Fi­nanc­ing a greener fu­ture

Henrik Raber dis­cusses the growth of green bonds and how they could de­velop through­out 2017

Gulf Business - - CONTENTS - HENRIK RABER

THE MID­DLE EAST CON­TIN­UES TO MAKE GOOD PROGRESS TO­WARDS GREEN GROWTH AND A LOW-CAR­BON ECON­OMY, PRO­VID­ING SIG­NIF­I­CANT OP­POR­TU­NI­TIES FOR GREEN BONDS AS A SOURCE OF FI­NANC­ING.

Green fi­nance con­tin­ues to fea­ture strongly as pol­icy mak­ers push for more sus­tain­able en­ergy sources in an era of grow­ing con­cerns over cli­mate change.

Con­se­quently, green bonds – which are bonds that fund en­vi­ron­men­tally friendly busi­nesses and as­sets – have emerged as a key fi­nanc­ing tool that is driv­ing the global econ­omy’s tran­si­tion to a greener fu­ture.

Green bonds in num­bers

Last year was a record year for green bonds. Glob­ally, the mar­ket saw some $86bn worth of is­suances – more than dou­ble the $42bn is­sued in 2015. And with the growth in vol­umes, the mar­ket also saw shifts in is­suer pro­files.

Ge­o­graph­i­cally, de­vel­op­ing mar­kets in Asia, pre­dom­i­nantly China, be­came a key driver of vol­umes, ac­count­ing for 43 per cent of global green bonds is­sued in 2016. This was a marked growth from 10 per cent in 2015. Vol­umes from Chi­nese is­suers alone grew from 7 per cent of to­tal vol­umes in 2015, to 36 per cent in 2016, bol­stered by ac­com­moda­tive reg­u­la­tions after the coun­try’s pol­icy mak­ers laid out clear guide­lines on green bonds.

Sim­i­larly, In­dian is­suers drove vol­umes to meet the am­bi­tious re­new­able en­ergy tar­gets set by the coun­try's cur­rent gov­ern­ment.

En­cour­ag­ingly, the mix of green bond is­suers con­tin­ues to grow, adding breadth and va­ri­ety to the mar­ket. Be­sides ex­ist­ing is­suers (par­tic­u­larly de­vel­op­men­tal or­gan­i­sa­tions), 2016 also saw new cor­po­rate en­trants from de­vel­oped mar­kets (e.g., Ap­ple, Toy­ota, Hyundai, Iber­drola) and emerg­ing economies (e.g., Hero Fu­ture En­er­gies and Axis Bank from In­dia, China In­dus­trial Bank, Bank of Qing­dao and Xin­jiang Gold­wind from China, and Ban­colom­bia from Columbia). This trend high­lights the grow­ing ac­cep­tance and com­fort among is­suers to­ward green bonds.

Green de­vel­op­ments in the Mid­dle East

The Mid­dle East con­tin­ues to make good progress to­wards green growth and a low-car­bon econ­omy, pro­vid­ing sig­nif­i­cant op­por­tu­ni­ties for green bonds as a source of fi­nanc­ing.

The UAE re­cently an­nounced its Power Plan 2050, which aims to cut car­bon diox­ide emis­sions by 70 per cent, in­crease clean en­ergy use by 50 per cent and im­prove en­ergy ef­fi­ciency by 40 per cent by the mid­dle of the cen­tury.

This in­te­gra­tion of re­new­able, nu­clear and clean fos­sil en­ergy will re­quire an in­vest­ment of Dh­s600bn ($163.3bn) over the next 33 years, equiv­a­lent to an an­nual spend of more than Dh­s17bn ($4.6bn).

In Saudi Ara­bia, the king­dom has projects in the pipe­line that are es­ti­mated to be worth be­tween $30bn to $50bn by 2023, with the first clean en­ergy projects set to add 10GW of ca­pac­ity, mostly via wind and so­lar in­stal­la­tions. Sim­i­larly, Jor­dan is plan­ning 300MW of re­new­able projects this year.

These project plans are clear sig­nals of the di­rec­tion and op­por­tu­ni­ties for green fi­nanc­ing in the re­gion.

Out­look in 2017

We ex­pect 2017 to be an­other ex­cit­ing year for green bonds, with mar­ket ob­servers ex­pect­ing is­suance vol­umes to top $100bn.

The Con­fer­ence of the Par­ties 22 (COP22) con­fer­ence in Mar­rakech last Novem­ber showed that coun­tries are now ex­plic­itly link­ing green bond plans to the de­liv­ery of na­tional cli­mate change plans. Poland has since be­come the first gov­ern­ment to is­sue a green bond, which took place last De­cem­ber, and France has an­nounced its in­ten­tions to is­sue a multi­bil­lion euro-de­nom­i­nated green bond this April. Swe­den is look­ing at ways to pro­mote the green bonds mar­ket, and de­vel­op­ing coun­tries such as Nige­ria are also in early stages of dis­cus­sion to raise green fi­nanc­ing with pro­ceeds to fund so­lar power, trans­port, and forestry projects.

As green bonds be­come more main­stream, we can also ex­pect in­no­va­tion to be as much a part of 2017 as it was in 2016. Last year we saw the first ever green Masala bond by NTPC and Asia’s first green cov­ered bond by Bank Of China, show­cas­ing the va­ri­ety of for­mats avail­able.

On the back of all this ac­tiv­ity, the mar­ket will be wait­ing to wit­ness fur­ther fi­nan­cial in­no­va­tion to fund the rapid ex­pan­sion of re­new­ables. Henrik Raber is the global head of cap­i­tal mar­kets at Stan­dard Char­tered Bank

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