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Green Bonds take centre stage despite Trump’s climate change agenda

Photographer: Yves Herman

Why does investor desire for green bonds remain despite Trump’s willingness to apparently target Obama’s climate initiative by pushing it further down the policy agenda? 

Only a few days before leaving the White House, President Barack Obama delivered US$500 million to the United Nations’ Green Climate Fund, meant to help developing countries combat climate change. But will a Trump presidency push climate change down the policy agenda and lower

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Not long after taking office Donald Trump’s administration made it clear, via a statement posted on the White House website, which echoed the newly elected president’s campaign pledges, that a change of direction was due, calling climate change efforts harmful and unnecessary.

The statement: America First Energy Plan read:

“President Trump is committed to eliminating harmful and unnecessary policies such as the Climate Action Plan and the Waters of the U.S. rule. Lifting these restrictions will greatly help American workers, increasing wages by more than $30 billion over the next seven years.”

Earlier this month, it was announced that in an effort which would cut deeply into programs on climate protection, environmental justice and enforcement, the White House is proposing to slice The U.S. Environmental Protection Agency’s (EPA) budget by 25 percent to $6.1 billion.

But despite Trump’s willingness to target Obama’s climate initiative, it is yet to be revealed whether a Trump presidency may push climate change down the policy agenda lowering the momentum, discouraging issuance. Despite uncertainty, investor desire for green products remains.

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Earlier this year, Reuters reported that while growth may not maintain last year’s blistering pace, sales could accelerate further this year, with France set to become the first G7 country to join the development banks and companies that have already issued this form of financing.

Green Bonds. According to figures complied by Thomson Reuters and The Climate Bonds Initiative

Global green market doubles

In 2016, the green bond market grew by more than $80 billion — a record year since its launch in 2007 — to $170 billion, according to Climate Bonds Initiative (CBI), a London-based non-profit that certifies green credentials of bonds.

As of the 3rd quarter 2016, Thomson Reuters and the Climate Bonds Initiative collaboratively resource Green Bonds underwriter league tables, combining all global green certified underwritten bonds and U.S. Municipals which comply with the Green Bonds principles.

Green bonds quotation

According to figures compiled by Thomson Reuters and the Climate Bonds Initiative, the Green Bonds sector recorded continued market growth in 2016, with global proceeds up 104.9% over 2015.

Green Bonds graph

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Top Green Bond Issuance by Nation graph

Key facts and figures

  • The dominant macro industry sectors include Financials (47.6% share), Government & Agencies (26.7%) and Energy & Power (18.5%). Chinese borrowers issued just under a third of total global green bonds proceeds, with US$23.6 billion raised.
  • Significant deals in the past year included the largest green bond from a U.S. Corporation to date by Apple Inc, with the $1.5 billion proceeds designated towards reducing the company’s impact on climate change.
  • BRF debuted the first green bond in Brazil with its $500m offering in October. In Europe, French railway operator SNCF priced its first certified Green Bond offering (€900m).
  • The Bank of China posted a four-tranche $2.8 billion transaction to finance projects including clean transportation and sustainable water management, which was also the first time a Chinese financial institution had listed a deal on the Luxembourg exchange.

Global green bond industry

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Challenges ahead

One of the major challenges faced in the Green Bond Market, and Socially-Responsible Investments as a whole, is ensuring that proceeds are allocated entirely to the purpose intended. Transparency remains key.

Issuers definitely need to ensure they provide regular reporting on earmarked projects, especially given the shift in issuance trends from multilaterals to corporate, and within that sphere into power and energy, in order to allay investor concerns and ensure the ongoing integrity of this market sector.

Earlier this month, the industry gathered at the Climate Bonds Initiative Annual Conference in London attended by 600 people from all over the globe.

Green finance flows

Climate Bonds Initiative’s Andrew Whiley said that following COP21 in Paris governments were wrestling with transforming Nationally Determined Contributions (NDC) commitments in country climate plans and long tail investment pipelines.

Andrew Whiley said: “Green bonds are now being seen as an important part of those developing climate plans.

Progress at the G20, the Green Finance Study Group, the work of the Task Force on Climate-related Financial Disclosures are all feeding into regulators, asset owners and managers looking for ways to address risk and foster green finance flows that more closely match NDC goals.

The groundbreaking sovereign green issuance from Poland and then France are another lead. With both the G20 and COP23 in Germany this year, other sovereign issuance from G20 or eurozone nations is possible.”

Green Bonds solar fund
Photographer: Max Rossi

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Risk-bridging role

In the meantime, he stresses that multilateral development banks and development finance institutions need to take a more active role in risk-bridging, and regulators and governments need to back this direction. Regulators also need to look at new frameworks.

Despite the increase in prominence of the market, there is still some way to go to achieve regulatory standardization, and a common consensus of what actually constitutes ‘Green’.

That being said, the Green Bond Principles that were first drafted in 2014 as voluntary process guidelines to recommend transparency and disclosure, and promote integrity in the development of the Green Bond Market have subsequently evolved with the assistance of the International Capital Market Association acting as Secretary.

Its nomination of an executive committee representing recognized issuers, investors and intermediaries in the Green Bond Market has also added credibility.

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Beyond climate change

On March 1stReuters reported that the largest U.S. government agency — the Department of Defense — plans to forge ahead under the new administration with a decade-long effort to convert its fuel-hungry operations to renewable power, not due to climate change but due to the benefits of green energy in combat zones.

These include reducing the need for easily attacked convoys to deliver diesel fuel to generators, how mobile solar-power units allow soldiers to prowl silently through enemy territory and at sea, gas-electric hybrid battleships save fuel and allow for fewer stops — making them less vulnerable to attacks.

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Thomson Reuters League Table rankings of investment banks and law firms published by dozens of leading media outlets worldwide leverage our global news and sourcing capabilities along with our strong relationships with the deal making community to ensure data accuracy and completeness.

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