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Green bond round-up, June 6: €195bn coalition of Mexican investors call for more green bonds

The latest green bond developments

Fifty-seven Mexican investors with MXN4.04trn (€195bn) under management have urged issuers and regulators to grow the country’s green bond market, saying they are keen to invest in the asset class. Local pension funds such as Afore Azteca, Inbursa Afore and Sura were joined by global players including Zurich, HSBC, Axa and Mirova in a letter calling for more efforts to offer green bonds and other asset classes that “represent an opportunity to fulfil our fiduciary duty to clients and beneficiaries in a responsible and sustainable manner”. Other signatories to the letter include the IFC, the Inter-American Investment Corporation, the British embassy in Mexico City and the association of Mexican pension funds. They call on the Mexican government to introduce policy, regulation and risk mitigation mechanisms to encourage national green bond issuance and investment. The letter also asks civil society, academic bodies and financial institutions to develop credible eligibility criteria for project and impact reporting standards. On the issuer side, the investors ask for transparency regarding the use of proceeds from green bonds and the impacts of the projects financed.
“Climate change poses a significant risk to society, the economy, and to the investments we make on behalf of our clients and beneficiaries,” the statement says. “The response to these risks requires substantial investments in areas such as renewable energy, low-carbon transport and technologies, water and sewage infrastructure, sustainable buildings and energy efficiency, among others.” It adds that Mexico has made its climate commitments legally binding, meaning it needs major private and public investment to meet them over coming years. “A large proportion of the mitigation and adaptation solutions required can be structured as investible assets, with yield and risk levels that are adequate to meet the needs of our clients and beneficiaries,” it concludes.
The statement was coordinated by the Climate Bonds Initiative, GrupoBMV (the Mexican stock exchange) and the Climate Finance Advisory Council. All parties have agreed to work together to get the green bond market off the ground in Mexico. Although GrupoBMV has created a dedicated segment on its stock exchange, the country has only seen four green bonds so far – two from Nacional Financiera (Nafin), Mexico City and Mexico City Airport Trust – totalling $2.65bn. According to a report by Climate Bonds Initiative last year, there are $1.3bn of climate-aligned bonds outstanding in Mexico.

Europe

The RATP Group – the French state-owned public transport body in charge of the Metro in Paris – looks set to issue its first green bond. According to a framework on its website, RATP, which is the fifth largest public transport body in the world, wants to “lead the way for other public transportation issuers to come to market to fund rail investments and other low-carbon and sustainable transport investments, according to the highest standards of the green bond market”. Although it is best known for its operations in Paris, it also has business in North America, Latin America, Africa, Asia and elsewhere in Europe. It has committed to halve its emissions between 2015 and 2025 and to reduce its energy consumption by 20%.Its green bond, which will be an undisclosed size, will finance a range of energy efficiency, pollution and other projects. Examples listed in its framework include laying new tracks, improving platforms and signage, enhancing ventilation and implementing low-carbon bus services.

*The world’s biggest social bon*d came out of the Netherlands last week, as the leading banks in the green bond space stepped up to advise NWB Bank on a €2bn deal for social housing.

Asia

The Korea Development Bank (KDB) is launching a green bond programme dedicated to renewable energy projects. Proceeds from the deals will refinance and finance new and existing solar, wind and biomass assets. Sustainalytics has provided the second-party review. KDB has confirmed that it will report the allocation of proceeds and impact per project funded to the extent that it has a disclosure agreement with the borrower. Otherwise, disclosure of allocation and impact reporting will be on a project portfolio basis. KDB has also communicated that due to internal constraints, external verification of allocation of proceeds is “not feasible,” the review points out. It also highlights environmental risks associated with biomass, including deforestation, erosion and the use of pesticides. However, it adds: “KDB has confirmed that the biomass power plant funded through green bond proceeds will use wood pellets made of low-grade wood fiber, tops and limbs that cannot be processed into lumber, commercial thinning and mill residues such as chips, sawdust and other wood industry by-products.”

North America

US President Donald Trump’s decision to pull out of the Paris Agreement last week has met with defiance from the investor community. California’s State Treasurer, John Chiang reiterated his previous view that attempts to mitigate climate change wouldn’t be hindered by the White House. Chiang, who has made huge efforts over the past two years to push the green bond market in California and the rest of the US, said it was “time for all good people to come to the aid of the planet”. “Now more than ever it is important that we find innovative solutions to fund the clean-energy infrastructure that ensures our future. Green bonds empower ordinary people to do something about climate change by using the marketplace to serve the public good. We are creating an opportunity for Americans who care deeply about drinkable water, breathable air, and clean transportation to invest in their future. Washington can’t stop us.” Chiang’s ‘green bond symposium’ – at which he hopes market players will come together to work out how to bolster the US green bond market – has been postponed, a spokesperson told RI. It was supposed to take place later this year in LA, but is now expected to happen next January.

The State of Connecticut sold $250m of green bonds to refinance wastewater treatment and drinking water projects last week. The deal will close June 15th. Sustainalytics provided the second-party review on the deal. Connecticut executed a similar deal back in 2015, and has also issued smaller green bonds over recent years.