Antinuclear

Globally, in 2014 investors snapped up US$36 billion of labelled green bonds, against US$11 billion in 2013, with the Climate Bonds Initiative (CBI), estimating the market could reach US$100 billion in 2015. Inclusion of unlabelled environmental bonds puts the current market at over $500 million estimates CBI. Indeed, if recent trends hold for labelled green bonds then the market could come 2017 top US$1 trillion.

US and Europe have dominated issuance, though momentum is gathering in Australia too. The first green bond in Australian dollars, raising A$300 million, was issued by the World Bank in 2014 to finance climate change mitigation and adaptation. National Australian Bank (NAB) followed initially seeking to raise A$150 million through the bond issue, which subsequently doubled due to A$300 million, for a portfolio of 17 renewable-energy projects in late 2014. NAB went on to help arrange refinancing of the Hallett Hill 2 wind farm in March 2015 with a A$205 million green bond in the US private-placement market.

While the sums pale compared to the $100 trillion global bond market, the trends are promising. First, volumes have grown strongly over the last few years. Second, corporate issues are on the rise accounting for 33 percent of labelled green bonds in 2014 in a market that has hitherto been dominated by supranational institutions, such as the European Investment Bank and the International Finance Corporation. The trends are evidence of rising interest in environmentally-sound assets particularly among long-view investors such as insurers and pension funds.

Institutional interest in tapping renewable-energy assets is certainly rising. A survey in 2013 found over 30% of large institutional investors are planning to increase investment in renewable-energy assets. While some funds might be invested directly into acquiring projects, much will probably target bonds for governance and liquidity reasons. In particular, institutions wishing to divest from hydrocarbon stocks and bonds will be looking to trade into comparable renewable-energy securities. Another promising sign for the market are the green bond indices, including the S&P Green Bond Index, Barclays MSCI Green Bond Index and BofA Merrill Lynch Green Bond Index. They provide institutions with benchmarks for performance and support liquidity……….

Verification may not however end with a bond issue. As investors understanding of environmental performance deepens and regulation evolves periodic re-verification of the original green credentials over the life of some bonds may become commonplace. Green ratings similar to credit ratings may follow to assist institutional investors in structuring portfolios to match environmental mandates.

For renewable-energy projects verification of green bonds to recognized standards could be particularly important for three reasons. One, governance may prevent large investors directing funds into projects which are not independently verified to specific standards. Two, improving market liquidity will reassure investors. Three, the scale of renewable-energy investment required to tackle climate change is heading towards more than a trillion dollars a year globally, which could well exhaust other sources of funds.

Connecting renewable energy to the green bonds market might be a planetary-scale opportunity for investors, developers and sustainability. Turning that opportunity into reality in a clean way which reassures investors and avoids scandals through standardised approaches will lift the level of market transparency and ultimately provide more credibility to a market whose future depends on the integrity of its offering. Trends suggest that, at least for offering outside those of the development banks, that is what the market wants.

Elena Bašić is a consultant with DNV GL Renewables Advisory, advising the private sector and policymakers on renewable energy strategy and policy. Mark Robinson is Manager of Sustainability Services with DNV GL Business Assurance working with issuers and green bond framework developers globally. http://reneweconomy.com.au/2015/emerging-frameworks-for-green-bonds-could-boost-finance-for-renewable-energy-34336