Green Bond Round-up, November 8: Morocco green bonds timed for COP22

The US elections and the start of COP22 have contributed to a slow seven days, as issuers put off announcing green bonds until later in the week. Ahead of COP22, which started yesterday in Marrakesh, the Moroccan Agency of Sustainable Energy announced a 1bn dirham ($272m) green bond, which is certified by the Climate Bonds Initiative. It pips Morocco’s Banque Populaire du Maroc to the post as the first issuer in the country to come to market. Bank of America has also come to market with another green bond under its programme, although it declined to provide more details ahead of settlement later this week.
Also timed for COP22, the World Bank (International Bank for Reconstruction and Development – IBRD) has announced the launch of $100mn in World Bank Green Bonds purchased by Bank Al-Maghrib, the Central Bank of Morocco, for its reserves management. The three-year bonds mature on December 15, 2019, and have a semi-annual fixed rate coupon payment. The sole lead manager is Credit Agricole CIB.

It may have been relatively quiet on the transactions front, but there has been plenty of market development activity. The Green Bond Principles (GBPs) has opened its annual public consultation this week, asking investors, issuers, banks and other market observers for feedback on its role in an ever-growing market.

The body, which operates under the umbrella of the International Capital Markets Association, has also launched its green bond resource centre, where it will aggregate documents relating to labelled green bond transactions, in a bid to help investors access information and compare deals more easily. The resource centre includes a database that currently has information from some 40 green bond issuers globally. They each use one or both of the templates launched by the GBPs earlier this year – the first of which is designed to be completed by the issuer, while the second is designed for completion by an independent reviewer such as a second-party opinion provider.

“In the last annual public consultation, investors made it clear is that they would value a more standardised and compact form of disclosure on green bonds to help them analyse and compare,” explained Peter Munro, Director at ICMA. “These two different templates were created to help with those investor requests, and the logical next step was to collect them and show the market what has been published through the templates so far.”

There has been a growing call from policymakers and private-sector players to create more prescriptive standards for green bonds as the market scales up, in order to help it maintain its integrity. Last month, Mark Carney, Governor of the Bank of England and Chair of the Financial Stability Board, said the public- and private-sector must work together to create “common green bond frameworks and definitions”. Japan is working on national green bond standards, following in the footsteps of China and India, and stock exchanges are ramping up their work around what qualifies as a green bond for the numerous segments that have been launched around the world dedicated to the asset class.But currently, the GBPs remain the only internationally recognised and accepted set of guidelines for green bonds. Felipe Gordillo, an analyst for BNP Paribas Investment Partners, described the GBPs as “the de factor benchmark for the green bond market” in a recent research note.
“One of the problems with the debate around standards in the green bond market, is that it’s not clear what a standard actually is,” ICMA’s Munro told RI. “If you’re an investor with a green objective, it’s not necessarily a case of deciding whether an asset is eligible – it’s more a case of being able to see how much it would contribute to your objective. So green bonds with varying levels of green performance may satisfy the needs of different investors at different times.”
Munro maintained ICMA’s previous stance that the GBPs’ role is “not to say this green bond is ‘in’ and this green bond is ‘out’”. However, when asked if the GBPs would consider creating a ‘stamp’ to confirm that a green bond is in line with its four pillars, he said “the answer is very much a market driven one”.
“The purpose of the annual consultation is to hear the voice of the market. If the market feels there is a role for the GBPs in doing something like that, then we would consider it. There are some who feel there should be some stamp of approval confirming GBP alignment. In a way that’s happening through external reviews – there’s a shadow labelling exercise already going on. But it’s a legitimate question whether there is some form of simplified labelling that everyone would find useful and would make the market more efficient.”
But, Munro warned, it would not consider anything that would “compromise the effectiveness of the GBPs as a platform for market development”.
Gordillo’s research note also points out that green bonds represent less than 0.19% of overall bond issuance currently, adding that “mass development” was being hindered by an insufficient number of low-carbon projects aligned with climate change objectives, the frequency of small sized projects and the lack of aggregation mechanisms such as securitisation. He also said that low-carbon projects can be perceived as being high risk, even when they are not, and that many investors lack the in-house resources to do a full analysis of transactons.
Elsewhere, KPMG has teamed up with WWF to publish a second report on green bonds, this time focused on ‘mainstreaming’ the market. It puts the proportion of green bonds compared to wider global debt securities at less than 0.1%, and calls for “rule-based but flexible” standards to be developed to help scale the market. The authors echo Munro’s view that “while minimum thresholds should be set for a bond to be green, room should be given to investors to decide whether the overall bond terms and conditions fit their individual investment criteria, including the ‘level of greenness’”.

The report identifies nine elements of green bond standards, including the need for bonds to “steer capital towards critical environmental impacts, and focus on achieving actual instead of ‘promised’ or ‘pledged’ benefits”, with sector-specific standards and the disclosure of “risks relating to achieving environmental targets and related controls”.