Gearing up for green-bond growth


At the time of our previous half-year update with Justine Leigh-Bell, Director of market development at the Climate Bonds Initiative, in August 2017,  the heat in the climate finance world was being generated by the growing practical manifestations of Trumpian enviro-hostility.  This year, the heat was for real, with the UK baking in a six-week long heatwave.  As even the most climate-sceptic press started to run headlines about “the world burning”, there was a new phenomenon for climate professionals used to, at best, public indifference.  This is the notion, in the UK at least, that a mass realisation might be dawning that there really is a problem with the world’s temperature.

Justine Leigh-Bell – Director of Market Development, Climate Bonds Initiative

In some parts of the capital markets, of course, that notion dawned a little while back – a history the Climate Bonds Initiative (or CBI), founded in 2009, is well placed to track.  Leigh-Bell dates the first real recognition of the potential of green bonds to a benchmark issuance of €1bn by the IFC in 2013.  “That was the catalyst” she says, “for the 2014 green bond market boom,” when issuance almost quadrupled on the previous year to reach some $37 billion.  “That was the year when CBI started to get noticed,” she notes.  “There was no other non-bank organisation in this space that had the knowledge as to what this product was and its purpose. We were also the only standard-setting body at that time for green bonds. Our standard became active in 2011.”

CBI has continued to be central to the development of a market that in 2017 saw issuance of $161 billion, itself a quadrupling since 2014.  Issuance this year was predicted at $250 billion, but with the actual in the year to date standing at only $87 billion, that prediction may not hold.  “$180-200 is still very possible,” Leigh Bell says. “H2 and H4 tend to be the busiest quarters.”

See the box for other half-year highlights.  If there is a slowdown in issuance this year, that may not be a surprise given the general slow-down in investment in green infrastructure in 2018, noted by the IEA and others.

Half year highlights
  • 6bn of issuance
  • 670 green bond issues with 491 from the USA, 36 from Sweden and 35 from China
  • 156 issuers from 31 countries
  • 81 market entrants from 25 countries bring the total number of green bond issuers to 499
  • 48 green bond markets reached, including three H1 additions: Indonesia, Iceland and Lebanon
  • Lithuania brings the number of sovereign green bond issuers to 6
  • June issuance was strong with 44 deals in 14 countries and 19 new issuers

Source:  CBI Half Year Summary

Growth Spurts

Operating in a market as rapidly – and to some degree haphazardly – expanding as this one, it’s hardly a surprise either that the CBI’s own development path has itself been a bit of a hectic sprint.  Leigh Bell says that the organisation is now in “Growth Phase Three.” In phases one and two, staffing grew from 3 to 40. “That 40 will rise to at least 100 in the next two to three years,” Leigh-Bell says – “always providing, of course, we can attract the diversity of funding we need.”

Management and governance have also evolved over the period, with “a full directorate” of four now in place covering commercial activities, market development, operations and programmes, and finance, reporting to CEO Sean Kidney.  Under these directors are the heads of the teams covering CBI programmes and services such as standards, communications, certifications, policy, market development and investor engagement.

CBI’s country teams come under Leigh-Bell’s own market development remit. These are now set up in China, Brazil, Argentina, India, Nigeria and Kenya.  China, primarily led by  Sean Kidney, is the longest established, and has a big focus on the Belt and Road Initiative. “That’s obviously a massive infrastructure programme that could go either way on how green it turns out,” Leigh-Bell says, “so it’s something we really need to pay attention to, especially in the surrounding Southeast Asia region.”

There’s also “real momentum beginning to build in LatAm.  Mexico and Brazil have been the early entrants, but you’re now seeing the whole region waking up to the potential, and we are the first port of call for countries wanting to come to the market, in terms of building their capacity.” CBI is creating a regional programme to deliver this, working for example with the Pacific Alliance of countries along the western side of the continent as a bloc. Outside Brazil, the expected issuance will mainly be government-led, Leigh-Bell says, at both national and sub-national levels including public sector banks.  Thematically, especially in Argentina and Brazil “it’s a sustainable-agri-at-scale story we are going to see.” CBI also sees a lot of money flowing from China to the region. “Assuming those Chinese investors have a green mandate at some stage, can we help build the pipeline in the region for them to invest in, starting now?”

Market Development

Turning to its market development work, CBI organises this under three headings – capacity building, market intelligence and market credibility. Capacity building, Leigh-Bell says,  “revolves around developing green finance strategies, identifying low-hanging fruit and getting that out of the door, bringing together the right people around the table to get deals done and giving them the education they need.”

“Market intel is straightforward data and reporting, where our database continues to be the main source for green bond indices, and where we need to find a balance between providing a public good and finding appropriate commercial uses.”

Market credibility comprises initiatives such as green bond standards and taxonomies, and it’s in this last area that CBI has encountered some pushback from market commentators over the past few months. The critique, as Leigh-Bells summarises it, is that green bonds are “a marketing exercise at best, they are not delivering on an impact promise, it’s a bubble that will pop.”  Put another way, critics say that green bonds are not providing additional finance for projects, but are rather just a source of re-financing for banks and other project developers. Green Bonds, they say, are not delivering impact.

Leigh-Bell says that such statements betray a lack of understanding about how bond markets work. Bonds are primarily a refinancing tool.  “There’s a real argument for the necessity for additionality when it comes to the carbon markets,” she says, “otherwise you get double-counting and so on.  But in infrastructure where most of the green bond financing is going, we can’t be asking bond investors to take on the risk of developing projects.  That’s for project finance.  What bond investors need is a pipeline of built and operational assets that they can then take over ownership of for the long term.” The additionality that many are looking for will come once we achieve scale and liquidity in the market.

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“The most important aspect of green bonds is that they are driving the financial market towards more transparency and disclosure, and most recently we have begun to see the necessary steps to improving disclosure practices by creating standardisation of products, harmonisation of taxonomies on what is green and introducing supportive regulation and so on. Even if only a tiny proportion of the existing $400 billion or so of labelled green bond issuance is delivering a deep green impact, the education component that is coming from the labelling exercise is a fundamental first step to achieving the additionality that some are wanting to see now. Unfortunately, we are extremely late in our understanding on what are the key investments required for the transition to a low carbon and climate resilient economy,” Leigh-Bell says.

And as for price, there’s a similar discrepancy between theory and reality on green bond pricing, where “if you speak to Treasurers they will tell you every time that there’s a discount, but it’s hard to pick that out just from the data.”

We need to see an NDC component to issuance

Thematically, issuance is still “heavily dominated by the energy sector, followed by transport and water.  It would be good to see other sectors coming to market – land use and waste for example – but there it becomes harder to unpack what’s appropriate to include in green bonds.”  To address such issues, CBI is gradually becoming more directly involved in pipeline development, mainly working with governments to filter projects that will meet standards. Many of these projects are, however, she says, at a very early stage of development, so “there remains a big structuring challenge to get them beyond plans and into some kind of financeable form.”

Leigh-Bell would also like to see what she calls an “NDC component” in future sovereign issuances, that is projects directly tied to the country’s NDC.  This was the key feature of the Nigerian Sovereign Green Bond which officially came to market earlier this month. “We need to see more of these examples, to have green bonds directly helping to deliver the NDCs.”


Justine has spent much of her career helping business leaders and governments find solutions to the global challenges of climate change and sustainable development. She has provided advisory services for a number of global institutions and governments across Europe, Africa, India, Indonesia and Latin America. Her areas of focus includes sustainable development in emerging economies, climate change mitigation/adaptation strategies, climate finance, economic valuation and market-based instruments for managing natural resource assets.

As Director of Market Development at Climate Bonds Initiative, Justine’s primary focus is in the emerging markets where she works closely with both public and private sector actors in developing national policy guidelines and roadmaps that will enable access to green bond financing. Currently, she leads Climate Bonds Initiative’s efforts in the US, Africa and the Latin American region, where market development programs are underway.

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