German development bank KfW, which has emerged as both a major issuer of, and investor in, green bonds says that next year, it will issue near €4bn worth of them – and invest €300m.
It comes as 27 global investors representing over $11.2trn in total assets issued the ‘Paris Green Bonds Statement’ at the COP21 meeting, committing to support policies that drive the development of long term, sustainable global markets in green bonds as part of climate finance solutions.
Stating that it wanted to make a big contribution in developing the segment, the KfW issued its first green bond in July 2014, raising €1.5bn in the process. It has followed up with issues of the debt in various currencies – among them US dollars and sterling – putting the total volume outstanding to around €6bn. This compares with a total green bond market of around €40bn currently.
In April 2015, the KfW also said it would become a major investor in green bonds and set aside €1bn for that purpose. The bonds targeted must be investment grade and, like those of the KfW, assured as green by an outside expert. KfW’s are assured by CICERO (Centre for International Climate and Research – Oslo).
With respect to 2016, the KfW is targeting a similar issuance volume to 2015, or €3.7bn.
“Furthermore, we will be the first issuer to include a sustainability rating when selecting [commercial] banks as the lead managers of our green bonds,” Günter Bräunig, the KfW’s Chief Capital Markets Executive, told a news conference in Frankfurt.“In this way, we want to promote aspects of sustainability in the business models of market participants.”
With the proceeds from green bonds issued so far, KfW finances renewable energy around Europe. Around 80% of the near €6bn in proceeds has gone to projects in Germany, with an emphasis on wind power.
As a green bond investor, the KfW also plans to buy €300m of the debt next year, just up on 2015’s €280m. Of the bonds acquired so far, 71% has come from public sector issuers like government agencies and municipalities. Corporate green bonds account for another 16% with those from banks taking up 13%. The KfW seeks maturities between five and ten years.
Added Bräunig: “We want to make our specific expertise as issuer and investor available to international working groups and thus contribute to the qualitative development of this market segment, which can and must play an important role in climate protection financing.”
Also launched at COP21 was a Green Bond Guide for the public sector by the Climate Bonds Initiative and UNEP Inquiry into the Design of a Sustainable Financial System.
The findings of the report will also feed into an OECD report on green bonds, to be launched in 2016, and country-specific policy reports under development by the Climate Bonds Initiative.