sean kidney, ceo climate bonds initiative (4.03.13)
DESCRIPTION
Climate bonds: Mobilizing debt capital markets for climate change solutions' presented by Sean Kidney at the University of Edinburgh Business School Sean Kidney is co-founder and CEO of the Climate Bonds Initiative. His background is in stakeholder communications, social change strategy and issues marketing. Sean is also a director of the Network for Sustainable Financial Markets, an international, non-partisan network of finance sector professionals, academics and others who see the need for fundamental changes to improve financial market integrity, stability and efficiency. He is also a member of Mercer’s Sustainability Opportunities Fund Advisory Panel, and was previously a marketing advisor to a number of the largest Australian pension funds and a social marketer and publisher.TRANSCRIPT
EDINBURGH BUSINESS SCHOOL
Climate Bonds Sean Kidney, CEO, Climate Bonds Initiative
Investor-focused NGOMobilizing debt capital markets50 member international Advisory panel
We need around $1tn p.a.
Bonds markets are untapped
Total clean energy investment 2011 $260bn
Bond market
$78 trillion
vs Equities $53 trillion
Funding the North’s army in the US Civil War
A history of bond financing
Building the sewers of London
Creating the US and Italian highways network
Housing mortgages: unemployment solution
Organisation-guaranteed
Sovereign / national
+ State
+ Muni
IFI (pooled backing)
Corporate
Asset-backed
Dual recourse / Covered / Pfanbriefe = pools
Securitization / portfolio bonds = pools
Project bonds
Social return bonds
Bond typology
Bonds are ideal for renewables
Illustration courtesy Jason Langley AXA IM
High capital cost, stable returns, minimal running cost over 20-30 years
Scary end-of-life exposure
Running cost risks
Big buyers: institutional investors$80tn assets under management
$30tn Pension funds – 19 out of 20 are public sector
$27tn Insurance
$3tn Sovereign wealth
$20tn Mutuals & Foundations
Local pension funds
50-60% bonds
Green/brown
Investors want Scale
Project bonds
Bank or corporate bonds
Aggregation$500m-$1bnWind and solar farms
Re-financing by banks and utilities
Bond
stru
ctur
es
Equity Bank loans
Bond re-financing by banks &utilities
First 2-5 years 15-25 years
We need to bundle
Better understanding risk - hard work
Macro economy risks of climate change – Stern, Mercer
High-carbon risks: over-valuations, stranded assets
Better understanding opportunity - necessary
Massive and rapid shift to low-carbon
Economic sustainability
Changing the settings of the system to maximize outcomes – main game
Universal Owner: alignment of fund outcomes with economic outcomes
Oil & Gas, Housing, Defense
Germany 1990s
Industry planning – Jean Monnet
Shifting institutional capital
Regulatory
Policy certainty – e.g. energy efficiency directives
Bond regulation: covered bonds, securitization
Enhancement
Junior equity
Wrappers
Partial and full guarantees
Deal development
Collaborations
Public sector risk sharing
Projects to shift the systemMaking it easy for investors
Definitions for investors: Climate Bond Standard
$174bn universe - HSBC report & Bloomberg listing
Climate Bonds Index
Policy agenda
Public Finance Mechanisms
Green Securitization policy agenda / RECBs
Regional bundling: loan securitization with development bank support
EBRD & EE in EE platform
IFC and ESCO cash flows in Mexico platform
Southern Africa renewables platform
Issues
Regulatory frameworks: ABS, covered bonds
Standardisation
Qualifying environmental criteria
Loan / credit characteristics
Multi-jurisdiction harmonizatio
Credit support
Energy contracts / offtake agreements
Junior equity, subordinated debt
Loan flow and loan book analysis
Platforms (conduit entities)
Green Securitisation project
Collaborations between Governments and investors
Eastern Europe EE
Latin America or Southern African renewables
Indian green buildings
Iberian renewables
Credit support
Loan volumes
Issues
Standardisation
Conduit entities / platforms
Mitigation+adaptation+sequestration
Standards coalition To grow a $300 billion climate bond market
$11tn Climate Bond Standards Board – Making it easy for investors
Industry Advisory Group
Technical Working GroupsDefinitions
Objectives1. Assure investors that investments are for climate change
solutions• Institutional investors aware macro risks, but hard to
quantify• If offered two investments with same risk/reward profiles,
one “brown”, one “green”, they will choose green
3. A simple preferencing tool • The easier it is to use the faster the market will grow• Authoritative: a coalition of asset owners & NGOs
2. Standardize across a large pool = increase liquidity• Energy, transport, water, etc
An environmental, not a financial standard. Investors still have to do their own credit analysis
How Certification works
18
New investors
Reputation enhancement
Exposing the market to underlying assets, in preparation for ABS post-Basel III
Need for improved capital ratios will further squeeze business lending
Re-financing allows focus on project development lending
….. Lower rates and a $300bn p.a. market
Benefits for issuers
Greening new markets
http://www.climatebonds.net