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Green bond comment: April was all about innovation and infrastructure

Channels: Green Bonds

Companies: Bank of Beijing, IFC, Amundi, Yes Bank, Axis Bank, Bancolombia, Banco Nacional de Costa Rica, MBCE, AP4, ERAFP, Allianz France, New Zealand Super Fund, LuxFlag, QBE, BNDES

April was a solid month for green bond issuance, raising some $5.6 billion* (see table). That figure is up on the $5.3 billion for the same month last year, mainly thanks to a RMB15000 ($2.2 billion) from Bank of Beijing, the biggest Chinese green bond of the year.

This steady yet unspectacular growth saw the value of outstanding issuance break through the $200 billion barrier.

While there was no dramatic growth in the value of issuance this month, there were interesting developments that bode well for the market’s future.

One of the most significant events of the month came when IFC selected Amundi to manage its $2 billion emerging market green bond fund.

The fund is set to play an important role in encouraging banks in emerging markets to issue green bonds, by providing a market for their paper. There has only been a handful of issues from emerging market banks so far, such as offerings from India’s Yes Bank and Axis Bank, Bancolombia, Banco Nacional de Costa Rica and Morocco’s BMCE.

There is clearly potential for many more issues and this is a good example of a development bank innovating to help the market scale up.

The IFC will help educate banks about green bond best practice and will take junior tranche in the vehicle, effectively providing a first loss guarantee to make the vehicle more palatable for investors. Swedish pension fund AP4, French pension fund ERAFP, insurer Allianz France, and sovereign wealth fund New Zealand Super Fund have already expressed an interest in the fund.

A new standard?

There could be another exciting development in the works, as Environmental Finance can today reveal that ISO is considering devising an international green bond standard. Although it will take years, this could be a big deal for the green bond market – many government bodies feel comfortable with ISO standards, and having ISO’s rubber stamp on a green bond could help to derisk the asset class in the eyes of many big issuers and investors.

ISO expects to form a panel of experts in the third quarter to help put together the standard.  The green bond market often provides examples of people from across competing parts of the financial sector collaborating on projects (such as the Green Bond Principles), so it will be interesting to see how much support this attracts.

As we noted in a feature earlier this year, there are now a plethora of ways of trying to assess the green credentials of bonds. Since we wrote that piece, S&P has now come out with assessment methodology and has beefed them up to include projects such as nuclear and water.

And Environmental Finance revealed that LuxFlag plans to launch its own green bond label.

Will existing external assessment providers see ISO as a threat, or an opportunity?

Other firsts

Another interesting innovation came when Australia’s QBE became the first insurer to issue a green bond. It is an intriguing deal, as it will use the $300 million it raises from issuing a green bond to buy other green bonds.

This will help boost both the supply of and demand for green bonds. Whether other insurers will follow remains to be seen.

Meanwhile, Latin America continued its increasingly steamy love affair with green bonds. This month saw the first issue from Brazil’s BNDES, and the first issue out of Chile.

Looking up, Down Under

Australia has been a surprise boost for the green bond market in recent months.

So far this year, there have been seven green bonds, raising $2.1 billion, from issuers such as National Australia Bank and Commonwealth Bank of Australia. See our infographic for more information.

* Figures according to Environmental Finance’s Green Bond Database

ISSUERAMOUNTCURRENCYAMOUNT in US$TENORSETTLEMENTUSE OF PROCEEDS
Davivienda 433000.0 COP 151.2 10 April Renewable energy, Energy efficiency, Eco-efficient products, production technologies and processes
QBE Insurance Group 300.0 USD 300.0 5 April Energy efficiency, Clean transportation, Renewable energy, pollution prevention and control, Sustainable water manegement, Sustainable management of living natural resources
Investa 100.0 AUD 74.9 10 April Energy efficiency
Lyse 500.0 NOK 58.4 6 April Renewable energy
Bank of Beijing 15000.0 CNY 2200.0 3 and 5 April Clean energy, Pollution prevention, Energy saving
Massachusetts Clean Water Trust 207.4 USD 207.4 1 to 30 April Sustainable water management
Commonwealth of Massachusetts 100.0 USD 100.0 6 to 30 April Sustainable water management
Rhode Island Infrastructure Bank 28.1 USD 28.1 1 to 19 April Sustainable water management
TenneT 1000.0 EUR 1085.2 Perpetual April Renewable energy
Overseas Private Investment Corporation 45.4 USD 45.4 22 April Renewable energy
Harbin Bank 2000.0 CNY 289.0 3 April Energy saving, Clean transportation, Clean energy, Pollution prevention, Ecological protection and adaptation, and Resources conservation and recycling
IBRD 350.0 USD 350.0 5 April All nine UoPs under the GBPs
Overseas Private Investment Corporation 53.6 USD 53.6 11 April Renewable energy
City Developments Limited 100.0 SGD 71.4 2 April Energy efficiency, Sustainable water management
City of Saint Paul, Minnesota 8.0 USD 8.0 1 to 19 April Pollution prevention and control, Sustainable water management
Investa 150.0 AUD 114.8 7 April Energy efficiency
Empresas CMPC 500.0 USD 500.0 10 April Eco-efficient products, production technologies and processes, Energy efficiency, Pollution prevention and control, Renewable energy, Sustainable management of living natural resources, Sustainable water management, Terrestrial and aquatic biodiversity conservation.
Total     5637.336