LSE grows green bond segment08.19.2015
The first offshore Indian rupee green bond has listed on the London Stock Exchange a month after the bourse launched a dedicated green bond segment.
Gillian Walmsley, head of fixed income at London Stock Exchange told Markets Media: “We have seen very strong interest in green bonds and wanted to launch a dedicated segment as part of the wider green financing offering at the exchange.”
London is a partner exchange of the United Nations Sustainable Stock Exchanges and wants to become the preferred listing venue for debt and equity low carbon economy financial instruments. The exchange also wants to increase transparency in the green bond market through its FTSE Russell index arm.
Walmsley said: “Green bond issuance has tripled year-on-year and might double or triple again this year so there is huge investor interest.”
Usman Hayat, director of Islamic Finance and ESG at CFA Institute, said in a blog on the CFA website that the green bond market has grown quickly since its inception in 2007. Last year green bond issuance was $36.6bn, triple that of 2013.
Hayat said: “As more corporate issuers entered the market, a bold prediction was made that there will be $100bn worth of issues in 2015.”
Green bond proceeds must be exclusively applied to finance existing eligible green projects which can include renewable energy, sustainable waste management, biodiversity conservation, clean transportation. In January last year a group of banks, in consultation with investors and issuers such as the World Bank and IFC, launched the Green Bond Principles to standardise practices for issuers and investors and improve transparency.
Today the IFC, part of the World Bank Group, listed a 3.15bn Indian rupee ($49m) green bond in London – the first in the offshore rupee market. The proceeds will be invested in a green bond issued by Yes, the Indian commercial bank, which will be used to fund renewable energy and energy efficiency projects.
Jingdong Hua, vice president and treasurer at the IFC, said in a statement: “IFC’s green Masala bond demonstrates the powerful role of capital markets in mobilizing savings for climate finance—and a listing in London allows us to attract the widest possible range of international investors.”
The use of proceeds are described in the bond’s legal documentation, are separately managed within the company, and have to be monitored and reported throughout the life of the instrument.
Walmsley said issuers on the dedicated green bond segment have to provide the exchange with an independent second opinion that certifies the green nature of the bonds. London’s green bond segment was launched last month when the city of Gothenburg listed a SEK 1.05bn ($123m) issue.
Gothenburg also moved their four existing green bonds into the dedicated segment for trading. There are currently six issues in the green bond segment and a potential 12 historical bonds which could be transferred.
The dedicated segment provides issuers with a choice of models for secondary trading including both Regulated Market and MTF for retail and wholesale investors, and the choice of trade reporting, end-of-day and continuous quoting.
Walmsley said: “Green bonds trade with the same market model as traditional bonds with limited secondary trading, which is predominantly over-the-counter.”
Last month a survey of CFA Institute Financial NewsBrief readers found that 60% of the 465 respondents were unaware of green bonds.
“We will be growing awareness of the segment through dedicated events and publications,” added Walmsley. “We will also be looking at the impact reporting framework.”
Impact reporting was highlighted last month when the World Bank issued its first Green Bond Impact Report detailing the environment and social results expected from projects supported by its green bonds until the end of June this year. The World Bank said the report was part of a broader effort to coordinate harmonization of impact measurement and reporting in cooperation with other multilaterals, a request from green bond investors.
The World Bank has issued 100 green bonds in 18 currencies raising the equivalent of $8.4bn. As at June 30 this year proceeds had been allocated to 77 green bond eligible projects with commitments totaling $13.7bn. For example, an Indian project that builds over 1,100 km of dedicated freight railway lines is expected to reduce 430,000 tons of carbon dioxide emissions annually, the equivalent of taking 90,000 passenger vehicles off the road each year.
Manuel Lewin, head of responsible investment at Zurich Insurance Group, said in the report: “With green bonds in particular, it’s the impact that makes all the difference. The impact reporting pioneered by World Bank and others is setting a standard, and may just give ‘value creation’ a whole new meaning.”
Ashley Schulten, portfolio manager at BlackRock, said in the report: “As more investors seek to achieve environmental outcomes, we need to be able to answer the question posed: how do these investments benefit the environment? This first-of-its-kind reporting template and guide that IBRD has put forth helps create market standards for disclosure of quantifiable impact measures. ”
In November 2013 BlackRock was selected by Zurich Insurance to manage a $1bn green bond portfolio.
Featured image via Stephen VanHorn/Dollar Photo Club
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