04 May 2016
Sean Kidney, CEO of the Climate Bonds Initiative, has played an important role in helping promote green bonds in emerging markets.
In a year of steady but unspectacular growth for the market, one of the most exciting developments has come from China.
The economic powerhouse embraced the green bond market in 2015, when its central bank – the People's Bank of China (PBOC) – announced its own set of national green bond standards, in December.
With the Chinese government backing the market, there has already been a spate of issuance from the country, which has boosted the overall market so far in 2016. Some major issues have come from the Shanghai Pudong Development Bank, Bank of Qingdao and Industrial Bank.
Kidney says the CBI has been "instrumental" in persuading the Chinese government of the merits of green bonds.
"We did our first presentation to the PBOC about the potential to use green bonds in China in 2012, and we have now published five papers on a roadmap for green bonds in China, and worked with the Green Finance Task Force in 2014," explains Kidney.
His priorities for 2016 involve "supporting the rapid growth of green bond markets in China, India, Brazil and other key emerging markets". These countries have the potential to inject new life into the market and could be a major source of growth in coming years, as well as helping to inject some much-needed high-yield paper.
In addition to arguing the case for green bonds in China, Kidney continued to be one of the market's biggest cheerleaders in 2015, a mission that sees him travel to all corners of the globe. The CBI's sometimes outspoken blogs are well read and his voice is one of the most influential in the market – even if not everyone agrees. Indeed, he may be a controversial choice of Personality of the Year, as he has ruffled feathers with his views on standards and transparency.
One banker, who nominated Kidney for the award, said: "Sean is a driving force in the green bond market and wider environmental finance business. He has a very positive and hands-on approach, pushing forward the agenda on environmental finance.
"He is actively involved in the Chinese green investment framework and together with the CBI team, is really promoting standardisation to empower growth in the green bond market."
Kidney's priorities for 2016 involve "supporting the rapid growth of green bond markets in China, India, Brazil and other key emerging markets
Meanwhile, the CBI has made progress developing its own standards. In December it released the second version of its overarching standards requiring, for the first time, annual assurance of the use of proceeds. Last year it also developed new sector-level standards, for Low-Carbon Buildings among others.
Another key initiative promoted by the CBI in 2015 is the Green Infrastructure Investment Coalition, which it launched alongside the Principles for Responsible Investment, The International Cooperative and Mutual Insurance Federation (ICMIF) and the UNEP Inquiry. It is now supported by some 30 other organisations.
"The aim is to oil the wheels of cross-border capital flows into green infrastructure investments – currently standing at a small fraction of 1% of institutional investor portfolios, when it needs to be 3-5% (spread over green bonds and green equity)," says Kidney.
He says he hopes the market will grow eventually to $1 trillion a year.
"We can get to $300 billion a year fairly quickly by bringing in issuers already making relevant investments, like railway companies," he argues. "That will give us market liquidity, serious investor engagement, an ecosystem of market services, the attention of governments, and so on - all of which need to go to higher levels.
"The hard work is beyond that, when we are dependent on governments engineering the green infrastructure investment opportunities that need green financing."
He is also looking forward to seeing the first green sukuk – the Islamic equivalent of bonds – issued in 2016.
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Can you outline the CBI's main achievements of 2015?
- Being instrumental in kickstarting the China green bond market. We did our first presentation to PBOC about the potential to use green bonds in China in 2012, have now published 5 papers (over the years) on a roadmap for green bonds in China, and worked with the Green Finance task Force in 2014.
- Helping make green bonds the go-to topic for virtually all climate finance discussions. Of course now we need to make it real.
What are the main challenges/opportunities facing the green bond market?
- Supply supply supply. We have demand, now we just need more green bonds. We need governments to fast-track their green infrastructure investments to give us something to finance!.
- Getting improved governance before the market takes off into mid-caps and before incentives for green bonds start becoming the norm, as they will in China next year. With incentives will come greater risk of "green default" - which we've already seen once in the US - so we need to be confident of our antidotes.
What is your vision for the market?
To contribute meaningfully to addressing climate change we need to see at least a trillion dollar a year market.
We can get to $300 billion a year fairly quickly by bringing in issuers already making relevant investments, like railway companies. That will give us market liquidity, serious investor engagement, an ecosystem of market services, the attention of governments, and so on - all needed to go to higher levels. The hard work is beyond that, when we are dependent on governments engineering the green infrastructure investment opportunities that need green financing.
What are your plans for 2016?
- The roll out of the Green Infrastructure Investment Coalition we have launched with PRI, ICMIF and the UNEP Inquiry, supported by some 30 other organisations. The aim is to oil the wheels of cross-border capital flows into green infrastructure investments - currently standing at a small fraction of 1% of institutional investor portfolios, when it needs to be 3-5% (spread over green bonds and green equity). We're looking at five year pipelines that are linked to country climate change plans (INDCs). Our first big event if for Indian green infrastructure, at the London Stock Exchange on 30 June.
- Supporting the rapid growth of green bond markets in China, India, Brazil and other key emerging markets.
- Seeing the first green sukuk come to market.
|Green Bonds Awards 2016|
|Bond of the Year - corporate||TenneT|
|Bond of the Year - SSA||Nacional Financiera|
|Bond of the Year - municipal||Central Puget Sound Regional Transit Authority|
|Bond of the Year - bank||ING Bank|
|Project bond of the Year||Wind MW (Meerwind)|
|Asset-based bond of the Year||Berlin Hyp|
|Special Award for Innovation (Structure)||Yes Bank / IFC 'back-to-back' transaction|
|Special Award for Innovation (Use of Proceeds)||Schneider Electric|
|Initiative of the Year||The Harmonised Framework for Impact Reporting|
|Personality of the Year||Sean Kidney, Climate Bonds Initiative|
|Biggest Issuer (SSA)||European Investment Bank|
|Biggest Issuer (Corporate)||EDF, Toyota, TerraForm Power|
|Biggest Issuer (Bank)||ING Bank|
|Biggest Issuer (Municipality)||Central Puget Sound Regional Transit Authority|
|Biggest Underwriter||Bank of America Merrill Lynch|