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Green Bond Round-up, October 17: World Bank President warns of market “fads”

The latest market developments

The President of the World Bank has warned of the lack of impact in the green bond market so far. Speaking at the World Bank/IMF annual meetings on the weekend, Jim Yong Kim said that the green bond market had “exploded”, but added: “I have to tell you that frankly we haven’t seen a huge impact in either mitigation or adaptation in the poor countries, or even in the low and middle income countries that are emitting the most”.

“People get very excited about these new ideas – green bonds, blue bonds. And I do too,” Yong Kim continued. “But… you’ve got to do the project preparation, you’ve got to put the actual projects on the table, you’ve got to find the ways to de-risk investments, you’ve got to do the policy change. Those things that may be as dull as dishwater are exactly what’s going to determine whether this progresses, because [otherwise] these fads will burn out and will go away.” He added that the World Bank loved the interest in green and blue bonds – and impact investing, “but our assumption has to be that that will never reach the trillions that we need”.

Also speaking at the World Bank annual meetings was Governor of the Bank of England, Mark Carney, who said the asset class brought free benefits with it for investors.

Europe

RWE subsidiary Innogy has issued what it claims it the first benchmark green bond from a German corporate. The €850m, 10-year deal has a coupon of 1.25% and proceeds will be used to refinance four on- and offshore wind assets in the UK, Germany and the Netherlands. The notes were issued by Innogy Finance BV and are guaranteed by Innogy SE. Demand was “several times” higher than supply, according to the issuer, and the issue price was 98.987%. Innogy’s framework, which has been assessed by Sustainalytics, includes energy efficiency and green vehicles as well as renewables. Innogy signed its own €2bn credit line last week, making it financially independent from RWE for the first time. RWE issued a bond in 2012 which it said at the time would be used for wind projects, although it didn’t label the deal green.

The Nordic Investment Bank (NIB) has just completed its second annual outing to show investors what they have financed through green bonds. NIB has an environmental bond programme, whose investors include SEB Investment Management and Local Tapiola Asset Management. Each year, the bank takes its green bond buyers to projects that have been financed by the proceeds, including a combined heat and power plant in Stockholm and a platinum-rated LEED building. “For me as a fund manager in the green space, I need both depth and good stories to share with my investors,” said Marianne Gut, a portfolio manager at SEB.

North America

In the latest in a spate of California-based solar companies to eye the market, Mosaic is preparing to issue its second green securitisation, secured against a pool of residential rooftop systems. According to its second-party review, there will be a series of deals, benefiting from credit enhancements “in the form of overcollateralization [there will be more assets linked to the bond than the principal value of the bond], yield supplement overcollateralization and liquidity reserve”.Kroll Bond Rating Agency assigned a pre-sale rating to the next offering, which will be in four tranches. The ratings range from A to BB+. The total value of the next issuance will be $307.5m, according to the rating – much larger than Mosaic’s debut green deal in February, which raised $139m.

Renew Financial, another California-based clean energy company – although it is registered in the Cayman Islands – is also back in the market. Having first issued in April, Renew Financial – not to be confused with Indian green bond issuer Renew Power – plans to sell a further $207m of green notes next week. They will have a maturity date of 2053, according to Moody’s, which awarded the bonds a GB1 score (meaning “excellent”). The offering will have three tranches and is securitised against a portfolio of residential clean energy assets in California and Florida. The assets are all financed through the Property Assessed Clean Energy (PACE) programme – a US state-backed initiative first implemented in 2008, pioneered by Cisco DeVries, who also founded Renew. Moody’s said “nearly all bond proceeds [are] going to eligible green projects for renewable energy, energy efficiency and water efficiency improvement to residential properties.” It added that the issuer is not “able to track the energy production, energy efficiency improvements or water or resource conservation performance of individual funded projects because the improvements are made to private residential properties whose owners are not required by law or contract to share any such relevant information” making impact reporting difficult.

Asia

Hong Kong city’s Chief Executive has said it will issue its first green bonds in the next financial year, in a bid to capitalise on China’s Belt and Road initiative and develop green finance in the city. The plans were announced by Carrie Lam in her first policy address as CEO of Hong Kong’s Special Administrative Region.

Taiwan Power plans to issue up to T$8.5 billion (€240m) in green bonds on the Taiwan Over-the-Counter Exchange, according to reports. The country’s domestic green bond market has only just begun, with modest debut offerings from Bank SinoPac, CTBC Bank, E Sun Commercial Bank and KGI Bank earlier this year. The state-owned company has reportedly applied to the Taipei Exchange to issue labelled green bonds with a maturity of up to ten years.

Pacific

Fiji’s government has reiterated its plans to issue a green bond. The country’s Prime Minister Voreqe Bainimarama, who is the President of COP23, told audiences at a ‘partnership day’ with government ministers, heads of state and others, that the development of the green bond was underway, and it would be the first in the Pacific region. The Deputy Treasurer of the IFC has previously been reported as commenting on the lack of bankable green projects in Fiji and other small island states.