green bonds 2014 bonds 2014...mid 2014 snapshot climate-themed bonds $502.6bn green bonds $51bn...
TRANSCRIPT
Green Bonds 2014 Year end wrap up & prospects going forward
Climate Bonds Initiative
Network for Sustainable Financial Markets
Sean Kidney, CEO, Climate Bonds Initiative
Tess Olsen-Rong, Market Analyst, Climate Bonds Initiative
16 December 2014
Proceeds earmarked forqualifying green investments
Pricing generally equal with similar bonds
Oversubscription usual
USD
$1.2bn$909m$414m
$4bn
$11bn
$3.1bn
$35bn
20
15
: Est
imat
ed $
10
0b
n+
Green Bonds global growth
A big year
0
5
10
15
20
25
0
1
2
3
4
5
6
Bill
ion
s
Amount issued (USD) Number of bonds
Toyota
EIB
TD Bank
GDF Suez
EIB
City of Gothenburg
World Bank
AfD
EIB
NIB
Ontario
KfW
EIB
2014 by issuer typeABS5% Bank
2%
Corporate35%
Corporate loan0%
Development Bank45%
Muni/ provincial/ City
11%
Regional bank2%
Key Themes
• Corporate bonds from zero to
35% market share
• Development banks continue
to dominate – 45%
• Growing Municipal and city
bond market growing to 11%
US taking off in H2 2014
$88tn assets under management
$30tn Insurance
$27tn Pension funds – 19 out of 20 are public sector
$6tn Sovereign wealth
$25tn Fund managers, mutuals, foundations
(SRI = $13tn global)
Emerging Market pension funds = $4.5tn
50-60% bonds
Green/brown
Context: $45 trillion of “interest”
US$45 trillion
US
$2
2.5
trilli
on
US$8 trillion
US$8 trillion
Investor statement:
$2.24tn AUM investors committed “to grow a large and robust market that makes a real contribution to addressing climate change”
Global Investor statement on Climate Change, signed by investors with $24tn AUM
“acutely aware of the risks climate change presents to our investments. In addition, we recognise that significant capital will be needed to finance the transition to a low carbon economy”
$16tn insurance sector “committed to double green investments to $84bn by end of 2015” – and x10 by 2020 – at UN climate summit
+ various investor pledges; Zurich, ACTIAM, Barclays
Commitment to green bonds
It’s about Use of Proceeds
• Earmarking purpose
• Reporting / transparency
• Independent review
Proceeds to Green
• Governments & DFIs
• Corporates – this year’s growth area
• Asset backed: PPPs, banks, utilities, etc
• Municipalities
Any entity
• Investor diversification
• Investor engagement: “stickiness”
• Longer tenors
• Multi-asset pools
Issuer benefits
Majority of green bonds had 2nd opinion in 2014
• 65% of green bonds
have a review
• EIB issuance account for
16% of bonds without a
second opinion
• Remaining 19% of bonds
without second opinions
Independent review
65%
EIB – no review16%
No review19%
EUR 2.5bn ($3.5bn)
Proceeds to EE and Renewable Energy
Liquidity needed to grow market
Two bonds, 3 x oversubscribed
– EUR 1.3bnTenor 12
– EUR 1.2bnTenor 6
Size matters: GDF Suez
$1.75bn
5 tranches
Tenor 1-6 years
All oversubscribed up to 1.6x
ABS – EPA standards
Different opportunity to Hannon Armstrong ABS
Huge green ABS
District of Columbia green water bond
Tenor 100 years
$350m
Rated AA
Coupon 4.81%
The proceeds will be used to construct a tunnel to transport stormwater and sewage to a wastewater treatment plant and reduce sewage overflows to waterways.
Municipal green bond
US listed sustainable infrastructure investor (YieldCo)
$100m
Tenor 5 year
Coupon 2.79%
Asset-backed securitization of cash flows from over 100 individual wind, solar and energy efficiency installations; all with investment grade obligors.
• Quantitative annual reporting of greenhouse gas emission reductions, measured in metric tons per $1,000 of par value.
• The assets underlying the bond are "estimated to reduce annual ... emissions by 0.61 metric tons per $1,000 bond".
First green ABS
Issued high-yield bonds (i.e. below investment-grade)
EUR500m (across two tranches in USD and EUR)
US$300m
5 year
B-rated bond
Coupon 6.5%
+
EUR265m
5-year
Coupon 5.5%
No rating
High yield green bonds
Taiwan’s Advanced Semiconductor Engineering(ASE)
Corporate green bond
BBB
$300m
6 years
6x oversubscribed
Proceeds: green building construction, installation of waste water recycling facilities, waste water management and manufacturing energy efficiency.
ASE is an integrated circuit packaging and testing services provider.
First Asian Corporate green bond
Japan is the second largest bond market in the world.
Development Bank of Japan (DBJ)
EUR 250m
3 year tenor
Coupon 0.25%
Rated Aa3 and A+
Over 3x oversubscribed – EUR 750m
Q3 this year
Proceeds of the bond: green buildings
First Japanese green bond
ZAR 1.46bn/ $136m
BBB
South Africa
June
1.5x oversubscribed
10 year
Proceeds to be used for:
Renewable Energy: solar-panel power generation, water heaters
Other energy: Waste-water plants modified to generate electricity, Landfill methane gas capture and energy generation
Transport: 152 hybrid-fuel buses
Emerging markets will be an important area of growth for green bonds
Emerging markets: City of Johannesburg
Assets, not entities
Transparency & reporting central
Green Bond Principles = bank support
Mid 2014 snapshot
Climate-themed
bonds $502.6bn
Green Bonds
$51bnProject Bonds
$7.8bn
Bonds are about re-financing
Asset-backed Re-financing by utilities Bank securitization
Corporate
Corporate
Mature assetLow risk, long-term holdings for long-term investors, 15-25 years
Public sector
DevelopmentHigh risk
Project finance
First 2-5 years
Equ
ity Bank
loans
Pro
ject
Public sector
Green Bond Indices
Standards & certification
Industry Advisory
Group
Expert Committees: Green Property, Low-Carbon
Transport, Bio-energy, Agriculture, Water
$30tn Climate Bond
Standards Board
Indices
A broad universe = scale / liquidityExpert groups = science-based definitions
Renewable energy Hydro = c75% of electricity.
Energy storage Wind energy increasingly competitive.
Green buildings c85% urbanisation rate: Sao Paolo,
Green cities Rio and Curitiba are C40 members
Industrial Utilities must reinvest
Efficiency 1% of revenues in EE (1998 law)
Rail, BRTs, EVs BRTs in Curitiba & many other cities
Rail in Sao Paulo, Rio
Opportunities for Brazil
A broad universe = scale / liquidityExpert groups = science-based definitions
Clean water Water unevenly distributed.
Storm adaptation + drought impact on GDP: hydro, agri
Waste mngtm
Methane reduction Hydro not run of river; agriculture
Agriculture = c80% of emission cuts for 2020 tgt,
Forestry mainly reduced deforestation.
Biofuels industry.
Food supply chain c26% of GDP from agri services
Opportunities for Brazil
2015 expectations
1. Market growth
National development banks expand issuance
More corporate earmarked in EU, US, China
Property, Energy, Rail, Water
Boom in Green City Bonds
USA & EU, China & India, Latin America
ABS emerges
Green mortgages
Rooftop solar
2. Market developments
Standards adoption
Green Bond Principles pin down reporting requirements
ETF and index linked funds
UN Climate Agenda embrace
The road to a US$1 trillion market
1. Market creation: Tapping domestic pools of capital
Green Bonds Market Development Committee
China, India, Indonesia, Brazil, Chile and more
2. Role of public sector and development banks
Leveraging private capital with risk-bridging
Kickstarting domestic market issuance
4. Governments press policy & regulatory steps to support bonds
Project deal flow shepherding
Tax breaks
Green securitization support
www.climatebonds.net