The uphill battle to generate interest in ‘Socially responsible finance and investment’ at the ACT Annual conference last week started with the session being allocated a too small workshop room. So few people could attend. The progress in generating socially responsible (green) finance and investment were discussed by a team from MUFC made up of Carol Gould Head of Power & Renewables, MUFG; Lionel Pernlas - Head of Buy & Maintain London, AXA Invesment Management; Geraint Thomas - Executive Director Capital Markets, MUFG; and Matthias Noack, Head of Syndications EMEA, MUFG.
The key points to emerge from the discussion were:
- Green Bond market:
- has developed enormously since 2007, since when there has been exponential growth and last year market doubled to well over $100bn
- started as a SSA market, but now evolved into a typical corporate and sovereign bond market acceptable to vast majority of companies, but often of less benefit to smaller corporates
- main difference between ordinary bonds and Green Bond is “use of proceeds” in which there has to be a list of specific environmental projects
- there is extra work required to go though the Green Bond framework which then enables corporate treasurers to issue such bonds, and then also in selling them to market
- some investors have their own model to assess the impact of any green project and then on the quality of the credit, so every bond has a SRI score
- all investment proposals to AXA now need an eviromental impact score attached
- companies who have been disqualified overall on an GHG grounds, can, in some circumstance, have individual projects approved
- after the attestation process has been set up the overhead of issuing a Green Bond is relatively small, but attestation has to beeen done every year
- will Green Bond outperform ordinary bonds?: currently there is no premium when they come to the market at moment, but one speaker felt that there would be a “better risk return” in a liquidity crisis from good SRI rating and that in the long run there will be a premium
- Aviva would even take a Green Bond at a slightly lower price due it being more secure
- Renewables project Market:
- growth: 20 years ago financing was needed for just a few wind farms and solar farms, now it is world’s largest market and accelerating as technology becomes simpler
- many banks are now entering the market world-wide and as well as pension funds
- there has been no reduction in interest in SRI due to President Trump (CTMfile: some experts are saying that he has increased interest)
- some corporates are entering this market and in some cases were able to have % rate dependant on the environmental impact of their projects
- ‘In long run’ a speaker thought that in future (was not sure when - could be 5/10/15 years) when environmental friendly corporates would be considered a better credit risk. This would mean that the spread would be reduced and a lower credi rating which would produce a lower cost of financing
- investment is driven by the total project revenue, not by the technology used.
Why invest in green
At the end of the discussion, a well known public fact (well at least to Apple afficiandos like the CTMfile editor) emerged: When the treasurer of Apple was completing their latest Green Bond purchase, he was asked why Apple were investing $bns in Green Bonds, he replied, “Because Tim Cook told me to and it improves our image.”
Then the, too small, audience were asked for a show of hands as to whether, in their companies, there was any greater interest in this type of ‘green financing’? Hands raised showed that there were “quite a few”, but in these companies interest was not strong enough interest to participate actively in a SRI programme. Some attendees felt that a major influence in any decision to adopt an SRI programme would be trying, like Apple, to change the company image with shareholders and customers rather than any impact on climate change.
CTMfile take: In the medium run (not the long run) an outstanding green rating will reduce a company’s credit rating as well as improve their image. Unfortunately, this session was a sad reflection of the attitudes and behaviour in the corporate world.
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