Investment banks publish green bond guidelines as investors sign up for standards push

Voluntary guidelines that could help investors verify that the projects being financed in the fast growing $14bn green bonds market are environmentally beneficial have been published today ahead of a major international climate gathering in New York on January 15. The guidelines aimed at issuers and the banks that sell the bonds have been endorsed by Bank of America Merrill Lynch, Citi, Crédit Agricole Corporate and Investment Banking, JPMorgan Chase, BNP Paribas, Daiwa, Deutsche Bank, Goldman Sachs, HSBC, Mizuho Securities, Morgan Stanley, Rabobank and SEB. The banks said the guidelines would prompt issuers to designate, disclose, manage and report on green bond proceeds: “They are designed to provide issuers with guidance on the key components involved in launching a green bond, to aid investors by ensuring the availability of information necessary to evaluate the environmental impact of their green bond investments, and to assist underwriters by moving the market towards standard disclosures which facilitate transactions.” The guidelines have been launched ahead of Wednesday’s major bi-annual United Nations-hosted 2014 Investor Summit on Climate Risk: Financing the Clean Energy Future, co-hosted by Ceres, the US investor-climate coalition. In November last year, RI reported that Citigroup and Bank of America Merrill Lynch (BoAML) had called for a coalition of issuers, dealers and investors to drive the evolution of the nascent green bonds market and ensure bonds are being used for loans for green projects rather than green-washing. The call was made in a report titled a “Framework for Green Bonds”. In it, the banks commited to report on the environmental benefits of the assets being financed by the bonds rather than the broader green credentials of the company issuing the bond. The new guidelines formalise that framework and were drafted by Crédit Agricole CIB and JPMorgan Chase alongside BoAML and Citi. The guidelines include an appendix of established definitions of green projects that have been developed by multilateral finance bodies and NGOs. The banks said it was likely an independent third party would serve as a secretariat for information exchange with issuers, investors, underwriters, and other stakeholders. The value of green bonds issued to date is estimated at about $14bn. There has been a surge in interest in the market in recent months since the November 2013 issuance of a 7.5 year €1.4bn green bond by French state-controlled utility Électricité de France (EDF) Link to RI story
The green bond was the first in Euros by a large corporate and was “twice oversubscribed” with demand from investors integrating environmental, social and governance (ESG) criteria in their investment decisions accounting for 60% of the allocation. Last week, the European Investment Bank priced a new CHF350m (€283.5m) Climate Awareness Bond (CAB) – its first of 2014 – which will mature in November 2019.
Link to RI story. close to the deal say the tap procedure that allows borrowers to sell bonds from past issues at the current market price based on the original face value, maturity and coupon rate has just closed reaching a commitment level of €1.5bn for the latest EIB issuance, which makes it the biggest green bond in circulation. The growth of the market has, however, raised the question of whether a more stringent set of international environmental ‘standards’ should be applied to green bond projects to ensure they make meaningful contributions to lowering greenhouse gas emissions, for example. Sean Kidney, CEO of the Climate Bonds Initiative, the not-for-profit group that has championed the development of green bonds, is leading a call for standards. Speaking to RI, Kidney said the new bank guidelines were a “good start and an important contribution” to investor understanding on green bonds. However, he said agreed standards could ensure that “apples could be compared with apples.” “Investors should be confident that a green bond coming out of the US is the same as a green bond coming out Germany. At the same time, we need to ensure there is public confidence in the validity of the assets being financed because we want to avoid some of the criticisms that have plagued environmental investments like biofuels or sustainable agriculture. This will be particularly important if we get governments starting to guarantee green bonds as we hope we could. The banks do point to some of the standards efforts that we and organisations like the OCED are putting together.” Kidney said he believed institutional investors could be part of the oversight of the quality of green bond assets. To this end, the Institutional Investor Group on Climate Change (IIGCC), which represents more than 85 of Europe’s largest investors with total funds under management of approximately EUR7.5 trillion, today announced that it was joining the International Climate Bond Standards Board, led by the Climate Bonds Initiative. The Standards Board is supervising a program that would enable investors and governments to assess the integrity of environmental claims for green bonds. Eric Borremans, IIGCC Vice Chairman and sustainability expert at Pictet Asset Management, will represent the IIGCC on the Climate Bond Standards Board. IIGCC Chief Executive Stephanie Pfeifer said: “By putting certification standards in place for green bonds and climate bonds, the Climate Bonds Standard helps investors identify low-carbon bond investments and provide reassurance that their capital is being allocated to projects which have clear low-carbon credentials.”

Link to the green bond guidelines