Green bonds to blos­som as more em­brace eco-friendly in­vest­ments

Financial Mirror (Cyprus) - - FRONT PAGE -

The growth po­ten­tial for the green bonds mar­ket is con­sid­er­able as bud­ding US and Euro­pean mar­kets be­come more so­phis­ti­cated and de­vel­op­ing coun­tries like In­dia (Baa3 pos­i­tive) and China (Aa3 sta­ble) ex­plore their use for the first time, ac­cord­ing to Moody’s In­vestors Ser­vice. How­ever, cur­rent stan­dards and lev­els of ac­count­abil­ity still leave a dent on in­vestor con­fi­dence.

Green bonds raise cap­i­tal ex­clu­sively for projects or ac­tiv­i­ties with spe­cific cli­mate or en­vi­ron­men­tal sus­tain­abil­ity aims (e.g., re­new­able en­ergy, waste man­age­ment and en­ergy ef­fi­ciency).

The vol­ume of green bonds sold in 2014 tripled to al­most $37 bln from 2013, ac­cord­ing to data from the Cli­mate Bonds Ini­tia­tive, and mar­kets ex­pect is­suance to triple again to $100 bln in 2015. Also, in a shift that bodes well for green bond growth in de­vel­op­ing mar­kets, In­dia’s Yes Bank Limited (Baa3 sta­ble), a large com­mer­cial bank, sold the coun­try’s first green bond in March 2015. At the same time, China’s plan to open its debt cap­i­tal mar­kets could in­crease ac­cess to the coun­try’s large do­mes­tic sav­ings’ pool and pro­vide trans­for­ma­tional op­por­tu­ni­ties for green bonds.

“We ex­pect the global green bonds mar­ket to con­tinue grow­ing as more is­suers with vary­ing credit pro­files emerge, es­pe­cially as coun­tries like China and In­dia move to­wards more eco-friendly economies,” said Falk Frey, co-au­thor of the re­port.

“How­ever, while com­pa­nies and mu­nic­i­pal­i­ties is­sued 46% of the to­tal last year, fig­ures have dropped so far this year. This drop is not helped by in­vestors’ con­cerns about stan­dards and level of ac­count­abil­ity in green bonds and cor­po­rates not see­ing any pric­ing benefits over stan­dard bonds,” Frey added.

Moody’s noted that in­vest­ing in green bonds fits well with in­di­vid­ual and in­sti­tu­tional in­vestors’ grow­ing sus­tain­able, re­spon­si­ble and im­pact (SRI) in­vest­ing man­dates, which could un­der­pin de­mand go­ing for­ward. SRI in­vest­ing, which has grown in re­cent years as sen­si­tiv­ity to so­cial con­cerns has risen, may now ac­count for as much as 35% of pro­fes­sion­ally man­aged as­sets world­wide.

In 2014, cu­mu­la­tive cor­po­rate and mu­nic­i­pal is­suance of green bonds over­took devel­op­ment banks (46% vs. 44%), sig­nalling a sea change since the early days of 2007 when they were only sold by devel­op­ment banks. This ex­pan­sion in the types of is­suer has re­sulted in a wider range of rat­ings for green bonds. In Au­gust 2014, the first high-yield green bonds were is­sued by US re­new­able and con­ven­tional gen­er­a­tor NRG Yield, Inc. (Ba1 sta­ble).

As the mar­ket de­vel­ops, the num­ber of cur­ren­cies that bonds are is­sued in has also in­creased. Un­til 2009, bonds were de­nom­i­nated in ei­ther eu­ros, US dol­lars or Swedish krona. Last year there were 16 dif­fer­ent cur­ren­cies in­clud­ing the Brazil­ian Real and In­done­sian Ru­piah.

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