Green Bond Round-up, January 31: “Washington can’t stop us” says California State Treasurer

The latest green bond developments

New figures from the Climate Bonds Initiative show a 92% increase in green bond issuance between 2015 and 2016, with predictions that sovereigns, sub-sovereigns and companies with lower credit ratings will continue to pile into the market this year, spurring growth further. “Policy developments will push green finance even further as the G20 nations prioritise climate action,” the CBI forecasts, suggesting that “this will also encourage greater harmonisation of green bond guidelines across markets”. For the full report, see here.

North America

Last year, the Californian State Treasurer John Chiang embarked on a trip around the US to find out more about the potential for green bonds in the country. The move was motivated by a desire to work out how to “come up with billions or even trillions of dollars to pay for cleaner and greener buildings, transportation networks and energy grids to prevent climate change from ravaging our planet in decades to come”, said Chiang. “One financial tool I am looking at is so-called green bonds”. Between February and August 2016, the Treasury’s ‘listening tour’ of the US attracted 57 market players from 27 companies – including ESG investment houses, mainstream investors and banks – and a survey was conducted about what was needed to scale the US green bond market. Last week, in the same month that Donald Trump has seemingly begun the dismantlement of the Environmental Protection Agency and set about unravelling the Clean Power Plan and the Paris Climate Agreement, Chiang published his findings, along with a call to market players, regulators and policymakers to attend a symposium in the autumn to discuss further market growth in spite of these political developments.
“The Trump administration began marching the nation backward into a policy of retrenchment that ensures continued dependence on fossil fuels,” said Chiang, adding that he sought to help “show the way to a US market that can operate at the same velocity and with the same vigour as its counterparts around the world to fund a more sustainable future.
“And Washington can’t stop us.”
The report outlining the findings claims that “at its current level of development in the US, green bonds face a classic chicken-and-egg dilemma. Many offerings are too small and illiquid to attract institutional buyers; in turn, weak institutional support keeps deals small and illiquid”. Several participants said their firms were “actively exploring the creation of green bond funds or other vehicles”, but the report also suggests that “labelled green bonds represent a minority of the holdings of some recently-created green bond funds” because of lack of supply. State-level aggregation is one means of bolstering supply, according to some participants, as it would enable a range of green projects to be pooled into a large enough group to issue a liquid bond against.On the demand side, the Treasury said the market would be boosted by more commitment from US pension funds, which “have begun to nibble”, but not at the same rate as their peers in Europe. In addition to aggregating, the findings suggest federal and state governments could subsidise green muni bond interest rates, and consider favourable regulatory frameworks, tax breaks and awareness building initiatives.
Elsewhere in North America, the Canadian Province of Ontario issued its biggest green deal by tapping an existing 2023 bond. It raised C$800m by reopening the bond, which has a coupon of 1.95%. The initial target for the transaction was at least C$500m, but investor demand saw it upped to become the largest Canadian dollar-denominated green bond so far. More than 50 investors participated on the deal – Ontario’s third in its green programme, which directs proceeds to ‘clean’ public transport and energy efficiency projects. 41% were asset managers, while banks took 28% of the notes and insurance companies took 25%. The lion’s share of the buyers (79%) were Canadian, followed by US (12%) and Europe, Middle East & Africa (7%). 78% of the final order book comprised investors with green mandates and/or signatories to the PRI.


Jain Irrigation Systems (JISL), the second largest micro-irrigation company in the world, has issued a green bond to finance and refinance renewable energy and water efficiency projects. The Indian firm, which operates in 126 countries, has sold $200m of labelled notes with a coupon of 7.375%. Its green bond framework has been assessed by Sustainalytics, which concluded that it “has a strong sustainability commitment and a robust internal assessment process to mitigate environmental, social and occupational health and safety risks”. Micro irrigation (also known as drip irrigation) is a form of crop watering that, as opposed to ‘surface irrigation’, channels water to the base and roots of plants, minimising wastage. JISL was named a ‘new sustainability champion’ by the World Economic Forum for its contribution to water and food security. JISL identified 26 projects that could be financed by the proceeds of a deal.

Tokyo Metropolitan Government has given further information on the issuance of its inaugural municipal green bond. The city’s governor, Yuriko Koike, who first announced plans to tap the market last year, said last week that the city’s budget for 2017 included ¥20bn (€164m) of green notes. The proceeds will finance projects relating to the Tokyo 2020 Olympics and the transformation of Tokyo into a smart city. Sectors mentioned in the presentation (which is in Japanese) include energy efficiency, transport and the urban environment.

Additional reporting by Elena Johansson