through the market: for one thing, there’s a 60-day consultation period ahead of the 2017 G20 meeting where it is to be formally signed off.

There’s also the matter of US president-elect Donald Trump and his dislike for rules that might be perceived as placing an added regulatory burden on business.

But the signs are Germany has made this initiative and climate change more broadly a priority for the July meeting in Hamburg, raising the political stakes further.

And business seems onside. Julian Poulter, CEO of the Asset Owners Disclosure Project – another group focused on climate risk – believes the FSB report will be generally welcomed.

“There comes a point where you realise the writing is on wall… if there is a sense of inevitability that the train is leaving then people will come on board,” he said.

“And the great thing about financial risk is that it’s apolitical in theory… it would have been a great way to look at this issue in the US.”

The post Risky business: G20 panel to order climate stress tests appeared first on Climate Home News.

The coal-guzzling nation surprised many when it revealed the fundraising initiative last week, given its hostility to renewable energy.

It is seeking to raise between €500 million and €1bn in the first quarter of 2017 to finance green energy, transport, farming and forestry initiatives.

As its roadshow kicked off this week, Warsaw-based business newspaper Parkiet reported potential investors were sceptical. One suggested the money could benefit the coal sector, which supplies 85% of the country’s power.

But a government spokesperson told Climate Home: “Under no circumstances the proceeds from the green bonds can be used to buy coal assets.”

An independent review from consultancy Sustainalytics described the framework for using the funds as “robust, credible, and transparent”.

What is a green bond?

A bond is a way of raising finance. A government, bank or corporation borrows money for a fixed period of time. It pays the lender – which could be an individual or institutional investor like a pension fund – a fixed or variable interest rate each year.

The global bond market is worth more than US$100 trillion.

Green bonds are a small but growing sub-sector of the market that channel this source of finance towards environmentally friendly projects. Climate Bonds Initiative counts US$77.5bn worth of labelled green bonds issued in 2016.

Sean Kidney, chief executive of the Climate Bonds Initiative (CBI), admitted he was surprised to see Poland leading on this small and growing sector of the bond market.

It is in a race with France, Luxembourg and Nigeria to release the world’s first sovereign green bond – from a government, as opposed to development bank or company.

CBI develops and monitors standards for labelling bonds as “green” in different sectors, to align with international climate goals.

While the Polish government is not using CBI’s framework, Kidney said it appeared to have “done everything the right way”.

“What we need is to see a pipeline [of green projects] and to be sure it is not just a marketing exercise,” he told Climate Home. “Investors don’t like to invest in something unless there is more of it.”

Report: Court blocks Polish coal plant, in victory for campaigners

Dave Jones, energy analyst at think-tank Sandbag, called on the bank overseeing the share issue to make sure it was used for its stated purpose.

“It is exciting that governments are now becoming interested in green bonds,” he said. “However, green bonds cannot be seen as a mechanism for merely moving money around to refund existing projects. HSBC, as leaders of this process, have a responsibility to ensure this injection of money will fund genuinely new and genuinely green investments in Poland.”

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The post Poland green bond issue will not fund coal, says official appeared first on Climate Home News.

London and Beijing are already collaborating on green finance planning, according to a report released by the Climate Bonds Initiative and supported by the UK’s trade department.

Examples include the development of a joint energy and infrastructure funding platform, while China’s central bank and the Bank of England are leading a G20 study into green finance guidelines.

“London is a particularly suitable location for Chinese issuers to issue green bonds on the international markets,” said the report.

Already more than half of offshore Renminbi trades take place in the UK, and in May a RMB 3 billion (£300 million) sovereign bond – the first to be issued outside of China – was released in London.

This was the “first of many” such links between the two countries said Simon Kirby MP, Economic Secretary to the UK Treasury, speaking at the report’s launch at London’s Guildhall.

“This government and the Treasury continue to see green finance as a top priority, and we need to get it absolutely right,” he said.

Analysts at the New Climate Economy say $100 trillion is projected to be spent on global infrastructure projects by 2030, with the bulk expected to come from the private sector. For the world to have a chance of avoiding dangerous levels of warming above 2C, the energy mix must radically shift away from coal, oil and gas this decade.

Despite continued uncertainty over government policy in the wake of the 23 June Brexit vote, Kirby stressed officials were focused on ensuring London’s “green glow grows brighter”.

“What I want to promise is that this government will be backing our financial sector and will go further and faster to step up efforts to halt climate change in its tracks,” he said.

“A lot has changed [since the Brexit vote] but the commitment in the UK to greener capital markets has been enhanced,” said Sir Roger Gifford, country head of SEB UK and chair of London’s Green Finance Initiative.

Nigeria, Canada and India are other potential partners for the UK on green finance, he said.

Brazil – which will launch a green investment plan in December – and Indonesia are other leading economies that have plans to clean up their infrastructure, said Sean Kidney, head of the London-based Climate Bonds Initiative.

“We need activist global leadership between China and the UK,” he added.

The post UK pitches China for climate-friendly finance trillions appeared first on Climate Home News.

They could also play a paramount role in financing sustainable development. The challenge is to figure out ways in which we can tap into this pool to raise the financial capital we need to create a sustainable economy for the only planet we have; where natural capital is preserved, restored and enhanced rather than destroyed.

There are some bonds that bear a ‘green promise’ – ‘green bonds’– which are fixed-income securities that raise capital for a company or project with specific environmental benefits in mind.

Green bonds are attractively simple structures, offering investors additional disclosure and accountability and providing a means to ring-fence funds for investments in sustainable agriculture, energy-efficient buildings, clean energy, industry and transportation, water and waste, even biodiversity conservation, to name just a few investment fields.

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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 reduce the cost of debt for projects that drive the transition towards a sustainable economy.

Moreover, the discussion around green standards has a chance to influence the wider market as investors and issuers pay more attention to environmental, social and governance issues.

As we seek proactive solutions to the environmental challenges we face, green bonds and their associated standards can play an important role for both the finance and conservation communities.

Report: Wind company raises $300m in first Chinese green bond

But not everything that is labelled as ‘green’ actually fulfils this promise. Several issuances in the last two years have been highly controversial.

There is a risk of ‘greenwashing’, a charge levied by some NGOs against a €2.5 billion bond issued by Engie (formerly GDF Suez) in May 2014 (see BankTrack letter below).

NGO letter to Green Bond Principles

This is why WWF believes that robust, credible, fully developed and widely accepted industry standards for green bonds are urgently needed.

Only a bond for which the issuer can demonstrate measurable environmental benefits, certified by an independent party according to such standards, should qualify as a green bond. Bonds which do not meet these standards could undermine the credibility of the entire green bond market.

WWF recognises that increased transparency represents an additional effort for the issuer but we believe that this is a ‘cost’ well worth incurring for the benefit of reduced risk. In a fully functioning market, such added value will be reflected in premiums and prices.

Report: Green Climate Fund partners condemned for fossil fuel funding

Global private sector sustainability standards and certification systems have been developed in many sectors (eg FSC for forestry; MSC for fisheries) and are now reaching maturity.

We believe that the same can be done for the bond market, drawing on existing standards while taking into account scientific evidence. Research we have commissioned shows it is possible.

One of the critical success factors will be greater transparency, in particular stricter requirements and better sector-specific methodological guidance on voluntary disclosure of environmental information to the public.

Better information is needed to allow investors to take a view. Issuers should be required to provide data annually and at maturity of the bond to demonstrate the environmental impact of its underlying assets over its entire lifetime, as well as an analysis of budgeted vs. actual environmental benefits according to the appropriate key-performance metrics.

Collective action is needed to develop such standards, building on existing initiatives such as the Green Bond Principles and the Climate Bonds Initiative.

Report: Bloomberg climate taskforce to target financial filings

The time is ripe for change: Mark Carney’s call to “break the tragedy of the horizon” clearly shows that climate change has become a defining issue for financial stability, due to physical risk, liability risk and transition risk.

Green bonds, if designed properly, could help address these risks: they can channel investment into ecologically sound infrastructure to mitigate physical risks. Their use-of-proceeds provides information about the underlying assets to help investors assess climate-related business or liability risks.

Green bonds can also finance the transition towards a lower-carbon economy: long-term investments can also help investors mitigate policy, technology and physical risks, which could prompt a reassessment of the value of a large range of assets as costs and opportunities become apparent.

Green bonds can help break the tragedy of the horizon by connecting present and future generations. This is also WWF’s mission and imperative: to build a future where people live in harmony with nature.

Pascal Canfin is head of WWF France

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Demand for clean energy, transport and infrastructure solutions in developing countries is soaring, the head of the World Bank-affiliated Climate Investment Funds (CIFs) told Climate Home.

Since last December’s UN climate deal in Paris the CIFs had “more countries expressing interest than we could accommodate,” said Mafalda Duarte.

Launched in 2009 and backed by five of the world’s largest development banks, the $8.3 billion CIFs support projects to protect forests and boost clean technology, renewables and climate resilience.

But with major donor countries unwilling to dig deeper and an estimated $3.5 trillion needed by 2030 to implement climate plans in developing countries, banks are looking elsewhere for support.

“We have started to have discussions with some pension funds,” said Duarte.

“They are quite risk averse, but what they have told me is they do want to expose themselves more but are having a hard time finding the right [investment] vehicles.”

Report: Prince Charles urges ‘ethical investment’ of pension funds
Report: Bloomberg climate risk initiative targets secret polluters

Long a target for climate campaigners who have urged them to ditch fossil fuels holdings, the world’s pension fund managers sit on assets worth $35.4 trillion, according to 2015 figures.

In theory developing countries are a ripe opportunity for green-tinged investors.

For the world to avoid dangerous levels of global warming, experts say new cities across Africa, Asia and Latin America must maximise efficiency and minimise energy and water use.

With the global population expected to grow 2 billion by 2050, roads, railways, ports, waste and telecommunication facilities valued at $90 trillion need to be constructed in coming decades.

But weak governance and a lack of policy stability make many countries too volatile for pension managers, who look for stable investments that can pay dividends for decades.

Analysis: City slickers eye up growing climate finance sector

According to one investment analyst, specialist emerging markets infrastructure funds “have a lot of dry powder” due to a dearth of bankable projects.

Given many institutional investors already backing the fast-growing green bond market, Duarte said the CIFs are “working on a vehicle” to allow them to invest in higher risk developing countries.

Kenya, Egypt, Morocco and South Africa were all calling for more support to develop their clean energy plans, but needed easier access to low cost capital, said Duarte.

The projected growth of the Green Climate Fund, which was chosen by the UN to “serve” last year’s Paris climate deal, means the CIFs need to be more “creative” over funding sources, she added.

“How do we go on this mission without going back to [donor] countries and ask for big amounts of public finance?

“I think that’s the direction we are moving towards. We are looking at how to maximise out use of assets, and structure vehicles that will become self-sustaining.”

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Funds raised will trim the carbon footprint of products like the iPad (Flickr/Hiroyuki Takeda)

By Megan Darby

Apple has issued US$1.5 billion worth of green bonds to raise money for climate-friendly initiatives.

Part of a $12bn bond sale, the green-labelled tranche will go to develop renewable energy and ways of conserving natural resources.

The US technology giant said independent auditors will verify their climate credentials.

The Climate Bonds Initiative, which promotes and monitors the small but growing market for green debt finance, estimates $42bn worth was issued worldwide in 2015.

Last year saw the first offers in China, from wind power firm Goldwind, and India, from Yes Bank.

Analysis: Could green bonds offer a home for capital fleeing fossil fuels?

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Green finance initiative will target Bangladesh’s export-focused clothing industry (Flickr/jankie)

By Megan Darby

The central bank of Bangladesh is launching a US$200 million fund to green the country’s clothing factories.

Governor Atiur Rahman trailed the initiative at a sustainable development conference in Dhaka last week.

The goal was “transforming Bangladesh into a fully fledged ‘green’ nation,” he told delegates, to stay competitive amid slowing global trade.

Following financial incentives to light Bangladeshi homes with solar power, it represents a scaling up of the bank’s green ambitions.

While it is not yet clear how, the fund is to shrink the carbon footprint of Bangladesh’s textile industry – the second largest in the world – and leather production.

A development economist by background, Rahman has used his role at Bangladesh Bank since 2009 to promote sustainable growth.

“He has been pushing green banking down the throats of the commercial banking sector in Bangladesh,” said climate expert Saleemul Huq. “It has been a mixed success – not everybody has taken it up.”

But he says the results are visible in a rapid roll-out of solar panels to rural homes, made possible by financial innovation.

Podcast: Bangladeshi expert talks rich-poor tensions and 1.5C

In 2010, the bank started offering cut-rate loans to financial institutions lending to green projects. That trickled down to make solar systems affordable to poor households.

The International Institute for Environment and Development, where Huq is a senior fellow, evaluated the impact in a report published last August.

Combined with improvements in after-sale service, researchers found the low cost finance had accelerated take-up of solar home systems, with 3 million installed by 2014.

“People have been buying them like crazy,” said Huq. For lower weekly instalments than the cost of kerosene, families could get electric light and perhaps a radio or TV.

“The demand for lighting comes from children telling their parents they need lighting to do their homework at night. That is really the driving force.”

Report: Bangladesh coal power plans stall

Around a third of the country’s 170 million population lacks electric power. As the government struggles to push through coal power plants, solar is key to a goal of universal access by 2021.

Rahman signalled Bangladesh Bank is preparing to expand the low carbon push to other sectors. “These are only small initial steps,” he said, “with lots more to do in our intended countrywide transition to environmentally sustainable output practices and lifestyles.”

It may issue a green bond to raise money for such projects, he added – a suggestion welcomed by the Climate Bonds Initiative.

“We look forward to Dr. Atiur and his pioneering central bank to show us its next steps in the transition,” wrote the think tank’s CEO Sean Kidney in a blog. “Bravo, Bangladesh!”

The post Bangladesh Bank launches $200m ‘green transformation fund’ appeared first on Climate Home News.

(Flickr/Mariano Mantel)

By Ed King

“Green is a buzzword but it is set to become everyday business.”

US investment banker Spencer Lake does not come across as a treehugger, but he’s in the vanguard of a growing band of city slickers espousing the potential of the climate-friendly growth.

HSBC’s global head of capital financing is speaking at London’s Mansion House on Thursday – a short hop from the Bank of England – at the launch of a UN-backed green finance report.

He’s not alone. Under the gaze of the Lord Mayor’s extravagant 17th and 18th century art collection and army of gold-gilt statues, bankers controlling millions agreed with his sentiments.

Elizabeth Corley, CEO of Allianz Global Investors, believes last month’s UN climate pact in Paris had sent a strong message to global investors.

“It is an absolute tipping point. Paris moved green finance from the peripheral to something that is core to capital markets around the world,” she says.

Harriet Baldwin, economic secretary to HM Treasury – not known for its climate leanings – talks of the “real momentum” in the green finance sector and the UK’s desire to play a “strategic role”.

“This matters to pandas and polar bears but we are doing it for our shareholders,” says Steve Waygood, chief responsible investment officer for Aviva.

“We believe risks like climate change are reducing the amount of insurance business we can underwrite.”

Fund managers: There’s no dodging carbon risk after Paris

Clean energy finance appears in rude health, judging by new data from Bloomberg, which suggests wind, solar and other green technologies received US$329 billion investment in 2015.

That’s a 4% rise on 2014 figures, but a small chunk of the $90 trillion the New Climate Economy think tank predicts will be invested in energy, land use and cities in the next 15 years.

Unless these investments are climate friendly, the NCE says, “it is near certain that global average warming will exceed 2C”. In Paris, governments agreed to keep temperature rise “well below” that threshold.

That means backing renewables over coal, building cities with effective mass transit systems and encouraging farming that reduces carbon emissions and builds resilience against extreme weather.

The International Energy Agency says $53 trillion needs to be invested in energy alone to avoid dangerous levels of global warming.

According to the UN, between $5-7 trillion a year is needed to ensure the 17 newly agreed Sustainable Development Goals are implemented across the next 15 years.

To emphasise the demand, the UN says developing countries are running an annual investment gap of $2.5 trillion, while major economies face a $10 trillion annual investment deficit by 2020.

Report: China poised for a boom in green bonds

China is a world leader in backing renewables – $110 billion in 2015 – but Ma Jun, chief economist of the People’s Bank of China warns green investments need to hit up to $200 billion a year.

“That is a conservative estimate,” he adds, speaking via video link. “A recent estimate had this nearer to 4 trillion RMB [around $300 billion].”

He cites choking smogs, toxic rivers and polluted farmlands as reasons why the country needs to attract more discerning investors.

“15% of green investments are covered by the budget but 85% must come from the private sector.”

Green finance will form part of the next Five Year Plan, due in March, while the government is also drafting guidance on mandatory disclosure for companies.

This is vital, says Ma, “so markets can identify what is green and what is less green.”

Report: Michael Bloomberg to lead FSB climate risk task force

Transparency, disclosure and regular reporting is a major theme for investors and central banks, says Andrew Bailey, deputy governor at the Bank of England.

The Bank caused waves in 2014 when its chief Mark Carney warned of the risks posed by companies holding large amounts of fossil fuel assets in a world worried about climate change.

Carney told a World Bank meeting the “vast majority of reserves are unburnable” if the governments were serious about limiting warming to below 2C.

The risks of financial crisis from the permanent impairment of oil, gas and coal assets are “very real to us” said Bailey, adding this was a “natural bridge to green finance.”

Key to changing business and city investment models was more disclosure.

The Bank is “very supportive” of a panel led by Michael Bloomberg to draft voluntary reporting standards on climate and environmental risks, says Bailey.

The hope is this that including water use, fossil fuel holdings and other factors under one common reporting umbrella will make it easier for investors to assess a company’s risk to environmental laws.

“We are moving in a world where investment managers are demanding more information,” says Nikhil Rathi, CEO of the London Stock Exchange Group.

More information could help investors make wise choices, but it’s also likely to offer companies a better sense of their long-term strategies, says Waygood.

Aviva recently placed 40 coal companies on notice that it would ditch its shares in their businesses unless they could prove they were trying to slash their carbon footprint.

“There is a dearth of understanding globally on how these issues can affect cashflow and pensions,” he adds.

Beyond oil: Petropower Saudi Arabia signals end of era

Regulatory and legal risks of fossil fuel investments may encourage some investors to exclude these holdings from future portfolios, but transparency may make other proposals more attractive.

“What has changed is we are now looking for opportunities to ‘include’ types of investments,” says Allianz’s Corley.

“We have moved from a policy of exclusion which could make it impossible for some companies to modernise and invest in lower carbon infrastructure… to ‘inclusion’.”

With oil and coal stocks in turmoil and the global economy shuddering, it’s perhaps a reflection of the growing appetite investors have for safer harbours.

The spectrum for green investments is a now a “50 shades of green”, she says. This ranges from helping CO2 intensives to clean up at one end to investing in renewables at the other.

These looser interpretations of what’s good for the environment have made many sceptical of the nascent but fast-growing green bonds market.

$41.8bn were issued in 2015, but some were of questionable quality. Climate Home revealed one $94 million bond issue ended up supporting a multi-storey car park in Massachusetts.

It’s a question of transparency and simplicity says HSBC’s Lake. Offering clarity on the carbon content and environmental impact of all types of investments is likely to be a huge step.

“We don’t want to create a new paradigm. The reality is we want to simplify this,” he says.

Speaking from Nairobi, UN Environment Programme chief Achim Steiner – whose organisation has invested heavily in research into green finance trends – says the world is on the cusp of a new financial era.

“The centre of gravity is shifting… stock markets committed to sustainability doubled in 2015,” he says.

“It is the beginning of a race to the top among leading finance centres. We are at the cutting edge of green innovation.”

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(Pic: UNFCCC/Flickr)

By Gerard Wynn in Paris

High-carbon companies may lose the support of major, long-term investors, if they push back against growing pressures to disclose their carbon emissions, and to change their boards and corporate direction.

To date, the most visible investor impact of climate change has been a fossil fuel divestment movement, targeting coal stocks. But a bigger, quieter shift may have started, away from less engaged polluters, towards lower carbon, and more “climate aware” higher carbon, companies.

The question is how quick the shift is.

Businesses, investors and regulators are gathered in Paris on the side lines of a UN conference, where countries are meant to reach a new global climate agreement this week.

Investors meeting in Paris claim that their attitude to climate risk is changing. They point to the following pressures.

IN DEPTH: Breaking energy and carbon analysis

In a worst-case scenario, the most polluting companies might see a vicious cycle of exiting responsible investors, leading to higher costs and lower returns, with the opposite trend in green technologies.

What is causing the change?

First, there is growing pressure for both companies and investors to measure their carbon footprints. Notably, the global Financial Stability Board (FSB) last week said it would standardise rules for companies to report their carbon emissions and climate exposure. While the FSB code would be voluntary, it would be effectively mandatory if widely adopted.

Regulators are motivated to head off a climate crisis, and avoid the kind of mispricing of mortgage assets that led to the global financial crisis.

The FSB follows France, which earlier this year passing an “Energy Transition Law” rule, requiring companies, their lenders and investors, to disclose climate risks. Sweden’s minister for financial markets said in Paris last week his country would legislate, too, if the private sector failed to regulate itself.

Second, there are new tools in the market for investors to re-allocate capital, where the classic example are green bonds. These are a pin-prick in the global bond market to date, with $66-532 billion of issued green bonds outstanding, depending on how these are defined, compared with a global bond market worth tens of trillions. Nevertheless, the green bond market is growing rapidly.

Third, investors are increasingly sharing best practice, through groups such as the Carbon Disclosure Project, the Institutional Investor Group on Climate Change (IIGCC) and Ceres.

It seems that, when it comes to climate change, investors are motivated by a combination of profit maximisation and fear.

Regarding profit maximisation, a low-carbon transition and declining cost curve for renewables may imply a sweeping reallocation of resources and technological revolution, with all the opportunities that may bring. Regarding fear, if one day polluting companies are held liable for contributing to climate change, so might their investors. The New York Attorney-General’s investigation of whether Exxon misled investors shows why considering climate risk will become a part of standard fiduciary responsibility.

So much for the drivers. What are investors doing?

First there is a divestment movement which this year drew two of the world’s biggest asset owners. In May, the French insurance firm, AXA, which has 1.3 trillion euros of assets, decided to divest from 500 million euros worth of coal-related assets. And in June, Norway’s parliament agree that the country’s $900 billion sovereign wealth fund should divest from coal.

Divestment got a further push in September this year when the state of California passed its “Investing with Values and Responsibility” ruling, requiring state public pension funds to sell coal miners.

Second, investors are pressuring company boards. Two of the biggest U.S. pension funds, CalPERS and CalSTRS, have coordinated a campaign to request “proxy access” rights to nominate board members.

Measurable impacts

The idea is either for shareholders to nominate their own executives, to secure more “climate confident boards” in the words of CalSTRS CEO Jack Ehnes in Paris last week, or more likely, exert greater influence on a company’s own nominations.

And third, by measuring the carbon emissions of their portfolios, they are increasingly equipped to act, by exiting the worst performers.

An example of the trend is the growing list of investors signed up to the “Montreal Pledge”, to measure and disclose annually their portfolio carbon footprint, and the related Portfolio Decarbonisation Coalition, which aims to eliminate carbon emission from a select portion of managed assets.

For sure, there are limits to the impacts of these new trends.

In particular, institutional investors tend to focus on liquid assets such as bonds and equities, rather than infrastructure. But many low-carbon projects, in efficiency and renewable energy, are capital-intensive infrastructure projects which need upfront cash.

Securing all of the trillions need to finance a low-carbon transition may require greater political focus, abandonment of fossil fuel subsidies and the introduction of carbon prices, as well as an ambitious Paris deal – a big ask for governments this week.

The post In Paris, polluters in focus as investors shun climate risk appeared first on Climate Home News.

Green bonds can support low carbon infrastructure like railways (Pic: Flickr/Jon Curnow)

By Megan Darby

The world’s largest investor has signed up to promote green bonds, as part of a push to get money flowing into climate-friendly projects.

BlackRock, which manages US$4.5 trillion worth of assets, joins the likes of HSBC, Barclays and Citi as a partner to the Climate Bonds Initiative.

“There is an increasing demand for innovative, sustainable investment solutions to address climate, carbon and environmental issues,” said Kevin Holt, expert at the asset management firm.

“Green and climate-designated bonds have the potential to play an increasingly important role as investors attempt to meet these demands.”

Globally, the bond market is worth US$100 trillion. Bonds can be used to raise money for any kind of project and offer investors steady, predictable returns over a set period.

At present, a tiny fraction of that goes into low carbon or climate-resilient infrastructure. In a July report, Climate Bonds counted $600 billion worth of outstanding climate-friendly bonds, of which around one dollar in ten was labelled “green”.

Since then, China has got in on the act, with offers from renewable energy company Goldwind and  the Agricultural Bank of China revving up the market.

Report: “Green” bond to fund multi-storey car park
Report: Wind company raises $300m in first Chinese green bond

The Climate Bonds initiative aims to help mobilise the scale of finance needed to meet international climate goals. It also brings together scientific experts to set environmental integrity standards for the market.

BlackRock brings “a deep understanding of investor needs” to that effort, said Climate Bonds chief Sean Kidney.

“This will help that market continue to grow while ensuring capital flows to investments that make a real difference.”

The involvement of such a big player is a further sign that climate finance is entering the mainstream.

It is the other side of the coin to divestment from coal, oil and gas companies – a campaign that has gained traction in recent years.

Several charities, universities and local authorities have ditched fossil fuel stocks in protest at their incompatibility with efforts to curb global warming to 2C.

Meanwhile, financial experts are increasingly concerned that climate action could hit the value of dirty energy majors.

Climate Home revealed last week the International Monetary Fund is to start factoring that risk into its macroeconomic forecasts. That could show up the vulnerability of major oil exporters like Saudi Arabia, for example.

BlackRock, which has a fund that excludes tobacco and controversial weapons, is poised to extend that ban to fossil fuels.

It might also rule out fossil fuels from other funds, David Graham of the firm’s charities division told Environmental Finance, subject to investor consultation. “So far, the reaction has been positive,” he said.

The post BlackRock partners with Climate Bonds Initiative appeared first on Climate Home News.

Green bond will be used to support Chinese wind power business (Pic: Flickr/Land Rover Our Planet)

By Megan Darby

Chinese wind power company Goldwind has raised US$300 million in the country’s first green bond issue.

The financial product was nearly five times oversubscribed, with $1.4 billion worth of demand.

It will help fund the world’s highest emitting nation on its course to get 20% of energy from non-fossil fuel sources by 2030.

A taskforce led by the People’s Bank of China estimates the country needs US$320 billion a year 2016-2020 to fund environmental goals in its five-year plan, Reuters reported.

These included cleaning up smoggy cities and drinking water, as well as curbing greenhouse gas emissions.

Report: China poised for a boom in green bonds

Bonds are a stable, predictable type of investment attractive to institutions like pension funds and insurers. Globally, the bond market is worth some $100 trillion a year.

The “green” label is a recent development aimed at directing funds towards sustainable projects. In this case, DNV GL has verified Goldwind’s green credentials.

Following a growth spurt, the green bond market got off to a slow start in 2015, latest figures from the Climate Bonds Initiative show.

But Sean Kidney, head of the initiative, expressed a “cautious optimism” things would pick up, driven by interest from emerging markets including India and Brazil.

“There is no doubt that China is the most exciting story,” he told RTCC, with its central bank having drawn up guidelines for issuing green bonds.

The post Wind company raises $300m in first Chinese green bond appeared first on Climate Home News.

Beijing is ready to start raising cash for clean energy from the bond market (Pic: Flickr/Konrad)

By Megan Darby

China is on the brink of a major green bonds push to finance clean energy and low carbon buildings.

By the end of 2015, the country is expected to issue US$4-5 billion worth of the kind of stable, predictable debt institutional investors like.

That is the view of the Climate Bonds Initiative, an organisation seeking to mobilise the US$100 trillion-a-year global bond market to tackle climate change.

“There is no doubt that China is the most exciting story,” the initiative’s chief Sean Kidney told RTCC.

He was speaking ahead of Wednesday’s State of the Market report launch in Frankfurt.

It reveals a slow start to 2015 for bonds labelled “green” but bigger growth in unlabelled bonds that support climate-friendly activities, such as rail infrastructure.

That broader category has grown 20% since last year to nearly US$600 billion, of which 70% was in low carbon transport.

What is a green bond?

A bond is a way of raising finance. A government, bank or corporation borrows money for a fixed period of time. It pays the lender – which could be an individual or institutional investor like a pension fund – a fixed or variable interest rate each year.

The global bond market is worth more than US$100 trillion.

Green bonds are a relatively new phenomenon, created to channel this source of finance towards environmentally friendly projects.

“The fact they have increased rail bonds is fantastic news,” said Kidney. “The problem is, it pales into insignificance compared to where we need to be.

“We need to be at the trillion dollar level to feel like we are making serious progress on climate change.”

The CBI promotes classification of climate-friendly bonds to help investors channel their cash into projects with a genuine climate benefit.

That either means cutting greenhouse gas emissions or making communities more resilient to the impacts of global warming.

Blog: Could green bonds offer a home for capital fleeing fossil fuels?

At $18 billion, the volume of labelled green bonds issued in 2015 to date is about half what Kidney was hoping for.

But developments in emerging markets “fill us with cautious optimism for the coming year,” he said.

India has seen three green bonds come to market and CBI is aware of eight more in the pipeline. Food producer BRF was first for Brazil, issuing €500m worth of notes in May.

In April, China’s central bank published policy proposals to support the growing financial trend. These included technical standards, tax incentives and measures to fast-track “green” issuances.

That means banks are on the verge of raising cash to plough into sectors like renewable energy, nuclear and low carbon buildings.

The post China poised for a boom in green bonds appeared first on Climate Home News.

Investment in railways reduces demand for more-polluting car and plane travel (Pic: Flickr/Jon Curnow)

By Megan Darby

After the Berlin Wall fell in 1989, it was “German Unity” bonds that met a multi-billion Deutschmark need for investment in East Germany.

Japan used bonds to finance – for better or worse – a fleet of nuclear power plants in the 1960s and 1970s.

Today, says Sean Kidney, governments face a comparable challenge: “We need to see a green infrastructure revolution.”

The Climate Bonds Initiative chief argues policymakers can mobilise finance through the bond markets without splashing taxpayers’ cash.

In 2014 banks and corporations issued US$36.6 billion of bonds labelled “green”, the CBI estimates.

Kidney hopes to see that almost triple in 2015, as countries push for a global climate deal in Paris this December.

“We need a hundred billion in 2015 to go to the Paris COP and get the attention of our governments,” he says at a forum in London.

Interview: Is this India’s greenest bank?

That is still a fraction of the US$100 trillion value of the global bond market, but would demonstrate a demand for climate-friendly investment.

The year has started slowly, with just US$8.7 billion issued in the first quarter, but shows an increasingly diverse market.

India’s first green bond – US$250 million for renewable energy projects – has got people excited about the potential to crack Asia’s emerging markets. CBI expects to see China getting in on the act mid-year.

Bond issuers can be governments, multi-national banks or corporations. Buyers can be pension, insurance or sovereign wealth funds – any institution that wants a safe place to put its money, with fixed returns.

The projects should lock in lower carbon emissions: energy efficient buildings, public transport and clean energy.

Some US$45 trillion of investment is needed 2015-2030 in energy infrastructure alone, according to the seminal New Climate Economy report.

And developed countries are aiming to mobilise US$100 billion a year by 2020 to support climate action in poor parts of the world.

It has been suggested the UN’s flagship Green Climate Fund could issue bonds towards that goal. Experts say that is not immediately viable, but the fund could act as a matchmaker for between other institutions and suitable projects.

Top of the agenda

Abigail Herron, head of responsible investment at Aviva, says plans to issue a green bond are often top of the agenda now when she meets companies.

Green bonds are attractive to an investment community increasingly concerned fossil fuel assets could be stranded by climate action.

Churches, universities and cities are pulling finance out of coal, oil and gas companies to stigmatise those profiting from climate damage.

While divestment is not feasible for institutional investors, they can put pressure on firms to move away from the most polluting projects.

Aviva is a member of the “Aiming for A” coalition that filed a successful shareholder resolution compelling BP to reveal its exposure to climate risk.

At the AGM last month, BP chairman Carl-Henric Svanberg opened with a 10-minute speech on climate change, followed by an hour’s debate on the amendment.

“I have never been to an AGM where the board has had such a grilling,” says Herron. The resolution was passed with an “unprecedented” 98% of shareholders in favour.

While the move focused on disclosure, Herron says “there was an unspoken expectation that action would follow. It was the first wave of a campaign.”

Report: Pension funds failing to manage climate risk could get sued

Not all institutional investors are so progressive, however. The Asset Owners Disclosure Project (AODP) revealed last month 85% of the 500 biggest funds are doing little or nothing to manage climate risk.

Together with Client Earth, they are preparing to take legal action against a pension fund that refuses to engage with the issue.

Tesco, Rolls Royce and the UK Parliament are among the UK pension schemes to get AODP’s lowest possible rating, and could be sued for failing to protect their members’ retirement pots.

“That adds a little bit of spice to the equation,” says Mike Clark of Russell Investments. “Asset owners are increasingly interested in where the capital is flowing.”

The post Could green bonds offer a home for capital fleeing fossil fuels? appeared first on Climate Home News.

India aims to install 100GW of solar power by 2022 (Pic: VM2827/Flickr)

By Megan Darby

Yes Bank is issuing India’s first green bond as part of a programme to finance 5 gigawatts (GW) worth of renewable energy projects by 2019.

India’s fourth largest private bank hopes to raise at least 500 crore rupees (US$80 million) for solar, wind, biomass and small hydro power projects. Depending on demand, that could rise to US$250 million.

Rana Kapoor, chief executive of Yes Bank, said the launch “cements our status as a pioneer in green energy financing in India”.

Renewable energy would create jobs, cut poverty and sustain socioeconomic development, he added.

The bond represents a tiny fraction of the US$100 billion the Indian government estimates is needed for renewables over the next five years.

But it is a step towards unlocking private finance for India’s renewable energy boom, which experts say will be critical to meet ambitious targets.

Report: India’s solar targets ‘ambitious but achievable’ – UN climate envoy

Narendra Modi has pledged to bring electricity to some 400 million citizens without by 2019, when his term as prime minister ends.

In line with that goal, the government is aiming to have 100GW of solar power installed by 2022 and 60GW of wind power.

The country has 249GW of installed electric capacity, mostly sourced from coal power plants.

Gireesh Shrimali, fellow at the Climate Policy Initiative, said the cost of finance is “the single biggest challenge” to scaling up renewables.

Unfavourable debt terms add 24-32% to the cost of renewable energy projects in India compared to the US, according to Shrimali’s analysis.

The Yes Bank bond pays out 8.85% interest a year to investors. The European Investment Bank is paying out just 2.5% on a US$1 billion “climate awareness” bond issued last October.

Report: Obama and Modi promise to back strong UN climate pact

The Council on Energy, Environment and Water (CEEW) is urging the government to adopt ambitious renewable energy targets in its contribution to a global climate deal.

Countries are set to reveal emissions cutting targets in the coming months, which will form the basis of a climate agreement in Paris this December.

India could generate 1,000 TWh from renewables by 2030, the think-tank estimated, more than the output from all sources in 2013/14.

But with a price tag of US$715 billion, this could make energy unaffordable to “a large section” of the population, CEEW warned.

Technology partnerships and financial mechanisms are “imperative” to bring the costs down, the report found.

The post Yes Bank issues India’s first green bond appeared first on Climate Home News.

Green or greenwash? University garage will have Bronze environmental rating
(Pic: Flickr/magro_kr)

By Megan Darby

A US public authority plans to build a multi-storey car park with money raised through a “green bond”.

The Massachusetts State College Building Authority issued a US$94 million bond in December to fund “environmentally sustainable” projects on university campuses.

These include a design centre, science building and – controversially – a garage for 725 cars.

Sean Kidney, CEO of the Climate Bonds Initiative, branded the plans “pathetic” and “not good enough”.

The Climate Bonds Initiative acts as both cheerleader and watchdog for the growing green bond market.

It aims to get the US$80 trillion global bond market flowing towards solutions to climate change. That means assuring institutional investors like pension funds that green projects can offer the safe, fixed returns they are looking for.

It is also working with scientists on standards to make sure bonds labelled “green” really cut greenhouse gas emissions.

REPORT: Climate-friendly bonds worth US$500m

Some US$36.6 billion worth of green bonds were issued in 2014, the think-tank estimates, three times more than the previous year.

“All our discussions about green bonds and climate bonds are about how we shift capital fast,” Kidney told RTCC.

“We are not going to be prissy about getting everything exactly right, because it is better to be moving than not. But while we are moving, we need to have a science-based discussion about what is a good investment.”

He is “not convinced” the Massachusetts project is up to scratch.

The building authority, which is responsible for nine state universities and 15 community colleges, has six criteria for describing a project as “green”.

Energy and water use are on the list, but notably, emissions performance is not – the most relevant measure of climate change impact.

Design standards

More tangibly, the authority promised to design the new buildings to certifiable standards. These look “sort of pale green”, said Kidney.

The main buildings will be done up to a minimum “Silver” level under LEED, the US Green Building Council’s certification system.

There is mixed evidence on the efficacy of this standard in cutting emissions.

A 2013 study found that while Gold certified buildings in New York outperformed others 20%, Silver buildings actually did worse than average.

More recent analysis by the US Green Building Council of data from Washington DC showed LEED buildings used on average 11% less electricity than non-LEED buildings.

Plans for a new car park at Salem State University

Garages are not covered by LEED at all. The four and a half storey car park proposed for Salem State University is to be designed to at least Bronze standard in the recently launched Green Garage Certification.

Kidney expressed scepticism any project that encouraged car use – unless it were entirely for electric vehicles – deserved a green label.

Edward Adelman, executive director of the MSCBA, insisted building the garage would not increase the number of trips by car.

“At least in the States, everybody seems to need their own car,” he said. “We are reducing a tremendous amount of congestion. This is seen as an environmental benefit relative to the current condition.”

The building authority has been using the LEED process since 2007, he said. It has pursued energy savings for economic reasons.

“Our joke is the building authority was green when green was just a colour,” said Adelman.

Marketing the latest bond as “green” helped attract new investors, he added, saving “a modest amount” of money.

Adelman rejected the suggestion this was an example of greenwash: “I would encourage people to look at the actual criteria and draw their own conclusions.”

The post “Green” bond to fund multi-storey car park appeared first on Climate Home News.

The European Investment Bank, based in Luxembourg (Pic: Forgemind ArchiMedia/Flickr)

By Bertrand de Mazières

Green Bonds are gaining momentum in the financial markets and are raising awareness among a growing number of investors about climate finance.

The European Investment Bank (EIB), a leader in the financing of climate action projects, has been a pioneer and an active promoter of Green Bonds and is committed to help further develop this market segment.

The inception of an active green bond market was catalyzed by multilateral development banks. They were responding to climate policy imperatives and the need to scale-up financial market involvement.

In July 2007, the European Investment Bank (EIB) launched the first ever Green Bond: it was named “Climate Awareness Bond” (CAB). The transaction pioneered the earmarking of proceeds to match disbursements for climate action projects, providing investors with an accountable link between climate action lending and funding.

Green Bonds’ positive impact

Green Bonds have helped make green lending much more visible and transparent. This has, in turn, led to growth and diversification in investor demand.

One of the advantages of Green Bonds (linked to an existing issuer) is that investors take no project risk as their exposure is to the issuer and yields are the same as for the issuer’s standard bonds.

At the same time, however, investors have the possibility to monitor closely how funds are actually disbursed. This has helped issuers engage with a wider range of investors, and diversify their funding sources. Multiple positive feedback loops have thus led to increased awareness among all market players.

Huge capital investments and their effective deployment are required to achieve the 2C limit in global temperature increase scenario[1].This is especially true in the clean energy sector.

It is thus clear that a mobilisation of long-term capital at scale is going to depend on engaging conscious and proactive institutional investors, who between them own a pool of capital estimated at around US$ 80 trillion.[2]

Institutional investors have, relative to their size, had limited opportunities to exert influence over bond issuers regarding the actual deployment of funds. Green Bonds are an essential tool in furthering their useful involvement in this area.

State of the market

The Green Bond market started gaining substantial traction in 2013.

Benchmark issuance by the International Finance Corporation in USD and by the EIB in EUR created important milestones for further development of this market segment, which has reached US$ 25bn in total issuance this year.[3]

The largest Green Bond in any currency is EIB’s EUR 2.6bn Climate Awareness Bond maturing November 2019.

Following the example of supranational issuers, private sector borrowers have played an increasingly important role on the green bond market in 2014, mostly thanks to the surge in corporate issuance.

2013 and 2014 also saw the issuance of green city and municipal bonds. Cities and sub-sovereign entities (also in emerging markets) raise such finance in particular to meet climate infrastructure requirements.

The projects behind EIB’s Green Bonds

Energy-related emissions are a central driver of global warming, and so a key focus of climate action.

For EIB, projects in renewable energy and energy efficiency have been the exclusive focus of EIB Climate Awareness Bonds. Since the inception of the programme until end 2013, CABs have supported 55 projects in 19 countries across the globe.

Projects range from hydropower, wind, solar and geothermal energy generation and transmission to the upgrading of housing for energy efficiency purposes.[4]

All projects comply with EIB’s environmental and social standards. EIB’s long standing experience in evaluating and financing sound and sustainable projects is something investors have learned to appreciate.

Promoting high standards

Market momentum for Green Bonds is now considerable. An important challenge will be to maintain quality and investor confidence.

A useful step forward in this regard is the publication in early 2014 of the Green Bond Principles, best market practice guidelines put together by a group of investment banks in collaboration with other market participants, including the EIB. This has provided a governance platform, supporting quality and integrity.

In the future, the EIB will continue to play a developmental role in the market: “We recognize the strong investor interest in our Climate Awareness Bonds and look forward to further developing the instrument to allow targeted investment in climate related projects,” says Jonathan Taylor, EIB Vice President responsible for Environment and Climate Action.

[1] International Energy Agency (IEA), Energy Technology Perspectives 2012: Pathways to a Clean Energy System, (Paris: OECD/IEA, 2012), http://www.iea.org/Textbase/npsum/ETP2012SUM.pdf

[2] OECD 2014

[3] Source: Climate Bond Initiative, 14 September 2014

[4] A detailed description of the 24 EIB projects supported by CABs in 2013 can be found here

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Climate action threatens the coal industry’s future
(Pic: Flickr/Wsilver)

By Megan Darby

Could the coal sector raise money through green bonds? That question will be raised at an industry conference in Denmark next month.

Tom Kearney, managing director of Connect Capital Partners, is to give a presentation entitled: Green bonds and the coal industry – A new frontier?

The Climate Bonds Initiative was quick to rule out any labelling of coal bonds as “green”, however.

Beate Sonerud, policy analyst for the green finance think-tank, said in a blog that any investment in “clean coal” would lock in coal use for years to come.

That is incompatible with effective climate action, she argued.

Report: Climate-friendly bonds are worth US$500bn

Green bonds are seen as an important way to raise finance for the transition to a low carbon economy.

A small but growing sector of the market, they allow institutional investors such as pension funds to earn stable returns while promoting green growth.

To date, they have supported initiatives in public transport infrastructure, improving energy efficiency and renewable energy.

French development bank AFD last week issued a €1 billion bond to support projects that can produce measurable greenhouse gas emissions cuts.

Speaking yesterday, UN secretary general Ban Ki-moon said raising awareness of green bonds was one of his five priorities for his climate leaders meeting, which takes place in New York next Tuesday.

Clean coal?

Kearney, who could not be reached for comment, appears to suggest investment in so-called “clean coal” technology could be marketed in the same way.

While new technology can reduce emissions of some harmful gases, burning coal still produces carbon dioxide, which adds to global warming.

According to leading scientists, continued coal use will lead to catastrophic climate change.

In a statement released last December, 27 climate and energy experts from around the world said coal use must decline to keep warming to 2C above pre-industrial levels. That is the politically agreed “safe” threshold.

Even the most efficient coal power stations cause more than double the carbon dioxide emissions of efficient gas-fired plants, they noted. And the only way coal can be part of a low carbon future is with carbon capture and storage (CCS).

CCS is some way from being a commercial proposition, with only a handful of large scale projects under way worldwide, backed by substantial public funding.

Analysis: Does carbon capture and storage need a makeover?

The increasing political pressure to tackle climate change by cutting carbon emissions is taking its toll on the coal sector.

The Carbon Tracker Initiative has warned some 80% of known fossil fuel reserves must stay in the ground to avoid dangerous warming.

The think-tank is due to release a report on Monday flagging up the climate risks of investment in coal.

Combined with measures to control air pollution in major economies such as the US and China, climate action is curbing demand for the fuel, faster than coal producers predicted.

Analysis: Is China’s coal addiction coming to an end?

Shares in Peabody Energy, the world’s largest private coal company, have slumped by three quarters since a peak in 2011.

Against that backdrop, coal producers are increasingly playing on the low cost and potential energy security benefits of their product.

A campaign by Peabody presents coal as a solution to “energy poverty” in developing countries.

At next month’s Coaltrans conference, Peabody chief executive Greg Boyce will give a keynote speech on “making black the new green”.

That goes against the strategy of development banks, which are moving away from financing coal plants, in recognition of their damaging effect on the climate.

And a recent Peabody advert was banned for its promotion of “clean coal” – a phrase the UK watchdog said was misleading.

Consumers were likely to think “clean coal” did not produce carbon dioxide emissions, which is not the case, the Advertising Standards Authority ruled.

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Green bonds could help investors find alternatives to fossil fuel companies
(Pic: REpower)

By Megan Darby

Some US$500 billion worth of bonds are being used to finance the transition to a low carbon economy, according to a study published on Thursday.

That is up from US$350 billion in March 2013, the Climate Bonds Initiative (CBI) finds, in a report commissioned by HSBC.

This estimate counts bonds from corporations that solely focus on climate-friendly investments like railways and renewable energy as well as the growing class of bonds explicitly labelled “green”.

The CBI says these “climate-themed” bonds could potentially be labelled as “green” in future, to make it easier for investors to identify the benefits and stimulate the low carbon economy.

Sean Kidney, CEO of the Climate Bonds Initiative, says: “Investors are concerned about climate change. This report shows how they can invest in climate bonds without risk. The investment opportunities we find are safe and secure investment grade bonds. This is a Dull Green Market – just how pension funds and insurance funds like it.”

The challenge

Estimates vary on the investment needed to avoid dangerous climate change, but the numbers are all large.

The International Energy Agency says $53 trillion is needed for clean energy supply and energy efficiency by 2035 to limit global temperature rise to 2C.

Even if those efforts succeed, the CBI says money will be needed to adapt to a warming world – and public funds alone will not be enough.

In the private sector, the $100 trillion bond market outstrips the $63 trillion of equity investment, making it an important target for finance.

Green bonds could complement the divestment movement, in which churches, universities and cities pledge to stop investing in polluting industries.

The green bond market is too small to present a viable alternative to large-scale fossil fuel investments today, says report co-author Bridget Boulle, but has the potential to become a “positive investment tool”.

Trends

The green bonds landscape today is “unrecognisable” from the niche market the non-profit Climate Bonds Initiative started monitoring three years ago, the authors say.

Outstanding labelled green bonds are worth US$36 billion, of which 80% was raised in the past two years. Issues in 2015 are expected to exceed US$100 billion.

Such products were pioneered by a handful of development banks and the European Investment Bank (EIB) remains the largest single issuer, on US$3.5 billion, but increasingly corporations are getting in on the act.

European electricity utilities EDF, Iberdrola and GDF Suez have issued bonds totalling $4.65 billion linked to their renewables businesses. Solar Star and Greater Gabbard (offshore wind) have issued utility-scale project bonds.

Boulle expects this sector of the market to continue to grow: “Both the EDF and GDF Suez bonds broke new ground. That really shows there is a huge potential for new issuers.”

Bank of America Merrill Lynch and TD Bank have connected lending to environmental projects. Unilever launched a sustainability bond and Toyota raised $1.75 billion for electric and hybrid vehicles.

Massachusetts in the US, Gothenburg in Sweden and Johannesburg in South Africa led the charge for municipalities. Energy efficient building projects are also seen as a growth area.

At present, there is no universally agreed standard for bonds to be labelled “green”, but 61% of those issued in 2013 and 2014 were subject to some form of third-party review.

Development banks like the EIB were generally trusted to have sound governance, says Boulle. “As the issuers broaden to more corporate issuers, this is going to become more and more important.”

China is the single largest issuing country, with US$160 billion worth of fixed-income finance mainly going towards building railways.

The UK is punching above its weight in second place, on US$59 billion, followed by the US on US$51 billion and France on US$49 billion.

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Money raised from the green bond will be invested in wind and solar power projects
(Pic: Armin Kubelbeck)

By Megan Darby

German development bank KfW has issued a €1.5 billion (US$2 billion) green bond.

The 5-year bond, which pays out 0.375% interest, was oversubscribed. Investors ordered €2.65 billion worth “within a short period of time”.

The proceeds will be used to finance environmental and climate protection projects, mainly in wind and solar power.

For every €1 million invested in these projects in the past, the bank says 800 tonnes a year of greenhouse gas emissions have been cut.

Dr. Günther Bräunig, member of KfW’s executive board, said: “The issuance clearly shows that we hit the mark with our sustainable investment offering – our first Green Bond is a huge success. Especially the high degree of transparency and the unprecedented quality standards of our Green-Bond-concept convinced the investors.”

Growing market

The value of green bonds issued in 2014 passed the US$20 billion mark earlier this month, according to not-for-profit NGO the Climate Bonds Initiative.

While this is only a fraction of the estimated US$45 trillion that the International Institute for Applied Systems Analysis predicted would be needed by 2050 to prevent dangerous climate change, the market is growing rapidly.

Institutional investors increasingly look for financial products that are resilient to climate change.

Nor is it just development banks offering such products; consumer goods conglomerate Unilever and European utilities GDF Suez and EDF are among those to have issued large-scale green bonds in the past year.

Insurance giant Zurich earlier this week announced it would double its green bond commitment to US$2 billion, in response to the increase in supply.

The company has already invested US$400 million in such offerings.

Cecilia Reyes, chief investment officer at Zurich, said: “Managing over 200 billion dollars of Zurich’s assets, we acknowledge a wider responsibility.

“Green bonds are a great example of an investment that allows us to have a positive impact on society and the environment, while meeting our financial criteria.

“Through green bonds investments, Zurich will effectively support more sustainable growth and development around the globe – without sacrificing investment return.”

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The Climate Bonds Initiative expects major cities like New York to become a key market for green bonds to improve buildings

By Megan Darby

The value of green bonds issued in 2014 passed the US$ 20 billion mark last week, as interest in environmentally friendly financial products grows. That is nearly double the total amount raised in 2013.

The Climate Bonds Initiative, a not-for-profit organisation, estimates the cumulative value of green bonds will reach US$ 50 billion by the end of 2014.

At present, green bonds provide a tiny fraction of the capital needed to develop low carbon technology. The International Institute for Applied Systems Analysis estimates some US$ 45 trillion of investment is needed by 2050 to prevent dangerous climate change, or US$ 1.1 trillion a year.

That could change, as individuals and institutional investors such as pension funds increasingly see the value of long term bonds, with fixed returns that are not threatened by climate change.

Meanwhile, corporations are finding they can get debt finance cheaper if they promise to invest the proceeds in windfarms or deep energy savings.

Following the path trod by development banks, consumer goods giant Unilever and European utilities GDF Suez and EDF have issued large scale green bonds in the past year. Many green bond offers have been two or three times oversubscribed.

Analysis: Nine steps to unlock climate finance flows

The green bond market is still relatively immature, with no single set of criteria agreed on what may be described as “green”. As demand ramps up, there is increasing pressure from campaigners to develop and enforce consistent standards.

Investors, industry groups and NGOs are working together to bring some consistency to the market.

For example, last month the Climate Bonds Standard proposed rules on the type of buildings investment that can qualify for green status.

Under the rules, buildings must be in the top 15% of performance for greenhouse gas emissions in their sector or achieve energy savings of 30% to 50% to be eligible for green bond funding.

Sean Kidney, CEO of the Climate Bonds Initiative, said: “If we’re going to avoid catastrophic climate change we need to make deep cuts in our emissions from buildings; these new rules help investors identify green bonds that make a difference from paler green bonds, where the ambition levels are too low to make a real contribution to tackling climate change.”

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