Green Bonds: Who Will Be the (Environmental) Champion?

If the bookmakers are to be believed, France will play Nigeria and Belgium will come up against Poland in the last sixteen of the soccer World Cup. My tip: France and Belgium will easily go through to the quarter-finals. The four nations play in the same league, however, in another area: green bonds. In 2016 Poland was even the first country to issue a green bond – issued volume: USD 970 million. In 2017 it was followed by France (USD 10.7 bn), Fiji (USD 50 mn) and Nigeria (USD 30 mn). In 2018 those countries were joined by Indonesia (USD 1.3 bn), Belgium (USD 5.5 bn) and Lithuania (USD 20 mn).

As you can see, the number of participants involved is much smaller than in the soccer World Cup. But green bonds are of course not only a playing field for governments. The number of issuers more than doubled in 2017 alone. By the end of the year, 239 different issuers had been recorded in 37 different countries.  Time for the rules of the game: What are green bonds?

• Players Companies, development banks and commercial banks have been issuing green bonds for about 10 years. And as we have seen, governments have recently got in on the act. The issued volume is rising sharply. It currently stands at around USD 200 billion, which is double the figure for 2016.
  
  
• Goal According to a report issued by the OECD there is a USD 93 billion shortfall in investment for low-CO₂ technologies over the next 15 years. Issuers use green bonds to lend money to the fight against climate change, for example for the construction of photovoltaic facilities, wind farms or energy-efficient buildings.
  
  
• Stadiums The Luxembourg stock exchange LuxSE became the first to list a green bond (the Climate Awareness Bond issued by the European Investment Bank) in 2007. Green bonds have been traded on the Swiss Exchange since 2014. There are currently 14 different ones admitted to trading – with a nominal volume of CHF 6.6 billion.
  
  
• Referee There is no standard set of regulations. The Green Bond Principles are a voluntary standard for issuers of green bonds with respect to the intended usage. Something even more specific is the Green Bond Standard of the Climate Bonds Initiative (CBI). The CBI is a charitable organization with which the Swiss Exchange entered into a partnership in 2018. A “Green Bond Flag” in the web site’s search function makes it simple for investors to find bonds that have been certified by the CBI.
  
  
• Fans Green bonds are often simple, fixed-interest instruments, so they’re easy for many investors to understand. The environmentally friendly purpose also appeals to a growing number of investors who attach value to sustainability. They also appeal to institutional investors such as pension funds on account of their substantial volumes.

By the way, the next green government bond is expected to come from Hong Kong. A volume of USD 13 billion would make it the biggest government green bond program to date. We are however unlikely to ever see Hong Kong’s national soccer team at a soccer World Cup. They are currently ranked 144th in FIFA’s global rankings.