By Paul Davies and Michael Green
The Vice-President of the European Investment Bank, Jonathan Taylor called for “a renewed effort from the world’s financial institutions to make the Paris Agreement a reality” at the COP 22 Conference, held last month in Marrakesh.
Green finance will have an instrumental role to play in the transition of countries to a low carbon economy. Indeed, sovereign green bonds have been described by financial analysts as “the perfect financial vehicle” and “missing link” to enable signatories to finance their sustainable infrastructure.
There have been a number of notable developments in green finance in recent months, sustaining its momentum.
- The Bank of China (BoC) issued a US$500 million covered green bond listed on the London Stock Exchange on 11 November 2016, the first of its kind. The covered bond structure uses climate-aligned bonds listed on China’s Central Securities Depository and Clearing Corporation (ChinaBond) China Climate-Aligned Bond Index as security. It is believed to be the first ever green bond, which permits recourse to both the security pledged bond assets and the issuer.
- On 30 November 2016, Bank of Communications (BoCom), a Chinese bank, issued a RMB 30 billion (US$4.4 billion) green bond, which represents the largest green bond ever issued in a single transaction. Moody’s, the credit rating agency, has awarded the green bond its highest score of GB1 following a green bond assessment (GBA) for the bond. The bank will allow the green bonds to finance projects in six areas including clean energy, which can include clean coal projects.
- Masen (the Moroccan Agency for Sustainable Energy) issued its first green bond worth MAD 1.5 billion (US$153 million) to finance a new portfolio of three solar projects. Masen is the third ever African issuer of green bonds. Separately, Bank Al-Maghrib purchased the entire US$100 million green bond issued by the World Bank, highlighting Morocco’s commitment to support climate finance going forward. Nigeria, Sweden, China, Japan, France and Canada have recently announced they also will issue green bonds.
- Bank of America Merrill Lynch (BAML) has issued its third and biggest green bond to date, raising US$1 billion to exclusively finance wind, solar and geothermal projects.
- The UK has approved the sale of the first “green energy” ISA, which enables the public to directly invest in renewable projects on a tax free basis.
- India issued its first high-yield green bond in August through the largest clean energy independent power producer in India, Greenko Group, backed by Singapore’s sovereign wealth fund GIC, raising US$500 million. The bond received bids 8.4 times its original size.
While there still remain a number of practical barriers to the development of green finance, the mobilisation of large-scale “green” investment is crucial in order to procure the estimated US$4 trillion a year required between now and 2030 to finance the global transition to a low carbon economy.
This post was prepared with the assistance of Ashleigh Humphries in the London office of Latham & Watkins.
Read more on green bonds:
Green Bonds: Green Striping to Fuel China’s Green Economy?
Is Green Striping the Future of Green Bonds?
China Sustains Green Bonds Momentum
How Environmental Lawyers Can Drive the Development of Green Bonds
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