Session 4 Green Bonds by Ahmad Hafiz Abdul Aziz World Bank Group

29 Pages·2017·2.68 MB·English

by  Sau Ngan Wong

Green Bond /Sukuk
Ahmad Hafiz Abdul Aziz
Workshop on Sustainable
Finance Initiatives - Fiji
Holiday Inn, Suva,
01 September 2017
D i s c l a i m e r
This document is prepared solely for the purpose of discussion during the Workshop on Sustainable
Finance Initiatives – Fiji Holiday Inn, Suva, 01 September 2017 organized by Reserve Bank of Fiji (RBF)
and shall not be shared with any third parties without written consent by both parties. The findings,
interpretations, or recommendations expressed herein are those of the author(s), and do not
necessarily reflect the views of the International Bank for Reconstruction and Development/The
World Bank Group and its affiliated organizations, or those of the Executive Directors of The World
Bank or the governments they represent.
G r o w t h o f t h e G r e e n B o n d M a r k e t [ 1 ]
 World Bank (IBRD)
has issued about
USD 10 billion with
over 130 green
bond transactions in
18 currencies
Source: Bloomberg, World Bank and other public sources (2017 YTD is as of May 30, 2017)
G r o w t h o f t h e G r e e n B o n d M a r k e t [ 2 ]
1H 2017 issuance: USD55.8 billion
82 green bond issues in Q2 from 74 issuers
50% of issuers were first time issuers
3% of global bond market transactions in 2Q 2017
Growth Comparisons 2014-2017 H1
Source: Climate Bonds Initiative
G r e a t e r P o t e n t i a l L i e s A h e a d
Labelled green bonds represent only 17% of climate-aligned bond universe
Labelled Green Bonds
The global bond market is estimated at US$90tn
Climate-aligned bond universe (US$694bn)
•Labelled green bonds have use of proceeds defined and labelled
as green
•Unlabeled climate-aligned bonds are bonds financing climate-
aligned assets without a green label
•67% for low-carbon transport
•19% for energy
•78% are investment grade
•Top 4 currencies are:
•CNY (US$245bn equiv.)
•USD (US$169bn)
•EUR (US$111bn equiv.)
•GBP (US$58bn equiv.)
•Majority have tenors > 10 years
Unlabeled Climate-Aligned Bonds
Source: Climate Bonds Initiative: Bonds and Climate Change –The State of the Market in 2016
D r i v e r s o f D e m a n d
Enabling Political Environment
Sustainable
Paris Climate
Development
Agreement
Goals
National
Policies
6
D r i v e r s o f D e m a n d
Demographic Trends – Views on Sustainability
66% of global Among all investors,
consumers willing to Women investors 2x millennials are 2x
72% of millennials
pay sustainability as likely as men to more likely to make
willing to pay such a
premium for consider impact investments that
premium
products and when investing target environmental
services and social outcomes
7
Source: Nielsen, Morgan Stanley
D r i v e r s o f D e m a n d
Corporate Behaviour
Environmental and Social
Footprint
CEO Focus
Enhanced Disclosure
8
G r e e n B o n d s a n d G r e e n S u k u k : A d e f i n i t i o n
• Green Bonds/Sukuk are any type of bond/sukuk instrument where the proceeds will
be exclusively applied to finance or re-finance in part or in full new and/or existing
eligible Green Projects
• Green label does not affect the underlying financing principle either Bonds or Sukuk
• For a bond/sukuk to be green, an issuer must comply with three requirements:
Assign bond/sukuk proceeds solely for the financing or re-
financing of projects to improve or protect the environment
Declare the bond/sukuk to be green (before issuance)
Commit to a level of transparency and reporting on the
bond/sukuk’s use of proceeds
W h o d e c i d e s i f a B o n d / s u k u k i s “ G r e e n ” ? [ 1 ]
Investors decide, using various resources, e.g.:
An Issuer can label an issue “Green”
• Understood by market to mean proceeds are being used for “eligible”
green projects
Investor Demands/Requirements
• CERES - Statement of Investor Expectations for the Green Bond Market
Third Party Opinions/Rating Agency Bond Assessment
• Several research and advisory firms have gotten into the business - about
60% of Green Bonds issued have third party opinions
• CICERO (e.g. for World Bank Green Bonds), MSCI, Oekom,
Sustainalytics, Vigeo
• Green Bond Assessment from Moody’s