Status of Green Bonds

Transcription

1 Status of Green Bonds Michael Eckhart Managing Director Global Head of Environmental Finance Citigroup Capital Markets, Inc.

2 A Set of Principals was Developed for Green Bonds Investors, issuers and underwriters worked to establish the Green Bond Principals (GBP) to aid in the development of the Green Bond market by providing guidance on the approach for issuance of a Green Bond. The Green Bond Principles (GBP) are voluntary process guidelines that call for transparency and disclosure and promote integrity in the development of the Green Bond market by clarifying the approach for issuance of a Green Bond. The GBP have four components: Use of Proceeds The utilization of proceeds should provide clear environmentally sustainable benefits. Proceeds may be used for refinancing, which should also provide clear environmental benefits. Process for Project Evaluation and Selection The issuer of a Green Bond should outline the decisionmaking process it follows to determine the eligibility of projects using Green Bond proceeds. Management of Proceeds The net proceeds should be credited to a sub-account, moved to a sub portfolio or otherwise tracked by the issuer in an appropriate manner and attested to by a formal internal process that will be linked to the issuer s lending and investment operations. Reporting Issuers should provide at least annually a list of projects to which Green Bond proceeds have been allocated including a brief description of the projects and the amounts disbursed, as well as the expected environmentally sustainable impacts. The GBP are updated annually by the Executive Committee based on input from Members and Observers. Source: ICMA Green Bond Principals ( 2 Green Bond Global Market Overview

3 GBP Organizational Chart A Governance document sets forth the rules for GBP administration and establishes a GBP Executive Committee GBP Executive Committee Has the authority to address all matters relating to the GBP and issues the annual update of the GBP. Investors Issuers Underwriters As of 9/9/2015 the GBP Executive Committee has a total of 24 members reflecting a representative group of: 8 Investors: Actiam, Blackrock, CalSTRS, KFW, Natixis Asset Management / Mirova, Standish Melon Asset Management, TIAA-CREF, Zurich Insurance Group 8 Issuers: EDF, EBRD, European Investment Bank, ENGIE, International Finance Corporation, Unibail- Rodamco, Unilever, World Bank 8 Underwriters: Bank of America Merrill Lynch, Citi, Credit Agricole CIB, HSBC, JPMorgan Chase, Morgan Stanley, Rabobank, Skandinaviska Enskilda Banken ICMA serves as Secretariat to the GBP carrying out the governance of the Green Bond Principles 3 Green Bond Global Market Overview

4 Member Organizations of the GBP (as of 21/8/2015) Membership in the GBP is open to organizations that have issued, underwritten, or invested in a Green Bond. Investors 1) XXXXX Issuers Underwriters ACTIAM BlackRock Blue Morpho Investments Breckinridge Capital Advisors British Columbia IM CalSTRS CM-CIC Erste Generation Humanis Gestion d'actifs ING Groep KfW MainStreet Capital Natixis AM Mirova NN Investment Partners OFI PGGM Vermogensbeheer Standish Mellon State Street TIAA-CREF Union Investment Wasmer, Schroeder & Co. Zurich Insurance Group African Development Bank Berlin Hyp AG BNG Bank Commonwealth of Massachusetts D.C. Water and Sewer Authority EDF SA ENGIE (ex GDF Suez) European Bank of Reconstruction and Development European Investment Bank FMO Hannon Armstrong Sustainable Infrastructure IFC Kommunalbanken Nordic Investment Bank NRW.BANK NWB Bank Overseas Private Investment Corporation Région Ile-de-France Toronto-Dominion Bank Unibail-Rodamco Unilever World Bank ABN AMRO Bank Banca IMI SpA Banco Santander Bank of America - Merrill Lynch Barclays BBVA Belfius Bank SA/NV Bank of Montreal BNP Paribas Caixa Bank Casgrain & Company Limited CastleOak Securities CIBC World Markets Citi CM-CIC securities Commerzbank Crédit Agricole Crédit Suisse Daiwa Capital Markets Europe Danske Bank Deutsche Bank DNB DZ Bank Goldman Sachs Handelsbanken HSBC Bank Incapital ING Bank JCI Capital Jefferies International JP Morgan Chase & Co KBC Bank LBBW Lloyds Bank Mitsubishi UFJ Morgan Stanley & Co National Australia Bank National Bank Financial Natixis Nomura International Nordea Bank Finland Oyj Piper Jaffray & Co Rabobank RBC Europe RBI Royal Bank of Scotland Skandinaviska Enskilda Banken SMBC Nikko Société Générale Standard Chartered Stifel, Nicolaus & Co UBS UniCredit Bank Wells Fargo Bank Westpac Institutional Bank Source: International Capital Markets Association 4 Green Bond Global Market Overview

5 Green Bond Market has Experienced Rapid Growth Over $30 billion of bonds related to climate change were issued in 2014, against $13 billion in the whole of Volume in 2015 will exceed 2014, with a decline in SSA 1 issuance offset by growth in corporate and municipal. $ $31.1 $31.7 $ $ $1.8 $0.6 $ YTD Power Generation and Utilities Corporate¹ Government Agencies Supranationals Banks and Diversified Banks Renewable Energy Government Development Banks Government Regional and Local Projected Since 2009, interest in green bonds has expanded globally, as investors have looked to invest capital in products that support environmental sustainability. Source: Bloomberg and Citi. 1. Corporate includes: Real Estate, Waste & Environment Services & Equipment, Financial Services, Food & Beverage, Consumer Products, Consumer Finance, Educational Services, Consumer Services, Semiconductors and Industrial Other 5 Market Dynamics and Key Developments

6 Green Bonds Are Issued by Public and Private Entities So far in 2015, the green bond market has seen increased activity from a wider range of issuers over the past few years. Green Bonds: By issuer type 2014 to 2015 Illustrative Green Bond Issuers Renewable Energy 9% Government Development Banks 5% 2015 YTD Government Regional and Local 4% Power Generation and Utilities 25% Banks and Diversified Banks 10% Supranationals 12% Government Agencies 12% Corporate 23% Renewable Energy 1% Banks and Diversified Banks 2% Government Development Banks 20% 2014 Government Regional and Local 4% Power Generation and Utilities 21% Corporate 21% Supranationals 29% Government Agencies 2% Source: Bloomberg. 6 Market Dynamics and Key Developments

7 The Green Bond Market is Becoming Increasingly More Global The globalization of green bonds can be viewed from two perspectives: the currency and the location of the issuer. Green Bonds: by Currency 2014 to 2015 YTD Green Bonds have been Issued by Organizations in Many Countries SEK 5% GBP 6% AUD 4% 2015 YTD Other¹ 3% USD 45% EUR 37% GBP 8% SEK 9% AUD CAD 2% 4% 2014 Other² 8% EUR 49% < $10bn issued > $10bn issued The bulk of green issuance continues to be in USD and EUR, however development banks have been increasingly issuing new green bond transactions in local currencies USD 20% Source: Bloomberg. 1. Other 1 includes: BRL, CAD, CHF, CNY, COP, HUF, IDR, INR, JPY, MXN, MYR, NOK, NZD, PEN, PLN, RUB, TRY and ZAR. 2. Other 2 includes: BRL, CHF, CNY, COP, HUF, IDR, INR, JPY, MXN, MYR, NOK, NZD, PEN, PLN, RUB, TRY and ZAR. 7 Market Dynamics and Key Developments

8 Additional Detail on Globalization The globalization of green bonds can be viewed from two perspectives: the currency and the location of the issuer. Global Distribution of Green SRI Investors (UN PRI Signatories) Denmark Norway Sweden Finland Canada USA Cayman Islands Columbia Peru Brazil Ireland Channel Islands Iceland Belgium UK Portugal Bermuda Spain Puerto Rico British Virgin Islands Ghana France Nigeria Estonia Germany Italy Netherlands Luxembourg Switzerland Turkey Austria/Liechtenstein United Arab Nations India Thailand Singapore China South Korea Hong Kong Vietnam Malaysia Indonesia Japan Legend Namibia Botswan a Mauritiu s Australia South Africa New Zealand The bulk of green issuance continues to be in USD and EUR, however development banks have been increasingly issuing new green bond transactions in local currencies Source: J.P. Morgan. 1. Count of signatories, only includes Asset Owners and Investment Managers (excludes Professional Service Partners) 8 Market Dynamics and Key Developments

9 SSA Bonds: Wide Range of Deal Size and Coupons The majority of SSA green bonds have been large scale, low coupon, low risk bonds, however, there are many examples of higher risk, higher coupon, higher risk bonds as well. How to interpret: Coupon on y-axis, date on x-axis, bubble size based on size of issuance, bubble color based on issuer industry 12.0% Scale 10.0 $1bn 8.0 $500mm 6.0 Coupon Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Supranationals Government Agencies Government Development Banks Government Regional and Local Source: Bloomberg. 10 Market Dynamics and Key Developments

10 Corporate Bonds: Also a Wide Range of Deal Size and Coupons The majority of corporate green bonds have been large scale, low coupon, low risk bonds, however, there are many examples of higher risk, higher coupon, higher risk bonds as well. How to interpret: Coupon on y-axis, date on x-axis, bubble size based on size of issuance, bubble color based on issuer industry 12.0% Scale 10.0 $1bn 8.0 $500mm 6.0 Coupon Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Power Generation and Utilities Corporate Banks and Diversified Banks Renewable Energy Source: Bloomberg. 11 Market Dynamics and Key Developments

11 Major Investors in Green Bonds The success of a Green Bond is often judged in part by support from the deep green investors. Below is an overview of both well-known & niche buyers. Illustrative Green Bond Investors: Green Bond Investors Expectations In general, as the green bond market grows investors are developing a better understanding of what level of transparency they want from the issuers of green bonds. Some investors have a dedicated SRI/Green Portfolio while others who have a particular interest in green bonds purchase these from a general fund. Some investors may have a preference for Green bonds to adhere to voluntary standards such as the Green Bond Principles. To avoid the risk of green washing, investors are increasingly interested in impact reporting over the life of a green bond. Investors have begun to add ESG (Environmental Social Governance) as a key component of their credit / equity research reports. At times their investment decision is linked to the issuers overall ESG score. 12 Market Dynamics and Key Developments

12 Outlook for Green Bonds The Green Bond market is just starting, but the upside potential is $1 trillion/year or more, to meet climate goals. IEA s Global Energy-Related CO 2 Emissions by Scenario Gt Current Policies Scenario New Policies Scenario Efficient World Scenario 450 Scenario (2ºC) Recent estimates by reputable sources suggest that an enormous amount of capital investment in green uses will be required over the next 50 years IEA IRENA $8.25 trillion (between now and 2030) $48 trillion (between now and 2035) Ceres $44 trillion (between now and 2050) If debt capital markets provide 50% of the needed capital, then the Green Bond market could exceed $1 trillion/year of new issuances. Source: International Energy Agency World Energy Outlook 2012, IEA, Ceres, IRENA. 16 Issues and Outlook