Cracking open the green bond market – What’s next?

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From left to right, Jean-Marie Masse, Chief Investment Officer, IFC Financial Institutions Group, and Flora Chao, Global Head of Funding, IFC Treasury, and Frédéric Samama, Co-Head Institutional Clients Coverage, Amundi, at the Climate Bond Awards ceremony

“We need to see people cracking open this market like IFC did in 2013,” declared Sean Kidney, CEO of the Climate Bonds Initiative (CBI). He was referring to IFC’s issuance of two $1 billion green bonds as he set the scene for announcing CBI’s 'Green Bond Development Bank of 2018' award to IFC at a ceremony on March 5, 2019. IFC was recognized for its trailblazing work as issuer, investor and technical advisor. IFC was also recognized for its partnership with Amundi in creating the Amundi Planet Emerging Green One Fund. This is focused on green bonds in emerging markets and is the largest green bond fund in the world. 

“IFC has been issuing green bonds since 2010, and we helped propel the growth of the market in 2013 with two $1-billion benchmark issuances that were the largest at the time,” said Flora Chao, Global Head of Funding, IFC Treasury. 

The Amundi Planet Emerging Green One Fund (EGO Fund) was years in the making,” said Jean-Marie Masse, Chief Investment Officer with IFC’s Financial Institutions Group and the architect of the partnership, the fund, and its parallel donor-funded technical assistance program aiming at stimulating the supply of green bonds. “The retention of Amundi as fund manager of the EGO Fund was a rigorous, highly selective process, and we hope that what we have done will inspire others to scale up their activities in support of green bonds issuances in emerging markets as well.”

There was one main question on everyone’s mind at this awards ceremony and in the two days of conference sessions that followed – what will it take to reach $1 trillion in the green bond market? The total value of the outstanding green bond market is about $500 billion – this is an achievement for such a relatively new market. However, the green bond market currently constitutes under 1% of the total bond market. Clarity and/or standards are needed in many aspects of the market, including pricing, taxonomy, and regulation. 

Many green bonds issuers are looking for green premiums, or “greeniums.” Potential green bond issuers face additional costs – certifications, administrative, etc. – that can be obstacles to moving forward. In general, issuers hope for these costs to be recognized and rewarded with advantageous pricing. However, the latest data, albeit limited, indicate that there may not a reliable pricing benefit. This alone should not deter issuers given other benefits, such as the positive effect of a green bond announcement on a company’s share price, funding the financing gap, bringing in new investors, and meeting stakeholder obligations. There does seem to be a floor such that there is no disadvantage to issuing green. 

As with any industry, players in the green bonds space look for clear rules and regulation. Scaling up to $1 trillion will necessitate more regulation, including standards and labels. For example, the European Commission’s Technical Expert Group on Green Finance is exploring an EU green bond standard and in fact, released preliminary recommendations during the week of the conference. They are also considering expanding the EU eco-label (currently used for consumer goods) to consumer financial products. 

On the subject of taxonomy, some investors continue to express confusion over what qualifies as a green bond. There is a considerable appetite for a standard set of definitions with quantitative thresholds. The Green Bonds Principles, while serving as helpful guidance, are deliberately flexible. 

Most green bond issuances have been in developed countries, but there is an excellent opportunity in emerging markets. “Green bonds signal corporate and public sector willing to invest along lower carbon pathways,” according to Alzbeta Klein, Director of IFC’s Climate Business Department. “IFC has been instrumental in building this market and will continue to help it expand to new sectors and regions, especially in emerging markets.”

Long story short, there is a great deal of momentum for both demand and supply of green bonds. Potential issuers and investors are still finding their footing. Industry watchers are eagerly anticipating the turning point when the market “cracks open” to scale up to $1 trillion and beyond.  

These conversations about pricing, regulation, and taxonomy took place in London’s storied Central Hall, across the street from Westminster Abbey. In 1914, the hall hosted some of the first meetings of the suffragette movement. Mahatma Gandhi spoke here in 1931, during the height of India’s campaign for independence. And in 1946, the U.N. General Assembly first convened in this hall. It was a fitting gathering spot for leaders in green finance. As Sean Kidney noted, “We are at the beginning of a movement.”


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