Green And Sustainable Finance is now an accepted part of financing - the first Green Bond was issued by SEB 10 years ago in Swedish Krone - and growth is accelerating but from a very low base. According to Mike Wilkins, MD, Head of Sustainable Finance, S&P, green bonds are now a few $bn last year and growing fast, e.g. 30% growth over 2017, but is minor compare to the $trillions of normal bonds issued last year. Although increasing numbers of investors now prefer to purchase Green Bonds, but overall level is still very low.
However, things are looking much better than a year ago, when at the same session last year at ACT Annual Conference 2017, corporate treasurers were saying “I only do it because my boss told me to as he felt it would improve the image of the company.” There seems to have been a major change.
Attitudes are changing
Sir Roger Gifford, Senior Banker, at SEB and Chairman, of the Green Finance Initiative (a government blessed progamme) pointed out how the government is now obliged to ask about the green impact of any large project. Actuallly, this now applies to any large government or private project.
More people believe that HRH The Prince of Wales, is right when he says, “It is not necessarily a choice between making money on the one hand and ‘doing the right thing’ on the other. On the contrary, once it is recognised that ‘business as usual’ is unsustainable, it follows naturally of those organisations which start to develop resilient business models will be the ones that succeed.”
Support infrastructure in place
It is becoming increasingly easy to issue Green Bonds because the infrastructure is now in place:
- Rating agencies now offer Green Rating services, e.g. S&P now have a Sustainable Finance team which offers a Green Evaluation service to rate a proposed bond as to whether the project’s ‘Green’ potential
- Asset managers are now experienced in placing Green Bonds
- Many banks, but not all, now understand and have the capaciity to issue such bonds
- Sovereign Green Bonds are now being issued, e.g. from Belgium, Fiji, etc.
Ines Faden da Silva, Acting Treasurer, Tideway explained how they have issued six green bonds, which have become easier to issue as they gained experience in describing the green credentials of each project. Now they find that the work involved is little more than for a traditional bond and that the obtaining the second opinion on the greeness of the project costs around £20,000 while the internal & external work takes around 3-4 weeks.
Green Bond Pricing
The pricing of green bonds is now well established and generally, S&P and the other participants are finding that some investors will pay a little more for Green Bonds - typically 2-3 BPS, and in the secondar markets as much as 20BPS more. Gifford was keen to stress that the pricing was, “At least as good as, not worse that normal investment bonds.”
Indeed, there are some examples of Green Bonds being issued in which the greener, i.e. the less CO2 impact, the intgerest rate decreases.
Regulation and future
The FSB in the UK is preparing as set of regulations to control Green Bonds which will be ‘ard coded’ into current regulations, e.g. controlling exactly what is and what is not Green, etc.
The panel were asked what they expected in the 2-5 years in Sustainable Finance market. Responses included:
- World has to change: all investment has to be sustainable
- S&P: Green Bonds market in 2018 will reach $200bn, will see more sovereign Green Bonds
- Green loans market will become a reality.
CTMfile take: The best news from this discussion was that many investors are “looking at other variables in their investing including sustainability, not just returns.” Now, with the infrastructure in place, it is so easy to issue a Green Bond why doesn’t your company or group do too?
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