Climate Bonds Move Forward
by RONA FRIED, PH.D.
rona Fried, Ph.d., is
president of Sustainable
business.com, the online
community for green
business: daily green
business and investor
news, green jobs and the
green investing newsletter, The Green Investor.
contact Fried at rona@
sustainablebusiness.com.
Over the past two years, the Climate Bonds Initia- tive has created a new class of bonds to finance a rapid global transition to a low-carbon economy.
“Bonds have allowed us to finance the building of
Europe’s sewer systems, the growth of America’s highway system, and the financing of two World Wars. We
can now use Climate Bonds to finance the quick, global
transition required to head off runaway climate change,”
explains James Cameron, vice chairman of Climate
Change Capital.
“Putting the emphasis on private financing allows a
different perspective. In place of always talking about the
‘costs’ of climate change, we can talk instead about invest-
ment opportunities,” notes Nick Robins, HSBC Climate
Change Centre of Excellence. “The transition to a low-car-
bon economy presents capital with what is likely to become
the largest commercial opportunity of our time: investing
in clean energy and low-carbon infrastructure.”
Most of the bonds will be bought by institutional inves-
tors, but there are plans to make them available to retail
investors, too.
The Climate Bonds Initiative, launched by the Network
for Sustainable Financial Markets, a think tank, now operates as part of the investor-led Carbon Disclosure Project.
According to the International Energy Authority, about
a trillion dollars a year through 2050 must be pumped into
low-carbon industries to avert catastrophic climate change
and to fund adaptation. A large portion of that money will
have to come from bond markets.
That may sound like a lot of money, but the mainstream
bond market is quite large: More than $6 trillion in new
bonds were issued in 2010 alone, and funds under management reached $105 trillion.
Just 1 percent of those funds under management would
need to be redirected toward building a low-carbon economy. In the past two years, the nascent green/climate bond
market grew from $1 billion to $5 billion outstanding, with
about $12 billion issued.
New carbon bond Standard released
The prototype Climate Bond Standard (download at
tinyurl.com/climatebondstd) is designed to guide investors toward the most vital, cost-effective instruments.
Released in late November, the standard certifies climate
bonds using strict criteria, starting with bonds currently on
the market. It begins with eligible wind projects, and will
expand to solar and other renewable energy projects over
the coming months.
The standard assures that funds raised using a climate
bond are used in ways consistent with delivering a low-carbon economy, and can include projects or assets that
directly contribute to —
16 March/April 2012 SOLAR TODAY solartoday.org
Consult your financial advisor
before making any investment.
• developing low-carbon industries, technologies and
practices that achieve the level of resource efficiency necessary to avoid global temperature rise over 2˚C ( 36˚F); and
• essential adaptation to the consequences of climate
change.
For the first six months, certification will proceed using
the prototype standard, while incorporating any necessary
changes that arise. After that, the standard will be final.
To apply for certification, bond issuers will pay one-tenth
of a basis point of the bond’s value, and will also pay a
licensed third party to verify that the bond complies with
the standard.
“The transition to a low-carbon economy requires a
wide range of energy and infrastructure investments,” says
Jack Ehnes, CEO of California State Teachers’ Retirement
System (CalSTRS). “We are concerned that the invest-
ments being made are the right ones. Climate Bonds Stan-
dards will provide a simple tool for investors to screen the
opportunities that come before them.”
The standard was developed by the Climate Bond
Board, which consists of large pension funds such as Cal-
STRS, investor groups such as the Ceres Investor Network
on Climate Risk, governments like the California State
Treasurer’s Office, and nonprofits such as the Natural
Resources Defense Council.
State Street Unveils Green bond Strategy
In October, State Street Global Advisors, one of the
world’s largest fixed-income managers, began offering its
High Quality Green Bond strategy, which allows institutional investors to hold separate accounts that invest in
fixed-income green bonds.
The move followed that of Nikko Asset Management
of Japan, which in March 2011 announced that it had
raised $640 million for its Nikko AM World Bank Green
Funds, the first fund dedicated to investing in green bonds
issued by the World Bank.
In the last three years, the green bond market has begun
to open, led by multinational development banks and
other supranational organizations, like the World Bank and
the European Investment Bank. They now issue low-risk
triple A-rated bonds, yielding rates comparable with U.S.
Treasury bonds.
Given the volatility of financial markets, bonds are
a lower-risk option, but until now there have been few
investment-grade green bond choices, and most of those
were small and lacked liquidity, keeping institutional investors away.
State Street’s strategy offers investors a way to scale
green fixed-income investing, which will likely drive better pricing and facilitate greater liquidity due to aggregate
buying power. ST
