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Green Bonds on target, but reporting now coming under scrutiny


As the Climate Bonds Initiative publishes its updated report on issuance of green bonds in the first half of 2017, we speak to CBI’s head of market development, Justine Leigh-Bell, to get some wider context around the results.

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

Issuance of some $30 billion of green bonds in Q2 of 2017 was a record for a quarter, and the result for the half year, at $56 billion, is up by some $20 billion on the same period last year, the recent CBI report on 2017 issuance reveals.  “So our prediction of $130 billion for the full year is looking pretty strong,” Leigh-Bell notes, “and with a doubling every year since 2014, we continue to press for the target of $1 trillion of issuance by 2020.” That said, she recognizes that green bond issuance remains a “relative drop in the ocean” compared to the total bond market – it accounts for about 3% of overall issuance. “This remains a niche asset class for mainstream investors, so there’s still a long way to go in terms of outreach and education.”  

Institutional investors worldwide are generally looking for two things, Leigh-Bell says: quality product with good return and low risk.  “When they see bonds with those characteristics, they are usually snapped up in minutes, whether they are pink, purple or green.”   The global bond market is currently delivering well on such product, so there are plenty of options for investors.

Demand is there, but supply is an issue

Nevertheless, competition for green bonds is strong, and Leigh-Bell says that in some currencies there is evidence of tighter pricing for them, as evidenced in a recent analysis carried out by CBI.  As well as the high levels of investor demand, this better pricing may be resulting from the “value-add” for investors of the greater transparency green bonds are felt to offer in terms of their ESG credentials. This makes them a better buy for investors and investment managers, who are themselves increasingly held to the mark on ESG issues.

“So demand is there,” Leigh-Bell says, “but supply is an issue. What’s needed is the investment pipeline.”  More corporates, especially, need to come to the table, particularly out of the US where the largest corporate bond market in the world operates. “The majority of issuance to date has been subnational and banks. We are now beginning to see Sovereigns hit the market with Poland and France as the first to step forward, with Nigeria soon to follow.”

Also in the vast majority – some 90% of issuance – have been bonds issued under a general ‘use of proceeds’ label, meaning the bonds are backed by the balance sheet of the issuer.  This makes them more attractive to investors than specified project bonds, where the risks entailed in relying on project cashflows alone – for example, currency movements – are generally higher.  They are more attractive to issuers, too,  since they have more freedom in the deployment of funds. 

Post-Issuance Reporting Comes into Focus

This has a downside, however, in that post issuance reporting is not yet well-developed enough to be sure that pre-issuance promises as to use of proceeds will be adhered to (see below).  

Not well-developed either, at this point, is any way of tying back the issuance of green bonds to the progress on country undertakings under the Paris agreement. “We believe the development of sovereign green bonds was a direct result of Paris,” Leigh-Bell says. “France and Nigeria, in particular, are definitely seeing this as a way of boosting scarce public funding available for NDC commitments, especially for relatively easy-to-finance projects such as clean energy.  But there’s no linkage between reporting of green bond outcomes – such as carbon reduction – and the global reductions we need to see for the Paris process as of yet. This is work in progress.”

Investors need to know that what they invested in is delivering on what was promised

Improvement and harmonisation of standards is now a key focus for the CBI, which serves as the secretariat to the International Climate Bonds Standard. Work on the Standard  involves more than 100 global institutions across industry, academia and NGOs developing criteria for what are to be defined as eligible investments for green bond. CBI is also looking at the development of national and regional standards, and at issues such as the variance of information in the provision of second opinions and the lack of post-issuance monitoring. 

“We are now coming to the period in this market where post issuance reporting is due.  Investors need to know that what they invested in is delivering on what was promised,  particularly for their own ESG  performance reporting,” Leigh-Bell notes.  CBI issued a report on best practice in post-issuance reporting in June 2017, which revealed that “impact reporting is on the rise, but … there is little consistency and comparability.” 


As well as compliance on use of proceeds, post-issuance reporting needs to be looking at climate and other environmental impacts of green bond finance.  One issue here, Leigh-Bell says, is keeping this reporting practical. “We’ve seen nearly 150 KPIs that various people are using under various different ESG frameworks,” Leigh-Bell notes – “a number that clearly needs to be edited down quite radically if we are expecting this market to grow. Issuers need something that is robust and credible but easy to use.”

For example, she says, “reporting on the carbon footprint of a wind farm is unnecessary, it’s a low carbon asset. It’s not a debate that wind energy is a key investment for our low carbon future.” And in any event, measurement of the GHG effects of windfarms will likely only look at  the operational aspects, and not at a project’s full carbon footprint, including its development.  Meanwhile, social and environmental impacts may not be captured at all.

Finally (and echoing a call has frequently made), Leigh-Bell notes that there is no over-arching organisational principle for how to finance the NDCs, although green bonds are emerging as one tool to start moving capital towards them.  “There needs to be some form of climate science framework for all this, that would help the market to decide priorities. For example, as far as green bond standards go, is investment in gas OK, or OK only in certain regions? At the moment, issuance is being done around a ‘bucket list’ of categories that sound as if they are helping with climate change, like energy efficiency, but the analysis is pretty sketchy and skin-deep.  We need some kind of global taxonomy that would help create a common view on what’s most important for us to find the finance for.”


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 Nigeria and the Latin American region, where market development programs are underway in Brazil, Mexico and Colombia.

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