Environmental Finance's Green Bonds Americas conference in New York heard from issuers and investors who said efforts to define sustainability could change the face of the market
Canada-based insurer Manulife’s Halina von dem Hagen opened the conference, which attracted 260 delegates, by warning that an increase in regulation of the green bond market could stifle its growth.
“There will be more focus on sustainability, and more regulation, which will promote growth in the market, but it’s a delicate balance not to obstruct this growth through overregulation.
“What can choke this market is onerous process and documentation, if it turns into auditing, increasing compliance and a very formalised type of process, then [the market’s] value added may be questioned,” said von dem Hagen, executive vice president of treasury and capital management at the insurer, which has about C$1 trillion ($770 billion) in assets under management.
Manulife became the first global life insurer to issue green notes when it sealed a SGD500 million ($369 million) transaction in 2017. A C$600 million deal followed in May 2018.
However, Eila Kreivi, a director and head of capital markets at the European Investment Bank, told a panel on standards and guidelines that the EU’s efforts to devise a taxonomy on sustainability activities should not be misconstrued as an effort to impose a straitjacket on the market.
The taxonomy is “the most misunderstood thing I have probably ever come across”, Kreivi said.
As part of its Sustainable Finance Action Plan, announced earlier this year, the European Commission appointed a 35-strong Technical Expert Group to develop a sustainability taxonomy. When it is implemented next year, the taxonomy will be used as the basis for an EU-wide green bond standard.
Stephanie Sfakianos, head of sustainable capital markets at BNP Paribas, agreed that initiatives like the EU’s sustainability taxonomy and proposed green bond standard have to strike a delicate balance between being prescriptive and being open.
“What we want to see is that we have standards that are workable from the market perspective.
“You can't water down the requirements to the point you aren’t delivering a 2°C-aligned scenario, for those investors that want that - but equally you can’t put something in place that nobody uses.”
However, Stan Dupré, founder and global director of Paris-based think tank 2° Investing Initiative, called for more extensive standards.
A keynote address from California State Treasurer John Chiang included a clarion call for dramatically increased investment in clean infrastructure.
“It’s time for our major infrastructure projects to align with climate realities”, Chiang said, referencing the Green Bond Pledge he signed in August to affirm that, whenever applicable, bonds for infrastructure will be issued as green bonds.
“In California, estimates for our infrastructure investment needs over the next 10 years fall somewhere between $400 billion and $800 billion… We have to build, so let's build it clean and green,” Chiang said. Meanwhile, the conference heard calls for greater green bond issuance from ‘light green’ issuers.
The world’s largest asset manager, BlackRock, “would like to see more [green] bonds from the oil and gas industry… and for them to seize the opportunity to diversify their investor base and position themselves as players in the transition to a low-carbon economy,” according to Laura Segafredo, vice president of global fixed income for responsible investing at the company.
BlackRock, which manages assets of about $6.3 trillion, considers investing in green bonds “regardless of the environmental, social and governance performance of the issuer”, Segafredo said.
Christa Clapp, research director at green bond second opinion provider Cicero, would also like to see “more light green issuance... In order to solve the climate change challenge we need transformation in every sector – some of that is beginning first steps in terms of making sure there are improvements and setting up a structure for continuing improvement”.
Investment management giant Pimco urged greater issuance of Sustainable Development Goals (SDG) bonds. Jelle Brons, a portfolio manager for global corporate bonds, said: "The real opportunity is in SDG bonds. We've been trying to encourage banks to do [them].” Brons also announced the launch of an ESG version of Pimco’s investment grade credit fund.
Meanwhile, Thomas Ryan, managing director of ING Americas' structured solutions group, said issuer and investor interest in green asset-backed securities (ABS) has grown significantly in the US in the past 12 months.
“The level of dialogue has really ramped up in the US,” he said. “Over the last year we've seen a much greater interest both from issuers and investors in green ABS… Anecdotally, we have seen better pricing for green ABS.”