The Sustainabilist - Green Finance

The Sustainabilist ISSUE 03

Green Finance. Banking on Sustainability

PRIVATE PUBLIC PARTNERSHIP

GREEN GOALS

Promoting green investment

ISBN 978 - 1978357310

Interview with Suvo Sarkar

CRYPTOCURRENCY REWARDS

SOCIALLY RESPONSIBLE INVESTING

SolarCoin

Green Sukuk

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Issue 03 | December 2017

Contents

DO YOU PURCHASE RENEWABLE ELECTRICITY?

ON THE COVER

Suvo Sarkar Senior Executive Vice President & Group Head Retail Banking at Emirates NBD

Dubai Carbon has taken the lead in the UAE by implementing the I-REC Standard – the leading global standard for electricity product choice. By adopting it, Dubai Carbon gives Emirati businesses and homeowners the opportunity to purchase the type of electricity they wish to use.

This system puts consumers in the driver’s seat, allowing them to accelerate the transition to a more renewable grid.

EDITORIAL

The I-REC Standard is a non-profit organization based in the Netherlands.

For more information, go to our website www.irecstandard.org or contact us at

Cryptocurrencies are grabbing headlines the world over, no more so than the SolarCoin. SolarCoin is a cryptocurrency that, according to its developer, works like air-miles for solar electricity generation globally.

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EDITOR IN CHIEF LETTER

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THOUGHT LEADER OF THE MONTH Interview with Suvo Sarkar

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INNOVATION, PARTNERSHIP AND SUSTAINABILITY Expo 2020

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EXPO LIVE GLOBAL Expo 2020

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SUSTAINABLE REAL ESTATE Sphere Capital

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CROWDFUNDING Green Projects

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SEED FINANCING Revolutionising Agriculture

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PRIVATE PUBLIC PARTNERSHIP Promoting Green Investment

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HEDGING YOUR BETS Mitigating FX Volatility

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GLOBAL RATINGS Evaluating Green Bonds

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CERTIFIED FINANCING For a Climate Resilient Economy

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CRYPTOCURRENCY REWARDS Solar Coin

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RESPONSIBLE INVESTMENT

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GREEN BOND INDICES Driving Demand

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ENERGY PARADIGM SHIFT Low-carbon Solutions

Sustainability Integration

FINANCING SOLAR Clean Energy Transition

SAVING ENERGY Green Sukuk

BANKING ON THE PLANET HSBC

CLIMATE ACTION & GROWTH Engaging the Private Sector

SCALING UP PRIVATE INVESTMENTS Green Investment Banks GREEN BOND AWARDS & CERTIFICATES Climate Bonds Initiative TWO SIDES OF THE COIN Commentary by Ivano Iannelli INDEXES Top 10 Countries for Climate-Aligned Bonds

OPINION PIECE A green Sukuk is one in which proceeds from the Sukuk investment and can only be used for climate friendly investments.

A green Sukuk can be invested in by both Islamic and conventional investors and provides a high degree of certainty that all monies invested into it are being used exclusively for positive environmental benefit.

secretariat@irecstandard.org

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The Sustainabilist |GREEN FINANCE

Letter from the Editor in Chief The theme for this edition is green finance for a purpose. Bonds, crowdfunding and even blockchain-backed payment methods are increasingly tending towards green finance. Consumers are increasingly demanding that their cars, their food and even their investment portfolios be green.

Corporates and institutional investors are vying to meet this demand.

Eng. Waleed Salman

Chairman, DCCE Dubai Carbon Centre of Excellence

The Sustainabilist

This year we saw strong market signals that institutional investors are committed to focusing on climate-sensitive investments. The World Bank Group announced its plans to stop financing upstream oil and gas projects in developing countries to help implement the 2016 Paris Climate Accord. EU pension funds are making climate change risk assessment an integral part of their review process. FAB launched the first green bond in the Middle East, with proceeds of the notes to be used for financing of environmentally eligible projects. International, regional and local institutions are all making climate a priority,

and the launch of the Dubai Green Fund was announced at this year’s Green Economy Summit.

Increasingly, the technology, financing and structures of independent power producers (IPPs) and solar roof tops are becoming mainstream. Financing rates have been on the decrease, as more investors crowd into the segment. As a result, more markets are targeting aggressive renewable penetration ratios. As these ratios grow, the stable integration of variable renewable energy will increasingly require effective and affordable storage capacity; and smart grid management. The challenge, in the coming years, will be to channel financing at scale towards these sub-segments.

We view 2018 as the year when climate-sensitive technologies, investments and risk assessment all become the norm rather than the alternative.

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The Sustainabilist is published by Dubai Carbon Centre of Excellence PSC. Articles reprinted in this issue are copyrighted 2017 by Dubai Carbon Centre of Excellence PSC. All rights reserved. Reproduction in any manner, in whole or in part, without prior written permission of Dubai Carbon is expressively prohibited.

Printed by: Al Ghurair Printing and Publishing LLC P.O. Box - 5613, Dubai, UAE.

“ This year we saw strong market

signals that institutional investors are committed to focusing on climate-sensitive investments.

Nothing in this magazine shall be taken as technical or advice and DCCE waives any liability with respect to any representations made.

To read the latest digital copy go to: www.theSustainabilist.ae 4

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Editorial: fomo@thesustainabilist.ae Commercial: getinvolved@thesustainabilist.ae

INTERVIEW

Green Goals Emirates NBD pioneered the first green auto loan in the UAE and is setting its sights on supporting the sustainable goals of the country, The Sustainabilist talks to Suvo Sarkar, Senior Executive Vice President & Group Head - Retail Banking at Emirates NBD

Emirates NBD was one of the 11 financial institutions in the UAE to have signed the “Dubai Declaration of Financial Institutions in the United Arab Emirates on Sustainable Finance” at the UNEP FI 2016 Global Roundtable in Dubai. What was the outcome of this event and how does the signing of this declaration affect the bank’s future plans?

As one of the first few financial institutions to have signed the ‘Dubai Declaration of Financial Institutions in the United Arab Emirates on Sustainable Finance,’ aligned with the principles of UAE Green Agenda 20152030, Emirates NBD took the initiative to introduce green financial products to the market to support the financing of sustainable transport.

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As the leading UAE bank and an active community player, we believe that Emirates NBD has a responsibility to enhance and

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encourage a greener marketplace.

We launched the Green Auto Loan in January 2017, a first of its kind product in the UAE. It offers preferential financing for customers interested in investing in electric cars, which are sold from approved auto dealerships in UAE. With our Green Auto Loan, customers can avail special interest rates and pre-loaded ‘green’ vouchers which supports payment of Salik (road toll) and parking fees. Additionally, we also approached the Central Bank and Road and Transport Authority (RTA) with recommendations on encouraging the adoption of electric cars.

Over the past year, both the RTA and Dubai Electric and Water Authority (DEWA) have rolled out special incentives for electric car owners, including free charging of electric vehicles at DEWA-approved stations until 2019, free designated green parking in Dubai, free electric vehicle registration and renewal fees, as well as a free Salik tag and license plate sticker for electric vehicles. These initiatives have all gone a long way in supporting customers interested in switching to electric cars, as we collectively move towards a more sustainable future.

What are your thoughts about the current regulations and framework supporting green finance?

At Emirates NBD, we strongly believe in the power of public-private sector partnerships to create significant change. We were among the first companies to support the UAE’s plans to transition to a lower carbon economy. Emirates NBD has continued to work closely with the UAE government as it takes bold steps towards creating incentives, and an infrastructure that supports sustainable means of transport. This is the start of a long-term journey and we anticipate that we will continue to see enhancements in policies as the market for electric cars continues to grow.

The Sustainabilist |GREEN FINANCE

Emirates NBD launched the Green Auto Loan in the UAE. What was the driver behind this initiative and what were the major challenges?

As the leading UAE bank and an active community player, we believe that Emirates NBD has a responsibility to enhance and encourage a greener marketplace. Our commitment to supporting the UAE’s green economy is both an outcome of that understanding as well as our support of the 2021 UAE Vision of a lower carbon economy.

With the entry of well-known electric vehicle brands, we anticipated a need in the market and conceptualised a preferential auto loan product to encourage customers looking to invest. At the time, this was a nascent market with little or no incentive, and we were among the first to offer customers a preferential loan programme providing a further fillip to customers to opt for an electric vehicle.

As first movers in this space, we experienced a few challenges as there was limited awareness and understanding among consumers on EV technology and its long-term benefits. The lack of charging stations outside of Dubai was another factor, along with a lack of clarity on setting up private charging stations. The initial cost of purchasing an electric vehicle remains higher when compared to conventional cars, however, the entry of competitive priced electric car variants and financing options will contribute to increased competition and growth in the overall market.

What are some of the programmes implemented by Emirates NBD, crucial to the overall sustainability of the bank?

Emirates NBD’s strategy and values have always been closely linked to the UAE’s own development goals. Early on, we recognised the need to create initiatives that promote a sustainable low-carbon future, which included: •Introduction of digitalisation of our products and services with the aim to reduce paperwork and offer simplified banking, accessible 24/7.

New EY buyers will be able to charge their vehicles for free at Dewaapproved stations until 2009.

Free electric vehicle registration and renewal fees

New Electric Car Incentives

Free green parking at designated areas in Dubai

Free Salik tag Energy and roads authorities in Dubai introduced new financial incentives to encourage the public to buy new zerocarbon emission electric cars to slash greenhouse gases by 16% by 2021

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License plate sticker identifying the vehicle as an electric car

“Emirates NBD

has continued to work closely with the UAE government as it takes bold steps towards creating incentives, and an infrastructure that supports sustainable means of transport.

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We are also the first bank in region to launch an electric vehicle charging station along with an exclusive parking space for electric vehicles.

•Playing a lead role in our capacity as the UAE’s leading financial institution to enhance and encourage a greener marketplace through innovative financing products.

Our digitialisation agenda has been going from strength to strength and today, only seven per cent of our transactions are conducted face-to-face, with digital transactions going up 30 per cent year on year. For instance, we have introduced completely paperless loans on our revamped online platform supported by our FaceBanking video banking service. Earlier last year, we launched Liv., the first digital bank for the millennial generation in the UAE which

The Sustainabilist The UAE has a nationwide strategy of reaching 50% clean energy by 2050, solar power features heavily in its plans and is expected to account for 25% of the generation mix once a 5GW solar park is fully commissioned in 2030.

Join in!

The UAE has a nationwide strategy of reaching 50% clean energy by 2050, solar power features heavily in its plans and is expected to account for 25% of the generation mix once a 5GW solar park is fully commissioned in 2030.

Where is your energy coming from?

What is your energy source’s environmental impact? Why should you care? What are your renewables options for your home, and your business? It is these questions, and more, that we address in the Energy Issue of The Sustainabilist.

Do you want to be part of the UAE’s clean energy drive? Put your company to the forefront of the UAE’s renewables sector in the Energy Issue, and let companies and individuals find the right expert for their switch to renewables.

GET IN TOUCH AT FOMO@DCCE.AE

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The Sustainabilist |GREEN FINANCE

How does the Green Auto Loan contribute to our environment?

Fuel emission causing environmental pollution affects the earth badly and adds to global warming

Electric Car - Less/No pollution and cleaner environment

supports and promotes green vehicles

Pollution-free planet in future

offers completely mobile based account opening and transactions. Liv. has been received very well by the youth of UAE with acquisitions climbing rapidly. We are also renovating our branches to make them more digitally enabled, and recently launched our first fully digital branch at the Dubai Convention Centre enabling customers to carry out a variety of paperless transactions as well as apply for new products, round the clock.

Do you think green finance is being fully tapped as a market in the UAE? While we have had a significant start, with growing interest among consumers in investing in electric vehicles, we see huge further potential for green financing in sectors such as housing, cleantech, waste management and energy.

The Executive Council of Dubai has recently issued a resolution implementing green building specifications and standards in Dubai, in order to meet the highest benchmarks for pollution free, sustainable development. We have been in discussion with Dubai Carbon to develop green financing for items such as solar rooftop kits, water heaters, waste solutions etc.

What macro-economic fundamentals make the UAE such a good market for Emirates NBD and green finance?

As outlined in UAE’s Vision 2021 and Green Growth Strategy, the UAE’s leadership has demonstrated a deep commitment to building a sustainable and green economy. There is a drive towards environmental education, capacity building and sustainable development as well as sustainable modes of transport and alternate energy sources. The UAE also boasts a competitive knowledge-based economy that attracts people across matured and evolving economies – the demographic is largely young, working professionals willing to explore new technologies and a greener lifestyle.

Is Emirates NBD planning to expand its green product portfolio? What are the future green plans for the bank?

Creating a sustainable environment is an integral component of Emirates NBD Group’s Social Investment Strategy Framework, and we are taking several steps towards encouraging a green culture within the bank. Our future initiatives include creating innovative financial products and services that support the green economy as well as focusing on more sustainable internal operations.

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Leader in the Energy Transition We’ve been the GCC’s leading energy partner for 30 years, offering expert solutions in the field of low-carbon energy and transformational energy services.

With our customers, we forge ahead together in building a sustainable future for the region.

The Sustainabilist |GREEN FINANCE

As premier partners to EXPO 2020, we have also aligned ourselves with EXPO’s key themes of opportunity, mobility, and sustainability as we continue to support the UAE’s transition to a lower carbon economy.

In addition, we will look to build on our internal ‘Go Green’ initiative by reducing printing and automating internal process to lower paper usage.

Emirates NBD’s Vision & Key Drivers Values

Dubai Declaration on Sustainable Finance

Understanding the Framework KEY DRIVERS: The overall direction of our Sustainable Banking Framework is guided by four strategic drivers: The United Nations Sustainable Development Goals (SDGs)

The UAE Vision 2021

The Dubai Declaration on Sustainable Finance

Our Bank’s Vision and Values We believe these drivers enable us to capitalise on our assets and expand our focus areas to achieve our responsibility towards creating Socio-Economic Shared Value.

Source: Emirates NBD Sustainability Report

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Operating income for the period rose 9.7% to AED 3.96bn from AED 3.61bn, while net impairment loss on financial assets shrank by 40.8% to AED 431.3mn from AED 728.6mn, reported for the third quarter of 2016.

Customer loans stood at AED 304.1bn at the close of the third quarter, a five per cent rise from the end of 2016 levels, while customer deposits climbed four per cent to AED 322bn from the end of last year.

Total assets reached AED 461.1bn at the end of the third quarter, up three per cent from the end of 2016.

Emirates NBD said it expects net interest margins this year to range between 2.45 and 2.5% and improve in the next quarter because of recent interest rate hikes and cheaper funding.

Currently over 9,000 people, representing 70 nationalities, are employed by Emirates NBD, making it one of the largest employers in the UAE. The banking group also has operations in Egypt, Saudi Arabia, Singapore, the United Kingdom, and representative offices in India, China and Indonesia.

e Ce r ti

S Accredited by international standards like JAS-ANZ and CDP

Aligned with international best practice and Science Based Targets

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UN Sustainable Development Goals

Products & Services

Brand

UAE Vision 2021

Enablers

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em h c

Operations

CEMARS n

Human Assets Governance & Ethics

Focus Areas

Social Investment

Easier carbon measurement and reporting

sure m ent

Responsible Finance

Emirates NBD is one of the UAE’s largest banking groups according to assets. The Bank’s Q3 2017 results showed a 15% increase in profits year on year up to AED 6.17 billion. The Bank’s balance sheet continues to strengthen with stable credit quality and further improvements in capital and liquidity. TAccording to Bank results, the retail banking arm delivered a strong performance during Q3 2017, generating total income of AED 5,043 million year to date, up 11% year-on-year led by growth in net interest income from liabilities and fee based revenues from wealth, foreign exchange and cards.

Fee income year to date comprises 35% of revenue.

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Shareholder Value Growth

Environmental Responsibility

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Technology & Innovation

Helps reduce carbon emissions

E m is si o n d s e

R e d u cti o

Impact Socio-Economic Shared Value

Customer Experience

Reputational and competitive advantage

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Emirates NBD’s Sustainable Banking Framework

Identifies efficiencies and cost savings

Issue 03 | December 2017

The Sustainabilist |GREEN FINANCE

COMMENTARY

Expo 2020: Dubai Already Nurturing Green Economy

What has attracted the applicants to Expo Live’s IIGP is the fact that funds are given as a grant rather than equity with strings attached. This is important because they need flexibility to validate and strengthen themselves rather than having to provide an investor with quick returns. Therefore, our grants fill a meaningful gap, specifically for social enterprises.

At the same time, the grant is provided incrementally, based on agreed accomplishments.

We are supporting a growing movement in social investing, where we can contribute to a future where individuals from around the world have an idea or solution that improves the way we live or protects the environment and they are not discouraged by a lack of funding.

The innovation and partnership programme Expo Live is supporting environmental projects to reach their full potential, with financial, business and promotional support

By Yousuf Caires Vice President Expo Live The green economy is now widely accepted as critical to achieving the global mission to ensure viability of our natural resources for future generations. Within this developing ecosystem, a plethora of environmentally-conscious start-ups and projects are proving that being sustainable does not have to mean going without, but rather that it presents a gamut of new opportunities.

That is why sustainability is one of the two key streams of Expo 2020 Dubai’s innovation and partnership programme, Expo Live.

This flagship initiative is supporting projects from anywhere in the world that are proven to

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have a positive impact on the environment (it also supports projects with a proven social impact).

Expo Live has an allocation of $100 million to financially back projects, but also business guidance, technical assistance, promotion and connections, as well as the opportunity to potentially showcase the idea to the world at Expo 2020 Dubai.

Through our various grant programmes – which respectively target existing projects, university students and anyone in the UAE with an innovative idea – we aim to cultivate a grassroots movement that bolsters creative thinking, problem-solving and collaboration to encourage everyone to address sustainability as a priority.

Expo Live’s flagship initiative, the Innovation Impact Grant Programme (IIGP) recognises that

Expo Live is already supporting 45 projects in 30 countries to reach their full potential, and we are

currently assessing the applications from the third round of the IIGP. Successful projects, so far, range from advanced water cleaning systems, and solar based technologies to edible serving bowls and inexpensive ‘lights’ made from a range of scrap materials. Most of the innovations can be applicable around the world; they just need support – financial and business.

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During the first three rounds of the IIGP, we received more than 2,000 applications from 136 countries, which is beyond our expectations.

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programmes, with among the highest number of applications of any programme on the site.

However, we have received a good mix of tech and non-tech projects. The applications have been from both small entities seeking support and more mature entities looking to expand out of their current markets.

For example, the Expo Live grant provided to Kitenergy will allow this innovative start-up to conduct field tests on a remote island in Cape Verde for its technology that harnesses the energy created from high-altitude wind to more efficiently generate electricity, without geographical limitations. Testing the technology

there will not only give 200 residents access to electricity, but could also power a desalination plant that can produce up to 3,000 litres of water per hour – including 2,000 litres of clean, drinkable water.

In Canada, Expo Live’s grant to Enersion will support the completion of a prototype and test of ‘green chiller’ technology that uses heat to power cooling systems so much more efficiently that it could slash coolers’ energy use by 70%.

These projects are examples of how Expo Live is part of Expo 2020’s multi-faceted approach to addressing the issue of sustainability – and not only during the six-month global event.

Expo Live is also a key part of our legacy strategy; we believe that a sustainable Expo will be one that continues to reap benefits for the foreseeable future, acting as a catalyst or potentially compounding the results experienced during the six-month event.

The projects supported by Expo Live, and the dozens more to come, will have a continued positive impact on the environment, well beyond Expo 2020 Dubai. This legacy is what we hope will cultivate a new generation of green change-makers.

projects and start-ups that address sustainability challenges often require significant funding to reach their full potential, which can be difficult to secure. So, we deliberately support projects and solutions that would otherwise not attract financial and business support from traditional sources.

During the first three rounds of the IIGP, we received more than 2,000 applications from 136 countries, which is beyond our expectations.

The depth of applications proves our case that innovation can come from anywhere and that funding is a crucial component of ensuring that sustainable projects reach their full potential.

Expo Live is now also one of the top start-up grant programmes on F6S, a popular online platform for tech entrepreneurs and supporting

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Issue 03 | December 2017

The Sustainabilist |GREEN FINANCE

COMMENTARY

Expo Live Global Innovators Proving the Value of Sustainability Expo 2020 Dubai’s flagship programme is supporting 45 projects around the world that have a proven positive impact on society, including 18 that are helping to create a more sustainable environment The Plastic Bank is working in Haiti to reduce the amount of plastic that ends up in the ocean through a programme that simultaneously helps to alleviate poverty. Certain convenience stores accept plastic waste as currency, turning it into ‘Social Plastic’, which is then recycled and sold to companies to use in their manufacturing instead of new plastics.

PAPTIC® is a replacement for plastic and other non-degradable, synthetic materials used for short-life packaging requirements

such as shopping bags. It consists mainly of renewable materials – mostly wood fibre; is 80% biodegradable; is more durable than paper; and can be recycled similarly to cardboard.

Kabadiwalla Connect’s mission is to divert urban India's waste away from landfills, helping to cut CO2 emissions as well as increase income opportunities for small scrap dealers known as ‘kabadiwallas’. Kabadiwalla Connect uses technology to link individuals that make up the informal waste ecosystem in Chennai, such

as small waste pickers, small aggregators and material recovery facilities.

Kitenergy’s technology generates low-cost electricity without geographical limitations by using a relatively inexpensive setup involving a kite tethered to a generator on the ground.

Flying 800 to 1,000 metres above ground, kites are pushed by high-altitude wind, which is more readily available and stronger than winds at sea level. This traction energy then gets converted into electricity. Expo Live’s grant will allow

Kitenergy to conduct field tests on a remote island in Cape Verde, providing electricity to 200 residents but also helping to power a desalination plant that can produce up to 3,000 litres of water per hour.

My Shelter Foundation Inc., a Philippinesbased initiative, has developed the ‘Liter of Light’ – an efficient and cost-effective solar lamp that uses immediately available materials, including plastic bottles and inexpensive, basic electrical components, to produce a reliable source of light.

TurboSphere is a new type of power unit based on turbine, which produces almost free electricity by using natural gas stream under pressure and waste heat. It provides clean energy, improves gas transportation efficiency and usage and decreases the amount of polluting emissions.

Enersion's 'green chiller' technology uses heat to power cooling systems more efficiently, which could eventually make redundant traditional air conditioners, chillers and refrigerators.

Planet s.a.s, a group of Italian innovators, is developing an affordable solar distiller to desalinate sea water through distillation.

Eco Fuels Kenya is developing the use of nuts from the croton tree as a source of fuel, fertiliser and food – harnessing an abundant and untapped natural resource in a clean way that also benefits local communities.

EcoConcern is designing and utilising innovative solutions for safe water, sustainable sanitation and a healthy environment.

Nuru Energy encourages the development of entrepreneurship to provide energy access to poor communities in villages across Rwanda, harnessing ordinary people's entrepreneurial instincts so they gain light, as well as a dividend to reinvest in their futures.

INEA has developed an energy management system that optimises energy production while maximising efficiency and sustainability, by aggregating renewable and traditional energy sources onto one grid so that all suppliers have a fair share of the market and consumers pay less.

Munch Bowls are an eco-friendly, edible food container made from wheat, leaving zero waste.

The innovation could make catering at major events far more sustainable, including catering at Expo 2020.

Ignitia has developed a low-cost, sustainable weather algorithm that delivers accurate tropical weather forecasts on a mobile phone. These forecasts help small-scale farmers in West Africa to plan better, managing their crops and water use to increase yields and reduce the risk of being wiped out by bad weather conditions.

Dubai-based International Center for Biosaline Agriculture is developing agricultural production systems using marginal land and water resources that are available in regional desert environments.

London-based Desolenator uses only solar power to purify water from any source, including sea water, which is especially critical in regions

where natural groundwater reserves have been polluted or poisoned, or where seawater is the only water source available.

Mercy Corps is working to provide energy, improve sustainability and stimulate the development of entrepreneurship in Afghanistan's Helmand province. Expo Live’s grant will help to scale up its efforts.

Land Life Company’s Cocoon concept increases the number of trees that successfully grow to maturity, while cutting the use of water needed by 90% or more, without additional assistance. By involving young people in tree-planting, it also creates jobs and stimulates economic growth.

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Issue 03 | December 2017

http://www.thesustainablecity.ae

The Sustainabilist |GREEN FINANCE

INTERVIEW

A Sustainable Real Estate Investment Vehicle

Q. What are your criteria for including properties in The Sustainable REIT?

Jameel Nabulsi, Managing Partner of Sphere Capital discusses the company’s new Shari’ah-compliant Sustainable REIT, a first in the region Q. Can you give us an overview of your sustainable real estate investment trust (REIT) and how it works?

A REIT is a real estate investment vehicle focused on providing distributable income to investors who are looking for real estate exposure. In 1960 the United States enacted legislation around REITs. A REIT pulls together income or income-producing real estate assets, which deliver distributable, predictable returns for investors. Until the end of 2014, the value of global investments in REITs was $2 trillion.

There are different types of REITs for example, equity REITs, which invest in projects, and debt REITs that provide debt to different asset classes.

REITs can also have set vertical strategies, such as hotel REITs, industrial REITs, logistic REITs, multi-family REITs, and office REITs, with some of them investing in core markets or secondary markets, for example. REITs are a very well-known investment vehicle, but are relatively new in the United Arab Emirates.

The Sustainable REIT, which we manage, was a natural evolution from The Sustainable City, where Diamond Developers have developed the first

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sustainable commercial real estate project in the UAE. The Sustainable REIT is based on the three pillars of sustainability: environment, social, and economic sustainability, and captures the economic pillar, providing investors with a sustainable investment product, designed to be socially conscious of their investment criteria and also their investment expectations.

Sphere Capital manages The Sustainable REIT and makes sure the investment vehicle evolves over time, and that we are providing our clients with a distributable, predictable, and recurring income stream, taking this project to a new level in the process.

Q. What makes your REIT sustainable?

Seed investments for The Sustainable REIT will be assets from The Sustainable City. One hundred and eighty villas will form part of the REIT, as well as Fairgreen International School, and The Plaza, which includes apartments, office, and retail space. The REIT invests in sustainably developed real estate, and is valued at approximately AED 1 billion. It is a large REIT and we want to grow it.

The sustainably developed asset holding is how it distinguishes itself from other REITs in the market.

what sustainability means. However, that came through a number of meetings, and the process took roughly 12 months from beginning to end.

As we go forward, the key differentiator for us will be what does sustainable investment mean, and how do we define that? That’s where we are spending a lot of time - on how we take this REIT to the next level.

Q. Why did you decide to launch a sustainable REIT? This was just a natural evolution of the discussions with the sponsors of The Sustainable city. We wanted to form a Shari’ah compliant investment product based on sustainability. Sphere Capital as an investment manager wanted to distinguish ourselves by providing investment products that are both different, and can add value. We do not simply repackage an investment but analyse how our expertise in certain fields could add more value. The Sustainable REIT is one of those investment products focusing on investments with an angle, almost an arbitrage where we see opportunities that can offer significant value to our clients.

Q. Did you face any challenges or difficulties developing this REIT? If yes, how did you work through those challenges?

I think with anything new there will be challenges.

It took us longer than expected to set up the REIT, but that was just sheer time in terms of setting up a new investment vehicle, and the regulations here. We did need to educate the regulator here about what we were doing, and

The Sustainable REIT is going to be managed

by Sphere Capital and obviously we get a lot of questions from clients on what does it mean to be sustainable, and questions on our strategy to grow the REIT. In order to answer these questions, we have laid out an investment thesis on investing in sustainable assets. It’s not just developing sustainable assets because there’s a limitation on how much REITs can develop, which is 30% of the Net Asset Value.

We have to look for other investments, and there is no shortage of real estate investments out there. We do not have specific criterion at the

“As we go forward, the key differentiator for us will be what does sustainable investment mean, and how do we define that? That’s where we are spending a lot of time - on how we take this REIT to the next level”

moment and these are evolving. Our mandate is to grow the REIT from AED 1 billion to AED 5 billion over the next five years. Once we find an asset, from a due diligence perspective, we conduct research on the asset, such as an evaluation report, engineering report, and a legal due diligence report. Where we are differentiated from other REIT investment managers, is that we also do a sustainable assessment report. We use a third-party consultant, which looks at a building and assesses ways to improve performance, and make the building more sustainable.

There are three areas that we focus on, one is obviously energy management, from both a demand and supply side. The second one is water management, both demand and supply, and lastly, we look at material and waste management. Our consultants, look at all three aspects and figure out how we can make a building more efficient, in terms of conservation, utility utilisation, and we also educate the owners’ association. We have put a plan in place for all of our future projects to make the assets as green as they can be, given some of the constraints that are in place with any building.

We have a social responsibility to making existing buildings green, versus just developing or trying to locate green buildings as the whole.

We are looking for assets that provide more diversification for the REIT, and assets that we can retrofit and renovate, and make more efficient by putting a sustainable plan in place and developing it. We will be looking at office buildings, villas, and different asset classes that we can add to the REIT, and that can provide us with a diversified portfolio, primarily here in Dubai and Sharjah to begin with.

Q. Why should investors consider a sustainable REIT over conventional? What benefits does it offer them?

First and foremost, we are different because we are focused on sustainable investments and we have a sustainable investment philosophy.

Investors are entering an income-oriented fund, which is providing distributable income from an investment grade portfolio. The REIT is new and there is no functional obsolescence. However, beyond that, the sustainable investment strategy itself - where we take buildings, renovate and make them more sustainable - results in higher

yields than that of a conventional REIT. This is also because we have the expertise in-house to invest in the sustainable components of a building, which yields very attractive and strong risk-adjusted returns.

The other aspect that makes us different from a sustainable perspective, is the fees that we are charging are substantially lower than our competitors have set here, as well as by global standards. Thirdly, we distinguish ourselves by having development expertise from our shareholders in both development and investment management.

Q. What rules and regulations are in place for the creation of sustainable REITs in the UAE? There are existing rules and regulations on NASDAQ Dubai, and that is where the two existing publicly traded REITs are traded.

Currently, there is not a lot of regulation in place, other than keeping leverage levels lower, which is something we try to achieve anyway. Leverage is capped off at 40% of the Net Asset Value of the REIT. However, from a regulations perspective, 80% of auditable distributable income should be distributed, and again, development is limited to 30% of Net Asset Value. We are obviously managing both of those in our REIT right now.

At present, The Sustainable REIT is private, however we intend to take it public and we are spending the next 18-24 months preparing it for a public listing on NASDAQ Dubai. This is something that needs to be done from an audit perspective, and from a historical track record purpose. Investors and clients to be comfortable that we can manage this REIT effectively.

Currently, we are managing The Sustainable REIT as if it is a REIT, but it is privately held versus being traded publicly.

Q. Is there anything else you would like to add?

In 2018, we expect this REIT to outperform beyond the expected yield. The feedback we have received for The Sustainable City has been excellent, and the demand for the space has been overwhelming relative to where we see the real estate markets. The products that have been developed are in very high demand and the tenant/resident satisfaction is very high as a result.

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Issue 03 | December 2017

need to bring your own investors rather than just relying on the platform to deliver them.

Q. Why do you think crowdfunding is particularly well suited to green projects and more sustainably focused businesses?

Being a green company helps attract investors, many of whom are not only looking at hard financial returns but also appreciate the opportunity to invest into something that has a positive impact on the planet. I don’t think that we wouldn’t have been able to raise this much money so quickly if we had been building a cigarette factory.

INTERVIEW

Q. What are the next steps for Enerwhere - will you be looking to continue on your crowdfunding journey having completed three funding rounds?

Daniel Zywietz, Founder and CEO of Enerwhere talks about how crowdfunding is a viable way to raise funds for green businesses and projects Q. Tell us about Enerwhere.

Enerwhere is a Dubai-headquartered solar company with two main business segments; firstly, we offer solar hybrid power and cooling services to commercial and industrial customers without a stable grid connection. In most cases, we use a combination of solar, diesel generators and batteries to provide reliable power 24/7 in places where the local utility grid is either not available or too weak to supply all of the loads.

Typically, we finance all of the assets, with the customer simply paying monthly per kWh (for electricity), per room (for cooling), or per operating hour (for equipment like cranes).

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As all of our assets are modular and transportable, we can offer these services to customers on contracts as short as six months, or as long as 25 years, while adjusting to the growing energy needs of our clients.

Secondly, we build, operate and maintain commercial-scale solar rooftop plants for customers under Engineering, Procurement & Construction (EPC) contracts; We are one of the largest solar contractors under DEWA’s Shams Dubai programme, and have a significant project pipeline in the UAE, Oman, Nigeria, and a number of additional countries in Africa.

zstock/Shutterstock.com

Raising Financing for Green Projects Q. As a start-up business looking for investors and financing what led you to crowdfunding?

Primarily the difficulty of dealing with conventional banks. In the UAE, financing a cleantech startup isn’t easy, as there are few Venture Capital (VC) firms outside the tech sector. Commercial banks have drastically cut down on their lending to SMEs, and the liquidity crunch from lower oil prices has made customers & suppliers much less willing to provide accommodating payment terms to new companies. Crowdfunding was not therefore what we set out to do – but it turned out to be a good solution to our financing problems.

Q. What are the benefits of investment via crowdfunding, compared to other routes?

Some of the key benefits are the wide variety of

different investors on the platforms, as well as the relative speed and ease of administration, compared to traditional banks. The variety of investors is particularly important for a company bringing new technology to the region, as at least some of the investors will already have experience with the technology in their home countries. This means it is easier to find early adopters, without having to convince conservative financing institutions.

While we have enjoyed our very successful crowdfunding campaigns, the truth is that we are growing very rapidly, more than doubling revenue every year. At this rate of growth our funding needs are getting larger very quickly, and we are hitting the limits of what the current crowdfunding market in the Middle East can deliver. Our next round will most likely be focused on institutional investors, however, we are looking forward to bringing some of our individual projects to a crowdfunding platform in the future. So watch this space!

“Being a green company helps attract investors, many of whom are not only looking at hard financial returns but also appreciate the opportunity to invest into something that has a positive impact on the planet” Andrey_Popov/Shutterstock.com

The Sustainabilist |GREEN FINANCE

Q. What would you say are the top three things you have learned from your crowdfunding experiences?

There are many, and the details obviously differ between equity and debt financing, and the different platforms – but, the top three are probably: to prepare early, to budget for double the initially planned time, and to assume that you

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Issue 03 | December 2017

The Sustainabilist |GREEN FINANCE

COMMENTARY

Fruitful Investment Pure Harvest Smart Farms is revolutionising agriculture in the UAE, investing $4.5 million of seed financing into greenhouse technologies The vision behind Pure Harvest has been to supply premium quality produce directly to retailers, airlines and hospitality food distributors – substituting high cost, air-freighted, seasonal imports and enabling the United Arab Emirates (UAE) to advance its ongoing mission towards a more sustainable, self-sufficient food system.

“We believe that, at scale, our technology has the potential to transform the UAE and broader GCC region into a dynamic, international hub for fresh produce production and help to diversify the regional economies away from dependence on the petroleum sector e.g. – UAE uses 70% of its water in agriculture producing just two per cent of its GDP – we are seven times more waterefficient and at full adoption, we could be 14% of GDP at constant prices. However, our premium hydroponically grown fresh produce is higher quality than incumbent regional supply. We will be priced at a premium to regional supply and in theory could reach 15-20% of GDP!,” said Sky Kurtz, CEO and co-founder of Pure Harvest.

The founders, Robert Kupstas, Sky Kurtz, and Mahmoud Adi, are graduates of Stanford University.

Kupstas initiated the foundational technology and market-related research behind the business case for Pure Harvest in the fall of 2013. Kurtz and Kupstas then spent the better part of a year working together refining the business plan, validating the technology solution, visiting comparable high-tech greenhouses in the USA and Holland, and outlining a go-tomarket strategy for the company.

In June 2016, Adi joined the team as co-founder, Emirati partner, and foundational investor. All three co-founders have worked together in validating customer interest, selecting technology partners,

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and identifying and acquiring a site for the initial pilot, among other activities. The co-founders have also engaged with UAE government and semigovernmental entities to validate key elements of the investment thesis, including public sector food and water security priorities, as well as identifying future sources of financing the company hopes to access, including SME development funds, offset financing, and equipment finance companies.

Pure Harvest has received significant positive reactions to its ventures since its launch. “In addition to expressions of interest from several leadig retailers in the UAE, we have been working closely with government agencies such as the UAE Ministry of Environment and Climate Change to support their innovative food security policy initiatives. The Government recognises the imporrtance of water-saving technologies, and local production capabilities for food. We hope to engage more fully with other agencies including the Abu Dhabi Food Control Authority, the Farmers Serviec Center, and others, to demonstrate the significant potential for controlled environment agriculture oto do our part to tackle many of the region’s food, water, and sustainability challenges,” said Kurtz.

On 16 November, 2017, Pure Harvest Smart Farms announced a historic seed investment of $4.5 million in a financing round that was significantly oversubscribed (upsizing the round, final amount TBD). This historic financing followed an earlier $1.1 million pre-seed round led by Abu Dhabi-based Shorooq Investments. Venture financing was provided by a leading federal government-backed fund, the Company’s technology partners, and a consortium of Angel investors from around the world, all of whom were strongly aligned with the

Company’s mission—to offer a true and tangible food security solution to the region by deploying advanced and sustainable controlled-environment agriculture technologies in order to grow premium quality local fresh fruits and vegetables year-round; overcoming the region’s harsh, arid climate and increasingly scarce fresh water resources.

In addition to receiving investment from Shorooq Investments, David Scott, International Strategy Consultant Scott and Sultan bin Khalid, Pure Harvest is backed by the following (non-exhaustive) list of angel investors: Magnus Olsson, Founder and Managing Director of Careem; Hazem Abu Khalaf, CFA, Director at The Abraaj Group; Jim Finnigan, Co-Founder of SoFi; Peter Satow, Founder & CEO of PESA Advanced Hydroponics; Abdulrahman Kaki; Anmol Budhraja, Founder and CEO and Arnab Chatterjee, Managing Director of Three Comma Financial Consultancy; Charles Anderson, Founder & CEO of Currency; Florian Weidinger, Fund Manager at NESTOR Far East Fund; Douglas Kelbaugh FAIA, Professor and former Dean at the University of Michigan’s Taubman College of Architecture and Urban Planning; Mohammed Khudairi, Managing Partner of Khudairi Group; Troels Andersen, CEO of Mondo Ride; Husam and Muhammed Al Zubair of The Zubair Corporation; Bina Khan and James Joy, Co-Founders and Managing Partners of Summit Venture Partners; Edmund Ang, CFA, Vice President at First Energy Bank; and Ted Cleary, Principal at Archer Private Investments, among others.

Finding funding Fundraising in the GCC for a capital-intensive (hardware_ IoT-enabledonshore agribusiness has not been an easy task and there are a number of reasons for this. Firstly, risk capital markets in the GCC region in general are still relatively young, with most early-stage institutional investors focusing on less asset intensive industries, or industries such as internet-enabled businesses, and e-commerce companies, which make up the lion’s share of all investments in the region.

There are very few hardware - or other investments - in-region. Family offices and angel investors are typically less experienced with the multi-series venture-financing models that are prevalent in places such as Silicon Valley, New York, London and Hong Kong.

“Our team has also found that Middle Eastern investors have, in general, a lower appetite for risk and prefer to invest in ventures where the business models and technologies have already been proven locally [few exist]. That being said, we have a compelling business case that has been proven in comparable climates around the world (e.g. Arizona, Texas, Mexico, Australia) and we have been fortunate to draw support early on from a number of prominent, forward thinking investors. For instance, our cofounder Adi´s investment firm, Shorooq Investments, provided the financial and local market support necessary to get our venture off the ground,” said Kurtz.

Proceeds from the financing will be used toprocure technologies, fund construction, and support investments in people and working capital necessary to build and operate the first-of-its-kiind high tech greenhouse in Nahel, UAE. The Company expects to complete the facility by mid-year and to begin selling its products in the second half of 2018. Following the demonstration of its technology and its ability to serve the fast-growing demand for fresh local produce, Pure Harvest intends to quickly expand in the region, recognising that other GCC countries are facing the same challenges that the UAE faces with regards to import-dependence, water shortages, and climate-driven production constraints.

Looking back, given that Pure Harvest is an asset intensive business requiring large surface areas to grow, the company initially faced a challenge in securing access to an appropriate site for its venture. Restrictions on foreign ownership of suitable land and also the limited tradability of land itself among Emirati nationals made its land search process complex. It is also not easy to find a site that is located away from the coast (where humidity and cooling costs are highest) that also holds good quality groundwater supplies. Our advantage in having an Emirati national as a co-founder has investor helped Pure Harvest to get past these tactical and legal hurdles. The other major challenge has been securing the sizeable funding needed to build (discussed above).

“The top continuing risk to our company is an inability to hit our performance quality and yield targets due to extreme climate conditions (heat, humidity, volatility). A key challenge in the UAE is the nighttime humidity, which must be addressed with cooling technologies that are expensive, and as such, we must demonstrate that we can effectively and economically meet this challenge with out

solution. The other two risks our company is facing relate to labour management and competition from incumbent agribusiness concerns. What we are doing is not easy and the barriers to entry are very real. We will seize the first-mover advantage by being the first to prove that year-round production of commercial quantities of fresh fruits and vegetables is possible in the hot and humid UAE climate. We also believe that buying models in the UAE can be improved to the benefit of both consumers and endconsumers. We will of course work to rapidly scale our growing area footprint in order to optimise our cost structure in anticipation of new market entrants that will almost inevitably attempt to follow in our footsteps,” Kurtz told The Sustainabilist.

Pure Harvest has a deep understanding of the technologies needed to combat the challenges of hot/ humid climates, has a strong team, including world-leading/expert advisory board members, and will partner with best-in-class technologies from around the world to ensure it maintains a competitive edge. Lastly, the high-skilled nature of growing in a high-tech environment cannot be understated. It is not plug-and-play, companies must invest in word-class growers that are experienced in similar conditions, (few exist), and then train people to scale.

Pure Harvest is grateful to have supportive/ accommodative leadership in the United Arab Emirates that understand the critical importance of our solution (food security, water conservation, economic diversification, sustainability); however, this could of course change in the future.

Pure Harvest would also like to partner with the Government for CO2 solutions. The company intends to demonstrate a new system for capturing carbon dioxide (CO2) from flue gas emitting industrial processes (desalination, power generation, etc) and transportating it via a pipeline distribution network to fruit and vegetable greenhouses. This would turn greenhouses into a valuable infrastructure asset/new utility which would further support the Government’s desire to diversify away from oil and achieve carbon targets.

Concentrated Solar Power (CSP) technologies could be used to power desalination of seawater, which would then be used in greenhouse irrigation and power-intensive cooling systems.

“Over time we hope to source more content locally to both support the local economy, and lower our production costs,” Kurtz noted.

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Issue 03 | December 2017

Black Kings/Shutterstock.com

The Sustainabilist |GREEN FINANCE

strong advocate of financing clean technologies.

We continue to use platforms, such as the Dubai Investment Week or our Green Leadership Series, to promote the benefits of green financing to a wider audience with the end goal of building lasting private -- and public partnership (PPP’s).

I strongly believe PPPs will play a particularly important role in the success of financing a greener and more sustainable Dubai. Speaking to businesses from around the world, it is evident that a lot of companies face the same internal and external pressures when it comes to green financing.

Whilst investors continue to expect high returns, social pressure keeps mounting from the general public to divert investments into more sustainable projects and developments. PPPs offer a solution to spread the potential risks and help encourage companies and government stakeholders alike to invest into projects that are to the benefit of their wider communities.

Investing in Dubai’s Green Future

By Marwan Abdulaziz Janahi Executive Director, Dubai Science Park Chairing Member of the Pharmaceutical and Medical Equipment Taskforce of the Dubai Industrial Strategy 2030 The world is starting to wake up to the realities of climate change. Unsurprisingly then, the term ‘green financing’ - defined as comprising of all forms of investment that take into account the environmental impact and enhance sustainability - has taken centre stage and is now widely associated with big investments, large-scale projects and the notion of a brighter future.

Led primarily by the banking and insurance industry, this development is significant in many ways, but two are worth highlighting. Firstly, we are witnessing something atypical for an industry notorious for short-termism, which is the shift towards sustainable long-term goals.

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The second observation is that of an industry accused of working for the benefit of the few, which is now turning to a finance vehicle for benefit of the many.

greenhouse gas emissions, as the first country in the region and we see the country advancing in the sphere of green financing with the introduction of green bonds last year.

As the United Arab Emirates (UAE) has been an early adopter of sustainable goals, we have seen the introduction of environmentally-friendly policies such as the UAE National Climate Change Plan 2050, as well as large scale projects, such as the Mohammed bin Rashid Al Maktoum Solar Park, coming to life. The UAE has ratified the Paris Agreement, an agreement within the United Nations Framework Convention on Climate Change (UNFCCC) dealing with

At Dubai Science Park (DSP), we encourage green financing in many ways. We invest in our key assets - our community, our network and our people.

As we continue to be in a unique position of working closely with The Government of Dubai, industry leaders and academia, we strongly encourage ‘green financing’ options amongst our stakeholders. In recent times, we have been a

Beyond the promotion of PPPs to advance the green financing sector in the UAE, we have invested into building efficiencies. Take our Laboratory Complex for example, which has received the LEED Silver certification in 2010, making it the first lab building in the region to achieve this distinction. The building incorporates facilities for the improved usage of resources such as water, energy and materials.

At the same time, DSP attracts new and some of the most innovative businesses that can positively contribute to the UAE’s green economy. One industry heavyweight we have already attracted is First Solar, which is involved in the Mohammed bin Rashid Al Maktoum Solar Park, as well as the lesser known Euka International, a company that markets paint that generates solar power from buildings.

By Yuganov Konstantin/Shutterstock.com

OPINION PIECE

As a convener of many events, we see ourselves in a special position where we want to stimulate discussion around trending topics related to the green economy. PPPs have been at the centre of many of our environment-focused events and the bi-annual Green Leadership Series, an interactive industry event to enhance and expand the green sector in the UAE, is one of DSP’s key platforms to promote best-practices and trends amongst our key stakeholders, whilst seeking solutions to positively contribute to the government’s forward-looking policy directions.

I believe green financing can offer a new way for businesses, communities and the society as a whole to finance sustainable projects.

Without the injection of financing going into sustainable and environmentally-friendly projects the shift towards a green economy

will not be successful. Risk needs to be shared and PPPs need to be encouraged. At DSP, we seek to play a convening role to facilitate this positive change. After all, what alternatives do we have to tackle the impending impact of climate change?

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Issue 01 | 23rd October 2017 Issue 03 | December 2017

EDITORIAL

Hedging Your Bets Foreign exchange fluctuations can severely affect the willingness of foreign investors to put their money into renewables in developing countries, but there may be a solution Exchange rates in developing countries are often volatile, and these swinging rates mean that if a renewable energy project is financed by foreign capital, it needs a currency hedge to protect against currency devaluation.

To take a recent currency slump example, South Africa saw its rand sag against the dollar over the last 24 months, and this, coupled with continuing volatility, may impact the split between foreign and domestic investment in any upcoming renewable energy deals.

MaxxiGo/Shutterstock.com

Foreign investment of equity and debt in the South African Renewable Energy Independent Power Producer Procurement Program (REIPPPP) dropped from 40% in round three to around 30% in round four. European firms have provided much of the foreign finance and projects submitted in 2015. Since it was launched in 2011, the REIPPP has attracted $15.2 billion in investments, according to the South African Department of Energy.

Mitigating the risk Currency risk is one of the most persistent, and most difficult to tackle barriers to renewable energy and climate investment in developing countries. In countries with underdeveloped capital markets, such as countries in Sub-Saharan Africa, the only viable option is to finance projects in a foreign currency – such as dollar or euro, according to The Climate Finance Lab.

Foreign exchange rate fluctuations can severely impact investments into renewable energy projects.

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However, foreign exchange rate volatility means that any renewable energy projects in countries where exchange rates can fluctuate, and foreign investors are financing projects, a currency hedge needs to be implemented to prevent the risk of currency devaluation and protect the investor, otherwise, foreign investors may risk losing any gains they might have made.

Because a project’s revenues are often in local currency, this creates a risk that those revenues will not be enough to pay back foreign debt if the local currency loses value. The long timeframes involved with renewable energy

investments can mean changes in the value of a currency of 50% or more. This can spell disaster for a project.

subsidy. Moreover, the subsidy is non-recoverable even if the currency does not depreciate as much as expected.

An interlinked barrier is interest rate risk, according to the Climate Finance Lab. Loans in developing countries are often only available with a floating interesting rate – meaning that debt repayments increase if interest rates rise.

Changes in interest rates also affect the value of a currency, so these two risks can compound, and the uncertainty can discourage investors from pursuing what would otherwise be profitable and important investments.

If currency risk is broken down into different tranches, then there may be a stronger argument to subsidise the tranche of the FX risk, as the FX Hedging Facility does, rather than partially subsidising the overall currency risk, as is the case for subsidized cross currency swaps, according to the Lab.

Finding a solution Currency hedging is one of the solutions, but that too has its problems. According to the Climate Policy Initiative, longer-term currency hedges (beyond three to five years) are not easily available in many developing markets. In addition, marketbased hedging can be expensive, in India for example, it is seven percent, or higher for a tenyear hedge, ultimately making foreign financing just as expensive as domestic financing.

Recent analysis by Climate Policy Initiative shows that a government-sponsored currency hedging facility, if designed appropriately, could not only provide long-term hedges (ten years) but also reduce the hedging costs by up to 50%.

The Government of India has set targets to achieve 175 GW of installed renewable energy capacity by 2022. To meet this target, around $189 billion of investment was, and will be required between 2016 to 2022. According to The India Innovation Lab for Green Finance, it would be extremely difficult to meet this investment requirement through domestic investment only, and foreign investment is the only way forward.

The FX Hedging Facility, an initiative supported by the India Innovation Lab for Green Finance, is a customisable currency hedging product that lowers currency hedging costs by slicing the risk of adverse currency fluctuation into different tranches and allocating it to different stakeholders, while maintaining the exposure of the borrower to manageable levels. A simpler way to reduce the cost of currency hedging is to provide a direct subsidy to a market swap, however, this may not be an efficient use of the

The FX Hedging Facility can be structured for both debt and equity, depending on requirements, if these requirements closely follow the defined structure, according to the Lab. Beyond this depreciation rate, and up to a user specified

The REIPPP has attracted $15.2 billion in investments upper limit, the coverage will be provided by the FX risk underwriter. The upside benefits due to currency depreciation being lower than expected will remain with the hedging facility, and can be returned either to the donor or the user after the tenor of the transaction. The transaction requires two separate contract agreements by the project developer/investor, an agreement with the hedging facility to cover currency risk up until the customisable annual currency depreciation rate; and another agreement with an FX risk underwriter to cover currency risk beyond that rate till an upper limit.

Benefits of FX Hedging

Increases ability to forecast future cash flows.

Minimises the impact of exchange rate volatility on profits.

Diminishes the need to attempt to forecast exchange rates on profits.

Helps ‘buy time’ for a company to adjust its marketing and sales strategies should the domestic currency rise in value, thereby reducing the firm’s competitiveness abroad on profits.

SOURCE: Hedgebook

The Sustainabilist |GREEN FINANCE

This FX Hedging Facility has the potential to reduce the cost of currency hedging by eliminating the credit risk cost, and to mobilise a minimum of around $9 of foreign investment per dollar of donor grant, with more than 50% probability that donor grant will be fully recovered.

interest in becoming the underwriter of the FX Hedging Facility. Multiple potential users of the Facility have shown interest in executing pilots of this product.

According to the Lab, the FX Hedging Facility is currently at an advanced conceptual phase with a high-level transaction structure and pricing already defined. A commercial bank has shown

What this means is that soon, there may be a useable facility for interested investors to both protect their investment and help developing countries reach their sustainable goals.

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Issue 03 | December 2017

The Sustainabilist |GREEN FINANCE

Benefits for issuers

The Sustainabilist reached out to Hadi Melki, Managing Director & Regional Head Middle East, S&P Global Ratings to understand the new S&P Global Ratings Green Evaluation, to learn how the green bond market has evolved, and understand what can be done to make sure investments are truly green Green issuances and investments are becoming more and more popular as investors become aware of their money’s impact on the planet. The trend was propelled by the 2015 Paris Climate Agreement, and the impetus it created to finance $1 trillion a year in investments for renewable energy and other initiatives to limit global warming, according to S&P Global Ratings.

In light of this trend, S&P launched the S&P Global Ratings Green Evaluation last summer in the region and it is supposed to enable companies to obtain an assessment of the greenness of their issuance. This could be for project finance, corporate finance, structured finance, or any kind of asset class where you have some green element associated with financing.

Green finance is a growing trend, and one that benefits both investors, and the planet.

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ImageFlow/Shutterstock.com

“It [the evaluation] is not trying to say you are green, and you qualify, or you are not green, and you do not qualify, rather it is supposed to stress the gradation of greenness in the financing. The more obvious green features the financing has, the better the score will be on our scale. So, for mitigation projects for example, we will have a scale of E1 to E4 and if you are closer to E1 you have more of a green financing tool than if you are an E4,” Hadi Melki, Managing Director & Regional Head Middle East, S&P Global Ratings told The Sustainabilist.

The evaluation system is also not a rating, S&P are distinguishing this evaluation product from an assessment of credit quality. The evaluation system is rather about the relative advantage of conducting financing that has green qualities, relative to traditional forms of production that are perhaps more environmentally hazardous, it is giving investors a sense of the level of environmental sustainability in their investment.

The pillars that are used to assess the greenness of a bond or investment include looking at governance and transparency. This goes further than traditional methods however, assigning for example - for a mitigation project - the new benefit of going down the green financing route as opposed to the traditional form of energy production. That method also looks at the jurisdictional elements, and how power or energy are being produced historically, and then it compares that with what a particular green focussed financing is intended to achieve.

“You could have, for example, a jurisdiction where historically there has not been any kind of green project, or assets. You would then have a very high score in terms of the relative benefits of conducting the green financing. In contrast if you are conducting green financing in a jurisdiction, where there are a lot more renewable elements, you might not get as high a net-benefit ranking score,” said Melki.

The S&P green evaluation process looks at your jurisdictional specificities and what exists in the market before S&P assigns a mitigation component to the green assessment.

“Mitigations generally look at what is the benefit of conducting this way of producing energy vs. the existing way, adaptation looks at the ways to prevent natural disasters from occurring as a result of the transaction that you are contemplating. Typically, it would be geared towards flood relief and flood disasters, environmental disasters and what your particular asset is doing to mitigate against that. The approach gives you an additional way of assessing both mitigation type projects and adaptations type projects as well with a final score,” Melki noted.

“If there are investors out there for whom this kind of thing matters – socially responsible investors, investors that are particularly interested in the green space, that could be an interesting asset for them to explore as part of their portfolio.

So, if you are a sponsor, it is basically being able to tap potentially not only the conventional market, but also the market that is particularly interested in green elements,” stated Melki.

The GCC and its individual members’ focus on moving towards a much more sustainable and greener practices is driven by CAPEX plans, which generally come with specific targets from the government. Those targets go towards infrastructure development, social development and, as part of that there is a desire to improve the socio-economic landscape and to create sustainable economies.

“If you look at the region, here in the GCC for example, there is a gradual shift being implemented towards renewable energy so

BENEFITS FOR ISSUERS Why green?

• Diversify your investor base.

• Potential to enjoy long term pricing advantages.

• Internally benchmark your green performance Y-O-Y. • Send a strong, pro-active message to stakeholders.

• Appeal to millennials as employees and customers.

BENEFITS FOR INVESTORS Why green?

• Meet your clients’ needs/requests and satisfy your green mandates.

• Balance risk-adjusted financial returns with sustainability benefits.

• Reduce time to evaluate a complex and growing investment type.

“The more obvious green features the financing has, the better the score will be on our scale.” management, water treatment, and sustainable housing. The proceeds are solely dedicated to financing green projects, as defined within the city’s environmental framework, according to the S&P report. This issuance scored an E2/67 overall score, which was an impact weighted aggregate of three pillars (Transaction Transparency + Governance + Mitigation).

Source: S&P Global Ratings

Revolutionising the Bond Market

One of the major benefits for an issuer is that they will now be certified by the S&P Global Ratings Green Evaluation. The issuer will now have a stamp or certificate issued with their ‘green score’ on it that can be utilised to attract potential investors to the bond or financing.

therefore, conducting green finance and green transactions fit nicely with the transformation that is occurring in this society,” said Melki.

However, it is still early days in the launch of the evaluation mechanism. S&P started with the City of Gothenburg, Sweden green bond issuance, on 15 June, 2016. Gothenburg issued Swedish krona (SEK) one billion of green bonds due 15 June, 2022 to fund a number of eligible projects as part of its wider environmental initiatives.

In accordance with the city’s environmental programmes, green bonds proceeds are targeted at financing projects in renewable energy, energy-efficiency, public transportation, waste

“Since then we have had more green assessments from a variety of different sectors. It is still early days to say whether there will be a notable pricing advantage – enhanced liquidity potentially. It is still a space that everyone is watching to see what the benefits are. When we talk to our GCC issuers, they generally like the idea to be able to claim that they have a green bond or finance and they are, if you look at ACWA power here [Dubai], for example, a major developer in the power space, they are willing to agree to evaluation as long as they don’t have to pay more for it. If it is the same pricing as the conventional they would consider it,” stated Melki.

How green or resilient are your financing initiatives?

Source: S&P Global Ratings

COMMENTARY

An S&P Global Ratings Green Evaluation is an asset-level environmental credential which builds upon today’s existing frameworks of governance and transparency (e.g.

Green Bond Principles) and considers approaches for climate resilience and environmental impact.

The Green Evaluation, which aims to provide investors with a more comprehensive picture of the green impact and climate risk attributes of their portfolios, can be applied to any type of financing, in part or in full. These attributes put S&P Global Ratings in a unique and unrivalled position to help drive transparency and restore supply/demand equilibrium in today’s fragmented green marketplace.

Green Sukuk According to Melki, the potential S&P evaluations for green Sukuk would give issuers a ‘triple whammy’.

“Not only are you targeting investors who are interested in capital markets at large, but you are also tapping potential socially responsible ethical investors, and investors interested in the Islamic component. There hasn’t been yet much of a track record of green issuance in the region, so the jury is still out. If you look at Malaysia they did do a green Sukuk. Tadau Energy was the first green project Sukuk and it sets an interesting benchmark for other issuers in the region who might want to be exploring that route. So, early days, but much promise at this moment in time,” explained Melki.

S&P’s Global Ratings Green Evaluation system goes hand-in-hand with the GCC region’s sustainability goals and while these advance, this form of evaluation may become more and more valuable to issuers, and to the companies and individuals that are buying them.

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Issue 03 | December 2017

The Sustainabilist |GREEN FINANCE

Benefits of certification

EDITORIAL

Certification gives investors’ confidence in green credentials and transparency to the underlying asset allows investors to do their due diligence.

The ability for a financial institution to be able to market the bond as a labelled green bond will foster investor confidence and the wider ranging benefit of customer trust.

Is it Real?

Certification of any green bond or Sukuk is essential so that investors can do their due diligence and know where their money is really going

Mariam88/Shutterstock.com

As well as certification, issuers may also engage a verifier for regular assessment throughout the tenor of the bond (optional). This may provide issuers and investors with additional comfort in the ongoing status of the bond. Issuers admitting bonds to the green bond segments on London Stock Exchange, for example, must provide a third-party certification that the instruments are considered green bonds.

leading environmental NGOs provides ongoing oversight of the Certification Scheme as well as decisions on certifications. However, the Climate Bonds Standard is not a financial standard and does not imply any impact on the credit ratings of specific investments — the obligation to perform financial due-diligence remains with investors, just as it does for other investments.

The Climate Bond Certified Mark is registered in many countries and is used to designate Certified Climate Bonds. For investors, the Certification

Scheme is a screening tool that labels bonds as Climate Bond Certified.

It avoids investors having to make subjective judgements or do expensive due diligence on the green attributes of certified investments.

For issuers, the Certification Scheme is a voluntary initiative, which allows them to clearly demonstrate to the market that their bond meets industry standards for climate integrity, management of proceeds, and transparency.

Climate Bond Certification process The Climate Bond Certification Process has two phases aligned with the normal process for issuing a bond. This allows the Climate Bond Certification Mark to be used during the pricing and marketing of the bond and ensures that the integrity of the mark is maintained after issuance of the bond and the allocation of bond proceeds.

The choice of the certification provider is up to the issuer and its advisors. London Stock Exchange does however, set minimum criteria that the third party green bond certifier should meet for the instruments to be included in the relevant London Stock Exchange green bond segment.

Credible, science-based, widely-supported guidelines about what should and should not be considered a qualifying investment helps investors make informed decisions about the environmental credentials of a bond, according to the Climate Bond Initiative, one of the most widely used green bond certifiers. Their certification, the Climate Bonds Standard provides clear, sector-specific eligibility criteria for assets and projects that can be used for Climate Bonds and Green Bonds. The Initiative seeks to develop mechanisms to better align the interests of investors, industry and government.

It is important for investor confidence that green bonds and Sukuk are properly certified.

The presentation noted that women investors are two times more likely as men to consider the impact of their investment. Among all investors, millennials are two times more likely to make investments that target environmental and social outcomes. This represents a huge opportunity for the financial sector.

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However, labelled green bonds represent only 17% of climate-aligned bond universe, so investors need to be sure that what they are investing in is actually financing green projects. A labelled green bond is a bond that earmarks proceeds for climate or environmental projects and has been labelled as ‘green’ by the issuer.

global consumers willing to pay a premium for products and services that support sustainability

$64 billion

Total global investment in green bonds to date.

millenials willing to pay a premium for products and services that support sustainability

climate - aligned bond universe investment to date

Source: World Bank Group

Green bonds are the next big thing for banks and financial institutions, the climate-aligned bond universe investment currently stands at $694 billion. Sixty-six percent of global consumers are willing to pay a premium for products and services that support sustainability, 72% of millennials are willing to pay such a premium, according to a presentation by Ahmad Hafiz Abdul Aziz on sustainable initiatives for the World Bank Group.

According to the Climate Bond Initiative, the Certification Scheme allows stakeholders to prioritise low carbon and climate resilient investments with confidence that the funds are being used to deliver a low carbon and climate resilient economy. Its scientific framework is designed to prove which projects and assets are consistent with a low carbon and climate resilient economy and therefore eligible for inclusion in a Certified Climate Bond.

The Certification Scheme has frameworks for monitoring, reporting and assurance of conformance with the Climate Bonds Standard.

According to the Climate Bond Initiative, an international Climate Bonds Standard Board, comprised of large institutional investors and

Source: World Bank Group

Certification

Pre-Issuance Certification

Post-Issuance Certification

Assessment and certification of the bond issuer’s internal processes, including its selection process for projects and assets, internal tracking of proceeds, and the allocation system for funds. This includes a verifier undertaking procedures to assess the readiness of the issuer and the proposed bond to conform to the Standard, and follows an agreed protocol (or checklist) to assess the conformance with the pre-issuance requirements of the Climate Bonds Standard.

Assessment and certification of the bond, which must be undertaken after the allocation of bond proceeds is underway, and includes assurance from the verifier that the issuer and the bond conform with all of the post-issuance requirements of the Climate Bonds Standard. An issuer may also choose to repeat the post-issuance certification process on a periodic basis, if it feels that periodic use of assurance and certification adds value to its use of the Climate Bond Certification Mark.

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rd October 2017 Issue Issue 0103 | 23 | December

The Sustainabilist |GREEN |SUSTAINABLE. FINANCE BUSINESS. DEVELOPMENT

EDITORIAL

3. Expand learning networks for capacity-building

Examples include: hvsd

The Seven G20 Green Finance Implementation Drivers

Even though green finance is rapidly developing within and beyond the G20, there is still a lack of awareness of its benefits and existing international practices. Learning networks can facilitate green finance activities, improve information flows, and help to improve analytical capabilities.

Green finance is the financing of investments that provide environmental benefits in the broader context of environmentally sustainable development and, according to the G20, will require tens of trillions of dollars of investment in the coming decade.

Green finance was incorporated into the G20 agenda for the first time under the Chinese Presidency of 2016 and was tasked to develop options on how to enhance the ability of the financial system to mobilise private capital for green investment, according to the G20 Green Finance Study Group.

To build a platform of common understanding on the opportunities and challenges facing green finance, the Green Finance Study Group (GFSG) expanded its focus from five broad financial sector options in 2015, to seven, ratified at the September 2016 G20 Summit in Hangzhou. Here are those seven options.

1. Provide strategic policy signals and frameworks

2. Promote voluntary principles for green finance

This compliments broader market and policy initiatives that deliver or enhance green finance, such as Saudi Arabia’s announcement to invest between $30 billion and $50 billion in renewable energy by 2030. At the international level, by July 2017, 148 countries representing 83.9% of global emissions had ratified the Paris Agreement.

Of the seven GFSG options, progress in this area has been strong.

Considerable momentum was generated internationally and regionally in the second half of 2016.

Voluntary principles take advantage of market-led opportunities that allow the advancement of green finance without the potential cost and delays associated with some regulations. The promotion of voluntary principles has been most prominent among investors.

Examples of financial market development include: • A Group of Friends of Sustainable Development Goal Financing has been set up at the UN, involving 30 to 40 member states.

• The World Bank Group and UN Environment have launched an initiative to build out a Roadmap for Sustainable Finance.

• The SBN (Sustainable Banking Network) supported seven member countries to develop or update sustainable banking regulations/guidelines.

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Examples include: • The SBN has initiated work on ‘Sustainable Banking Principles’ for banks and banking regulators, as has the Sustainable Stock Exchanges Initiative (SSE), which is focused on stock exchange application.

• Banks and investors representing $6.6 trillion in assets from countries including Australia, Brazil, France, the Netherlands, South Africa and the UK launched the Principles for Positive Impact Finance.

• Saudi Arabia: the Central Bank has indicated its intention to join the SBN. • The SBN has expanded from 24 to 31 countries, and most market-led international networks are providing increasing capacity development support to financial communities in developing and developed countries.

• The Sustainable Insurance Forum (SIF) was launched in December 2016 including regulators and supervisors from Brazil, France, the Netherlands, Singapore, South Africa, the UK, the US, and the International Association of Insurance Supervisors.

4. Support the development of local green bond markets Local green bond markets provide an additional source of long-term green finance to bank lending and equity finance.

This is especially valuable in countries where demand for green infrastructure investment is high but supply of long-term bank loans is limited. Support for the development of local green bond markets has been very strong.

Examples include: • The IFC is developing the $2 billion Green Bond Cornerstone Programme dedicated to emerging markets.

• UK: the LSEG issued a ‘Guide to ESG Investing’, including debt finance in February 2017.

• US: the California State Treasurer released plans to scale up the green bond market in January 2017.

5. Promote international collaboration to facilitate cross-border investment in green bonds

6. Encourage and facilitate knowledge-sharing on environmental and financial

Opportunities for cross-border investment in green bonds can help reduce the funding costs of green bonds, potentially enhance the return of global investors, and support the development of local bond markets. Advances in international collaboration have been slower than local green bond market development, as barriers including differences in local definitions, disclosure requirements and capital controls need to be resolved.

The links between environmental factors and financial risks are complex and often involve the development of new capacities which can be challenging, especially for small and medium-sized financial firms. Sharing knowledge therefore has elements of a public good.

Examples include: • EU: the European Investment Bank and the Peoples Bank of China launched an initiative on green bonds in March 2017.

• France: authorised the launch of the first green bonds ETF tracking a portfolio of 116 investment grade green bonds (March 2017).

7. Improve the measurement of green finance activities and their impacts Greater clarity on green definitions, as well as the measurement of green finance flows and associated impacts is important to guide market decisions and enable policymakers and regulators to achieve their goals.

Currently, there is no systematic methodology for assessing progress on the greening of the financial system. Progress has been most pronounced in relation to improved reporting by financial institutions particularly on climate change and within the banking sector.

Examples include: • The German Development Cooperation (GIZ) and the Natural Capital Finance Alliance (NCFA) developed jointly with nine banks from Brazil, China, Mexico and the US an environmental and drought stress testing tool.

• The OECD adopted a Recommendation on Disaster Risk Financing Strategies that provides high-level policy guidance on the financial management of disaster risks.

Examples include: • The SBN launched a “Sustainable Finance Measurement Working Group” to develop technical guidance and tools to help assess the effectiveness of green finance policies.

• The EU countries are transposing into national legislation the EU Directive on non-financial reporting. This will require large companies listed on EU markets, or operating in the banking and insurance sectors, to disclose environmental and social information in their management reports.

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Issue 03 | December 2017

The Sustainabilist |GREEN FINANCE

SolarCoin, a cryptocurrency developed in 2014 is designed to encourage individuals and companies to use solar power

generation. The first official recipient of a SolarCoin solar electricity generator grant was Lisa Shock, an Arizona resident.

The origins of SolarCoin SolarCoin was created in 2014 by a group of volunteers who wanted to incentivise the person on the street, companies, and energy generators to produce more clean energy. According to the SolarCoin website, the idea for creating an energy backed currency is derived from an academic paper; DeKo: An Electricity-Backed Currency Proposal.

His paper stated that electricity delivering assets can hold their economic value more effectively than gold or debt due to price stability and resistance to devaluation from over-issuance.

According to the paper, the DeKo-backed currency concept advocates a portfolio of diversified electricity delivering assets that offers more social benefits than gold and retains monetary value better than government debt.

SolarCoin is an open community project run by volunteers working together as the SolarCoin Foundation, which manages the distribution of SolarCoins to Solar Electricity Generators using verified solar facilities as the proof of work The SolarCoin Foundation maintains a public ledger detailing each SolarCoin given out to solar electricity generators.

Cryptocurrencies are grabbing headlines the world over, no more so than the SolarCoin.

SolarCoin is a cryptocurrency that, according to its developer, works like air-miles for solar electricity generation globally. SolarCoin can be claimed by home-owners with solar panels, or commercial solar electricity producers.

The aim of SolarCoin is to provide an incentive to both people and companies to use solar power, rather than fossil fuel-burning traditional energy sources, and reward those already using the clean power source. Solar energy is sustainable and does not release carbon or heat into the atmosphere, making it far better for the future of the planet and the quality of air that we breathe on a day-to-day basis.

According to the SolarCoin website, the cryptocurrency is intended to shift the cost of electricity, thereby reducing the payback time of a solar installation. In working closely with the solar industry, the SolarCoin Foundation, with SolarCoin, is at the base of a virtuous circle, creating an uptake for solar equipment and helping create jobs in the Renewable Energy sector. Each SolarCoin in circulation represents 1 MWh of solar electricity

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SolarCoin issuance process

01 02 SolarCoin Foundation approves claim.

1

SolarCoins representing 97,500 TWh hours of solar energy generation are held in reserves.

500 million SolarCoins (0.5%) in the genesis pool account represent environmental charities, early volunteers, advisers, builders and maintainers of SolarCoin infrastructure.

Genesis pool circulation is restricted to never being more than 5% of total SolarCoin in circulation.

4

SolarCoin Foundation sends coins from reserve account to claimant (visible in the blockchain).

2 33.7 million SolarCoins (0.1%) have been mined using Proof of Work. All mined SolarCoins represent historically generated and unclaimed solar electricity.

3 97.5 billion SolarCoins (99.4%) are stored in the SolarCoin Foundation non-circulating generator pool account. These are exchanged for ongoing claimed ‘proof of work’ of solar electricity generation. Each 1MWh of solar electricity generation is entitled to 1 SLR.

04

The transactions are also publicly visible on the SolarCoin Blockchain website. SolarCoin is now using POST algorithm (Proof of Stake Time)

03

Claimant registers solar facility with The SolarCoin Foundation or Affiliate.

SolarCoin grants are made at the rate of 15% of Nameplate Capacity. The annual calculation is 365 days X 24 hrs X 15% X Your KW Nameplate Capacity. This works out to 1.314 X the installed KW Nameplate Capacity. The initial SolarCoin grant is retroactive to the install date of the facility or 1 Jan, 2010; whichever is more recent. Ongoing SLR grants are made every six months based on the facility install month.

How are SolarCoins allocated and issued?

SOURCE: SolarCoin

Go Solar and Reap Rewards

electra/shutterstock.com

EDITORIAL

Why solar energy?

04

SolarCoin claimant spends / circulates coins using wallets etc.

Note: Most electric meters have online APIs and web reporting. These can be integrated with SolarCoin verification methods. Inverter manufacturers, meter companies and large systems integrators are invited to partner with The SolarCoin Foundation to integrate customer web based reading methodologies with the SolarCoin granting community..

SolarCoin has tapped into the global drive towards producing clean energy, which is good for the planet. Generating electricity with heat is one of the simplest and easiest ways to generate electricity. According to SolarCoin, heat is an unavoidable by-product of the energy extracted from non-renewable energy sources, and renewable energy using direct or indirect solar energy is accounted for in the thermal balance of the planet; their use adds minimal heat to the environment. Solar energy is the largest renewable energy source available. Wind, hydro, geothermal and biomass electricity generally require industrial size implementations to be cost effective, while even small groups or individuals

can use solar panels to earn SolarCoin.

The US solar market grew by 95% in 2016, with 14,626 megawatts of solar PV installed in 2016, as compared to the previous record of 7,493 megawatts installed in 2015, according to The Q4 2017 US Solar Market Insight. In the twelve months through August 2017, utility scale solar power generated 49 terawatt-hours (TWh), 1.22% of total US electricity. During the same time period total solar generation, including estimated distributed solar photovoltaic generation, was 72.1 TWh, 1.8% of total US electricity, according to the US Energy Information Administration.

In 2016, 39% of all new electricity generation capacity in the country came from solar, more than any other source, and also ahead of natural gas (29%).

This makes it the fastest growing alternative energy source in the world, and the cost of implementation is declining yearly, meaning there are more and more customers that will be incentivised by the SolarCoin cryptocurrency.

Since SolarCoin launched in 2014, the project has rewarded more than 10,000 solar installations for their electricity generation (totalling somewhere north of 200 megawatts), according to reports.

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Issue 03 | December 2017

responsible investing are already being applied, such as consideration of certain environmental and social risks, but without a cohesive and vetted framework. In some instances, regional investment firms have developed ESG policies for certain portfolios where they have sought funds from large institutional investors, who increasingly demand to see responsible investment policies being implemented.

My view is that interest in responsible investment in MENA is likely to continue to increase in the years to come, but mass adherence to international frameworks such as the United Nations Principles for Responsible Investing (UNPRI) are likely to take some time to become the norm. Growing awareness of ESG risks, increasing demand from global institutional investors, leadership by large MENA based investment firms, and perhaps further possible financial market corrections, may all act as catalysts in mass adoption, and more importantly, of adherence, to responsible investment norms in the region.

Going global

COMMENTARY

Ethical Investing Gus Schellekens, MENA Leader, Climate Change & Sustainability Services at EY looks at the global, and regional ethical investing landscape In the MENA region, responsible investment is gaining traction amongst private sector financial institutions as well as government and regulatory authorities. Some important advances have been made in recent years, but compared to the global investment community, the region remains in the early stages of integrating responsible investment.

At a government level, an understanding of the importance of sustainability integration remains fragmented; in some countries, such as the UAE or more recently, Saudi Arabia, sustainable development is being incorporated in national visions whilst in other countries, ESG incorporation is not yet considered.

In terms of market preparedness, certain

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securities markets have implemented new requirements related to governance. The Dubai Financial Market and the Hawkamah Institute for Corporate Governance signed a strategic partnership agreement in 2016 to promote best practices of Corporate Governance in the UAE, although requirements have not yet extended to the environmental and social components of ESG. The Egypt and Qatar Stock Exchanges have recently developed guidance on ESG reporting for their listed companies, but the guidance remains voluntary.

At an institutional level, the MENA region is currently lagging when compared to international peers who have integrated ESG or the UNPRI principles into their organisations. There are different reasons for this slow progress. Based

on our experience, a key reason is the lack of awareness about the existence of responsible investment principles, their importance in terms of establishing a clear framework for the integration of ESG in investment decisions, and an understanding of the benefits that can accrue if adopted.

That said, various institutions in the regions have been active in raising awareness on ESG. Activities of groups such as the Abu Dhabi Sustainability Group and the Arab Sustainability Leadership Group, who are introducing sustainability practices in the region, are generating considerable interest in sustainability integration. In our work with interested financial sector clients throughout MENA, we have noticed that certain elements of

For the international investor community, a diversity of global challenges has, in recent years, resulted in an increased focus on sustainability risks. The snowballing number of corporate scandals, the financial crisis in 2008, and interlinked social and environmental crises such as chronic youth unemployment, urbanisation, and climate change have heightened awareness of sustainability challenges and, given the potential impact, created real concern for enlightened institutional investors. A key question that is now being asked more and more is how environmental, social and governance (ESG) issues will impact long-term company performance, and as a result how non-financial metrics should be integrated into all investment decisions.

Some progress has already been made. Concerns around advancing long-term sustainability as an investment practice have evolved during the last decade, leading to a variety of terms such as ‘ethical investing’, ‘socially responsible investing’, and ‘sustainable investing’. These common terms, found overlapping in many studies, have unfortunately mainly resulted in greater confusion about what responsible investing really means.

The emergence of the United Nations Principles for Responsible Investment (UNPRI) in 2005 and the increasing popularity of these principles by institutional investors has brought the concept of responsible investment into the investment sphere. The UNPRI initiative has been successful in shifting the focus from advancing ethics to advancing risk-adjusted returns.

“At an institutional level, the MENA region is currently lagging when compared to international peers who have integrated ESG or the UNPRI principles into their organisations.”

the investment process. The United Nations Environment Programme Finance Initiative (UNEP FI) correctly defines responsible investment as a form of investment that incorporates an active consideration of ESG issues into investment decision-making and ownership, where ESG issues are considered on the basis of their financial materiality.

Interestingly enough, the most remarkable growth in the number of signatories to the UNPRI occurred after the 2008 global financial crisis, and has been steadily increasing since then.

The crisis was a catalyst that influenced investors to evaluate ESG issues in a way that is integrated in their investment decision-making. As a result, this acted as a driver for different organisations to support the financial sector in integrating sustainability in the decision-making. For instance, in 2015, the global Financial Stability Board set up a task force on Climate-related Financial Disclosures (TCFD), to help provide a set of recommendations that can help the financial sector understand and address climate risks in their organisations.

In 2017, the number of UNPRI signatories totalled 1,600 (of which eight were from the MENA region), and they represented a total of $60 trillion assets under management (AUM).

Feedback from the market is that increasingly, large institutional investors and global pension funds expect to see ESG policies implemented in funds or other investment vehicles before investing. According to an EY survey in 2015 of over 200 institutional investors, including portfolio managers, equity analysts and chief investment officers, 62% of investors consider ESG data to be relevant to all sectors (figure 1).

Previously, ethical investing sought to constrain investments on the basis of what is ethically correct or incorrect; responsible investment however, is based on the idea that, since ESG risks affect the financial performance of investments, they should be considered in

Figure 1. In which sectors are you more likely to consider non-financial data most relevant?

2015 25.5%

Energy

14.4%

Consumer Products

13.5%

Manufacturing

32.5% 23.9% 28.8%

11.5% 14.1%

Financial Services

All of the above

46.6%

16.8%

Industrial

Business Services

44.8%

21.2%

Mining and metals

2014

3.8% 5.5% 33.7%

61.5%

SOURCE: Tomorrow’s Investments Rules 2.0, EY

wk1003mike/Shutterstock.com

The Sustainabilist |GREEN FINANCE

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Issue 03 | December 2017

The Sustainabilist |GREEN FINANCE

Credible, science-based, widely-supported guidelines about what should and should not be considered a qualifying investment helps investors make informed decisions about the environmental credentials of a bond, according to the Climate Bond Initiative, one of the most widely used green bond certifiers. Their certification, the Climate Bonds Standard provides clear, sector-specific eligibility criteria for assets and projects that can be used for Climate Bonds and Green Bonds. The Initiative seeks to develop mechanisms to better align the

William Potter/Shutterstock.com

Benefits of Certification

Climate Bond Certification Process

Green Bond Indices Green indices are playing an important role in driving demand for green bonds among institutional investors. Since March 2014, a number of ratings agencies and financial institutions have created indices to exclusively cover green bonds. In March 2014, Solactive launched the first green bond index, followed in July by S&P with their S&P Green Bond Index and the S&P Green Project Bond Index.

Bloomber Barclays MSCI Green Bond Index •Corporate, government-related, treasury and securitised bonds are eligible.

•Includes only fixed-rate securities, investment-grade bonds.

•Does not have a one-year minimum time to maturity and holds bonds until final maturity.

•Eligible MSCI categories: alternative energy, energy-efficiency, pollution prevention and control, sustainable water, green buildings, and climate adaptation.

•Issuer must report on the status of eligible projects or commitment to report within one year of issuance.

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BAMLGreen Bond Index •Includes debt of corporate and quasigovernment issuers, but excludes securitised and collateralised securities.

•Includes only investment-grade bonds with a fixed coupon schedule.

•At least 18 months to final maturity at issuance.

•Qualifying bonds proceeds must be solely applied toward projects/ activities that promote climate change mitigation/adaptation or other environmental sustainability purposes.

Bank of America Merrill Lynch launched their index in October 2014 and finally in November 2014, MSCI collaborated with Barclays to launch a family of green bond related indices. Each of these indices has various eligibility criteria for inclusion. The launch of numerous green bond indices is a sign of the market’s growing maturity.

S&P Green Bond Index •Corporate, government, and multilateral are eligible for the Green Bond Index •Includes only investment-grade bonds which can be fixed, zero, step-up, fixed-to-float, floaters •Each bond must have a maturity greater than or equal to one month from the rebalancing date •Qualifying bonds must be flagged as “green” by Climate Bonds Initiative (CBI)

Solactive Green Bond Index

•Market value weighted index engineered to mirror the green bond market •Exclude inflation linked bonds, convertible bonds and municipal bonds

ChinaBond China Green Bond Index & ChinaBond China Green Bond Select Index

•Publicly issued debt instruments.

•At least one month until final maturity.

•To be eligible for the ChinaBond China Green Bond Index, bonds - whether labelled green or not - must meet at least one of the following four criteria: 1.

Green Bond Category (2015, by Green Finance Committee, China Society for Finance and Banking)

2.

Green Bond Issuance Guidelines (2015, by National Development and Reform Commission NDRC)

3.

Green Bond Principles (by International Capital Market Association - ICMA)

4.

Climate Bond Standards (by Climate Bonds Initiative - CBI)

•At least six months until final maturity •Bonds must be flagged as “green” by Climate Bonds Initiative (CBI)

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The Sustainabilist |GREEN FINANCE

COMMENTARY

Green Bonds - Cornerstone of Sustainable Finance

By Engie

Green bonds are the cornerstone of sustainable finance, enabling capital-raising and investment for projects with climate change or other environmental benefits. The green bond market is one of the most visible and well-developed aspects of sustainable finance, with the potential of attracting a significant proportion of funding flows required to drive ecological transition.

Green bond issues have progressed steadily and significantly year after year, notably thanks to the increasing proportion of issues by industrial companies. From their perspective, the benefits of green bonds are numerous: first, green bond finance is a natural fit for low-carbon infrastructure with high upfront capital costs and long-running income streams. Secondly, these types of issues attract new investors, leading to investor-base diversification. They also provide operational benefits such as internal mobilisation of staff members.

As part of its ambition to be a leader in energy transition, global energy group ENGIE has been actively promoting green finance for lowcarbon investments, particularly through green

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“We consider green bonds as a critical lever to shape tomorrow’s low carbon and socially responsible world.” bonds. The issuance of its first green bond of EUR 2.5 billion in 2014 positioned ENGIE as a frontrunner of the corporate green bond market.

Since then, a second green bond of EUR 1.5 bn and a third one of EUR 1.25 bn have been issued in March and September 2017 respectively, confirming ENGIE’s leading position in the market with a total of EUR 5.25 bn issued.

ENGIE’s 40% stake acquisition in Tabreed, regional leader in district cooling in the Middle East, is a potential candidate among the green projects to which the 2017 green bonds will be allocated . On the occasion of the Paris 2017 Climate Finance Day organised by French President E. Macron on 12 December, 2017, ENGIE – together with eight other of Europe’s largest industrial emitters of green bonds – publicly announced their pledge to further develop the market and place green bonds at the heart of their project financing.

atdr/Shutterstock.com

The scale of investment needed in the next 15 years to support a low-carbon scenario is relatively well-known: recent OECD estimates suggest that approximately $93 trillion in infrastructure investment will be required. The development of green finance, and the ability of energy players to mobilise capital for low-carbon solutions is an absolute precondition to shift the energy paradigm.

Issue 03 | December 2017

The Sustainabilist |GREEN FINANCE

INTERVIEW

Financing the Future

Ventura Alvarez/Shutterstock.com

Charles Blaschke, Managing Director of Taka Solutions, discusses his global vision for the future of financing energy-efficiency projects

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Q. What does financing have to do with energy-efficiency?

Financing and energy-efficiency are interlinked in many ways, however, one of the most important ways in today’s world is that finance is the biggest barrier to entry for people wanting to utilise energy-efficiency products and processes to reduce their bills and make an impact. The perceived risk for a financier to invest in energy-efficiency can seem obstructively high, which has restricted investment into the energy-efficiency space.

With the right finance behind a project, energy-efficiency can be deployed on a larger scale to allow for a much bigger impact.

Depending on the project size, this impact can be felt locally, globally and on an individual level, from a home to a big city, and in reality, to the entire planet. The reason why finance is so key to energy-efficiency, is that to achieve energy savings or efficiency gains, you must spend and invest capital. Even though there’s a lot of money in the world, which is available for financing and investing, energy-efficiency does not get the attention and the capital that it rightfully deserves.

We feel like there should be aligned interests between the parties; between the customer and the financer, the technology provider. We believe there need to be more benefits; the more the project benefits, the more the customer benefits, and the more the planet benefits. We think that shared savings energy performance contracting in the middle east region is the best way for energy-efficiency investments to be made. This creates a partnership over a long period of time, which is all performance-based, where you don’t have a provider, an ESCO, an equipment manufacturer, for example, claiming they’re going to save. In this scenario, they put their money where their mouth is and they invest in the solution, they only get paid if they save, and they only get paid from the savings.

This would give them the motivation to ensure that what they work with is a quality project, quality client, and quality technology and then they’re there for the long-term, which could be anywhere from five to 10 years at a time, to ensure that those savings are achieved.

Q. Why isn’t everybody doing this?

That is the million-dollar question, the billion-dollar question in the UAE, and then the trillion-dollar question globally. In the

“The reason

why finance is so key to energyefficiency, is that to achieve energy savings or efficiency gains, you must spend and invest capital.

energy savings and energy performance. When the people start to request, understand, know, and demand, they are educated, their customers will be educated. That is when we are going to see a big impact. When this happens, it will be at a grass roots level, where individuals who live in a one-bedroom apartment, who rent or work in a small office, then they’re going to start to be energy efficient. Then, they’re going to demand and even expect it - from anything and everything around them, whether it’s a house or building, a school library or a mall. Those that aren’t efficient are going to start to feel the pain. In more energyefficiency progressed countries this grass roots customer has driven change to the higher levels such as the governments.

We think energy-efficiency and finance go hand-in-hand, and finance is the key to energy evolution. When we set out to start the company, we didn’t want customers’ budgets or capital to be the reason to stop having an impact in energy-efficiency, so we chose to use a shared savings finance model. We have got the right partners on board and we have built the right financial infrastructure for us to deploy capital rapidly to a large scale in a very short period of time. Within the next two years, we hope to have a fully functional financing platform online, where anybody, with any size and type of project, can submit their project for financing. We can then review the project and get initial financing approval within a week and begin to work to finance these projects on owners’ behalf.

Q. How do you see the global evolution of financing energy-efficiency projects?

Currently it’s very risky and mostly funded by venture-capitalist-type investments. The global evolution is going to come when people, not the customers, not a building owner, not a government - but the actual individuals understand - and have the information at their fingertips about energy, energy consumption,

prachyaloyfar/Shutterstock.com

Currently, most energy-efficiency projects, at least in the Middle East, are paid out of pocket, out of operating and capital budgets belonging to the company, or owner, or operator that wants to make the upgrades. They see these energyefficiency methods as opportunities to save.

Once a company or individual understands how much the project is going to cost, and how much it’s going to save, they will usually run an analysis to see what the payback is and if it is attractive to them. That analysis will then go into approvals for their spending, their capital improvements, their operating budgets each year, and other initiatives within the company. If the business has more attractive places to put its money, or understands other areas better, then the money is not invested in energy-efficiency. What we see is, most of the time, businesses would rather focus on investing what money they have into growing their top-line. They would rather increase that top-line than reduce their costs for an increased bottom-line.

end it goes back to those competing priorities.

Energy-efficiency in savings and carbon isn’t important enough and a high enough priority for enough people, and businesses around the world to make it something that they have to do; even with something as simple as a no-cost shared savings type of contract. Often the reason is that people, or companies in Dubai have a very short-term mindset, and even though they don’t have to invest the capital, they would like to see results immediately.

“

Q. How are things currently done, with regards to financed energy-efficiency projects? In your opinion, how should they be done?

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The Sustainabilist |GREEN FINANCE

OPINION PIECE

Developing the Green Sukuk Market Green Sukuk are an interesting new concept in the market and could be a driver for growth in Islamic finance, according to Bashar Al Natoor, Global Head of Islamic Finance at Fitch Ratings A Sukuk is an Islamic bond that generates returns to investors without contravening Shari’ah Law. A green Sukuk is one in which proceeds from the Sukuk investment and can only be used for climate friendly investments. A green Sukuk can be invested in by both Islamic and conventional investors and provides a high degree of certainty that all monies invested into it are being used exclusively for positive environmental benefit.

What is market-breaking about the green Sukuk is that it begins to bridge the gap between conventional and Islamic finance because it appeals to both investors looking to invest their money into more environmentally beneficial investments, as well as customers who are looking for Shari’ah compliant investments.

Created to fund projects with positive environmental benefits, green bonds have become rapidly popular in Europe and Asia while also beginning to gain traction in the United States.

According to Reuters, $32.2 billion-worth of green bonds were issued in Q2 2017, while issuance from emerging markets jumped from $2.3bn to $9.2bn year-on-year. Approximately half of the total investments came from developed markets, versus 16% a year ago. South Africa’s Cape Town, Argentina’s La Rioja Province, the Brazilian Development Bank and the National Bank of Abu Dhabi have all tapped the market, while Malaysia’s Tadau Energy sold the world’s first green Sukuk.

Countries such as Malaysia and the UAE are most active on this front out of the top 10 key Islamic finance markets, according to a report by Bashar Al Natoor, Global Head of Islamic Finance at Fitch Ratings, entitled Why Green Sukuk Could be a Growth Driver for Islamic Finance.

In Malaysia in 2014, the Security Commission revised its Sukuk guideline by incorporating the new requirements for the issuance of socially responsible investing (SRI) Sukuk. The new Sukuk guidelines set out that the proceeds of SRI Sukuk can be used to preserve the environment and natural resources, conserve the use of energy, promote the use of renewable energy, and reduce greenhouse gas emissions. Market norms and standards for green bonds are still evolving, reflecting the market’s nascent status, according

Drive into a cleaner environment with our Green Auto Loan Introducing GreenAutoLoan - the latest feature of our low-carbon commitment.

Like you, Emirates NBD wants to play an active role in creating a sustainable future, and we’ve partnered with several brands to offer special pricing on select Electric cars. We call it GreenAutoLoan, and with one you can avail special interest rates starting from 1.99%* & a Pre-loaded Green voucher up to AED 1,500 which supports Salik and parking fees.

It’s the latest development of ’Go Green’, a scheme we’ve designed in support of the UAE’s Vision 2021 to create an economy driven by sustainability. As a signatory to the United Nations Environment Programme Dubai Declaration on Sustainable Finance, Emirates NBD is committed to driving the UAE toward a more sustainable future.

Visit emiratesnbd.com/greenautoloan to find out more. *Interest rate varies every 6 months linked to 6 months EIBOR plus fixed margin

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Malaysia is the most standardised market in the Islamic finance community and remains one of the most innovative, shown by the global first of the launch of a green Sukuk. Standards in regulatory and legal areas, which aim to describe rights and obligations under all circumstances, would support consistency, strengthen supervision and enable the industry to move to the next phase of its development.

While there is broad agreement on key Shari’ah principles, their interpretation and the process for assessing compliance can vary significantly, according to Fitch Ratings. Malaysia’s centralised Shari’ah supervisory board warrants all Sukuk are compliant with nationally accepted principles.

The lack of standardisation in Islamic finance is a significant problem that is hampering the Islamic finance sector’s growth, and Fitch Ratings expects progress to be slow given the scale of the challenge. With the development of a green Sukuk, and growing interest in the sector, these problems need to be ironed out to grow interest from both Islamic investors and conventional investors.

As well as Shari’ah, Fitch Ratings sees product structure and documentation, supervisory

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Tadau Energy, the Kota Kinabalu-based joint venture between Kagayaki Energy, a Malaysian renewable energy and sustainable technology investment firm, and Edra Solar, owned by China’s clean energy group, China General Nuclear Power Corporation, issued ‘the world’s first green Sukuk’, the RM250 million Green Sukuk Tadau.

The proceeds of the Sukuk, based on the Islamic structures of Istisna (construction finance) and Ijarah (leasing), will be used to finance the construction of a 50 MWAc solar project in Kudat, Sabah, under purchase agreements signed with Sabah Electricity. So successful was the issuance that Cicero assigned its highest ‘Dark Green’ compliance certification.

100 90

Challenges of Green Sukuk

12.28

40 9.48

30

21.34

50

14.15

13.20

60

44.48

80 70

2010

2011

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2012

2013

2014

2015

Financials

Government & SSA

12.32

0

48.19

10

37.87

20 33.53

PROSPECTS

17.19

Green Bond Issuance

by Sector

110

24.28

These regulatory differences are often cited as a limiting factor to the sector’s development.

However, Fitch Ratings believes it is just one of five overlapping areas where greater standardisation and codification will be needed if Islamic finance is to gain wider acceptance among regional and international investors.

AAOIFI recently admitted Saudi Arabia’s central bank as a member and also issued a new standard that encourages the creation of central Shari’ah boards and sets out common principles for establishing them. However, implementation of standards like this has been slow and patchy, and Fitch Ratings expects this to remain the case, according to Fitch Ratings.

Malaysia’s first green Sukuk

Malaysia’s International Islamic Financial Centre

The green Sukuk market is a great enabler for Islamic finance, but without greater harmonisation of Shari’ah regulations within and between jurisdictions there is a limit to what can be achieved.

Al Natoor noted that industry groups, such as the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), are expanding and have developed standards to try and drive harmonisation in several areas, including Shari’ah and financial reporting.

14.45

Islamic finance standardisation to be slow

One of the barriers to standardisation is the argument that it may limit innovation, but Fitch Ratings does not believe this to be the case.

GCC member states, on the other hand, leave the question of compliance to Shari’ah boards of individual financial institutions and Sukuk stakeholders, which leaves the door open to divergence in Shari’ah rulings and interpretation, according to Fitch Ratings. There has been progress recently in some GCC countries, most notably Bahrain’s creation of a central Shari’ah board, which supervises Islamic finance product development and provides guidance to the central bank. However, there is still limited clarity on these initiatives’ mandate and influence.

13.54

However, no such structure exists yet for green Sukuk, meaning that the time spent drafting green Sukuk structures and frameworks that are acceptable to governments, investors and the Sukuk’s Shari’ah boards, can mean a substantially longer time frame of Islamic finance implementation leading to higher costs (at least until a standardised framework is established), according to Malaysia’s International Islamic Financial Centre (MIFC).

An additional problem is that rules and regulations about Shari’ah compliant finance vary in each country, and differ according to the supervisory board that is involved.

and regulatory frameworks, law and dispute resolution, and financial and accounting reporting as the main areas where standardisation would be advantageous. In some cases, there is still little standardisation even at a local level, while in others, progress would be needed on a regional, or international, basis.

USDbn

to Al Natoor. The green bond market is a selfregulated market, although various voluntary guidelines exist, most notably the International Capital Market Association’s Green Bond Principles which were established in 2014 by a group of banks and focus on the use of proceeds, the process for project evaluation and selections, management of proceeds, and reporting. The Climate Bond Initiative also provides guidance, focusing on specific sectors.

2016

2017

Securitisations

Issue 03 | December 2017

The Sustainabilist |GREEN FINANCE

Elcome International 311 kWP system

Solar energy provides an excellent opportunity for commercial and industrial businesses to reduce their energy costs, switch to a clean energy source and lower carbon emissions.

A company that has solar panels on its roof signals loudly that it is innovative, committed to long-term sustainability and a proud contributor to the betterment of its community and the surrounding environment.

The introduction of DEWA’s Shams Dubai programme in 2015 has allowed businesses to consider solar energy as a viable alternative to conventional energy to meet their facilities’ energy needs. The Shams programme is DEWA’s first smart initiative to connect solar energy to buildings, and can reduce energy usage costs by up to 25%.

OPINION PIECE

Developing New Power Paradigms Jeremy Crane, CEO, Yellow Door Energy, Member of the Clean Energy Business Council talks to The Sustainabilist about how a business can minimise energy bills and own their own power source

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Currently, businesses have two ways to transition to solar: invest their own money or leverage a third-party investor. The first option denotes a direct purchase, where the business invests its own capital, time and resources to directly purchase and put together all the elements required of a solar project. The second option is a lease-to-own solar agreement, whereby the business outsources all the elements to a trusted professional, who manages the risks on behalf of the business, provides the required capital and guarantees a successful solar experience.

The direct purchase option allows the business to own the solar plant from day one and gain in-house expertise about solar energy. However, this option comes with risks throughout the entire project life cycle.

In the initial phase, the business has to provide a large upfront investment to procure all the necessary equipment, engineering expertise, skilled labour, etc. to design, install, commission, operate and maintain the solar plant. The allotment of this investment towards a noncore business activity, the solar plant, creates a significant opportunity cost against an investment that could have improved the company’s core activities, such as a new piece of equipment to improve manufacturing productivity.

In the development and construction phase, the business has to work with numerous stakeholders to apply for necessary permits, align on the engineering design, procure high-quality equipment and then install the plant. Project costs need to be expertly managed to avoid cost

in 2018, we plan to invest $100 million in solar energy projects. Over the next five years, we expect to have $1 billion invested in solar projects in the Middle East, Africa and South Asia.

Jeremy Crane said that businesses have two ways to transition to clean energy; invest their own money, or leverage a third-party investor.

overruns. Once installed, the plant needs to be properly commissioned by multiple parties to minimise any operational risk. Significant time and resources are required internally to manage the project, which can cause a distraction from core business activities.

Finally, in the operation and maintenance phase, the business needs to have dedicated staff or a reliable solutions provider to clean the panels, monitor the solar plant and troubleshoot issues to ensure that the facility maintains operational integrity. Regardless, the system may underperform and there is limited recourse with suppliers. Unfamiliarity with potential equipment downtime, availability of replacement equipment and regular maintenance procedures are other issues that could arise.

Businesses that aspire to transition to solar energy without taking on unnecessary risks should consider the lease-to-own solar model.

This is the preferred option for Yellow Door Energy’s clients as it provides them with a seamless and hassle-free solar experience.

In the lease-to-own model, Yellow Door Energy takes on all the financial, development, construction, operational and maintenance risks on behalf of the client. A lease-to-own solar agreement is a long-term contract, generally from 15 to 25 years.

At Yellow Door Energy, we have developed a rigorous and comprehensive due diligence process to significantly minimise risks throughout the entire project life cycle. While details about the company’s risk assessment process are proprietary, we are able to share the following with our industry peers.

The sun’s energy potential should be harnessed at every possible opportunity. Businesses which are already participating in and leading the renewable energy transition should be commended for their relentless pursuit of innovation and continuous improvement. Installing solar panels on the roofs of their facilities is a testament to this can-do attitude; the very same attitude, entrepreneurial spirit and limitless vision that have helped build the UAE to become the great nation it is today and a role model for the world tomorrow.

In the financing phase, we employ a disciplined and systematic approach to review all potential risks to the project, and devise solutions to mitigate those risks. The past financial performance of relevant parties is assessed, and business - as well as industry risks - are also taken into consideration.

As we provide a fixed electricity tariff for the client throughout the entire duration of the lease, we need to have a strong grasp of factors that impact utility pricing. To mitigate risks on our end, we regularly consult with industry experts, review industry outlooks and update our forecasting models.

In the development and construction phase, we scrutinise our entire supply chain and ensure that we only work with trusted contractors and procure high-quality equipment from Tier 1 manufacturers. As we guarantee the performance of the solar plant, and would have to reimburse the client for any shortcoming, it is in our interest to only work with reliable partners and suppliers.

In the operation and maintenance phase, we leverage the in-depth solar experience of our technical experts in order to foresee and minimise equipment downtime, have replacement equipment readily available and plan regular cleaning schedules. Our experience in the solar industry enables us to anticipate issues before they arise and minimise risks for the overall project.

Yellow Door Energy’s vision is to power emerging economies reliably, efficiently and sustainably.

We believe that solar energy should be an accessible solution for all businesses. As such,

Lease to own Yellow Door Energy finances, builds, operates and maintains the solar plant.

The client pays a monthly electricity bill to Yellow Door Energy only for the solar energy generated by the plant.

The electricity bill is based on a rate lower than that of the utility and is fixed for the duration of the lease, removing pricing uncertainty.

Yellow Door Energy guarantees the performance of the plant.

Yellow Door Energy maintains the plant, which includes replacement parts, to ensure optimal performance.

The client owns the solar plant at the end of the lease.

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Issue 03 | December 2017

The Sustainabilist |GREEN FINANCE

The inaugural issue, announced in the wake of the UN climate conference in Bonn, Germany, saw strong appetite from a North America investor base, which took 80% of the final allocations, followed by Asia (10%) and Europe (nine percent).

petrmalinak/Shutterstock.com

“The launch recognises our responsibility to help finance global sustainable development.

Investors want more socially and environmentally responsible investment opportunities, and this bond helps to meet that demand. It also helps build a deeper and more liquid market to attract other issuers. This is just one mark of HSBC’s commitment to help economies and societies advance towards a sustainable future,” said Stuart Gulliver, HSBC Group Chief Executive.

The pledge builds on HSBC’s long-standing involvement in green and sustainable finance.

Over recent years, it has played a leading role in developing voluntary standards for issuers of green bonds and social bonds; issued its own $590 million green bond; and won recognition for the quality of its research into climate change.

COMMENTARY

Recent research commissioned by HSBC shows that 68% of global investors intend to increase their low-carbon related investments

Banking on the Planet

HSBC has committed $100 billion to sustainable financing and investment, launches sustainable bond to help meet UN Sustainable Development Goals

The HSBC Group globally has embraced its role in reducing the human impact on the earth we live in. The banking group is aiming to reduce its direct environmental footprint, focusing on reducing its carbon emissions, energy, waste, and water impact from buildings and business travel. It has also pledged to incorporate sustainability into purchasing decisions.

According to HSBC, its greatest impact is through its core function, lending. The bank wants to minimise credit and reputational risks from environmentally and/or socially sensitive proposals, which run counter to the needs of sustainable development. The Group is also working to identify business opportunities that have an environmental and social dimension, which also provide returns. HSBC’s focus areas are renewable energy, building efficiency, mass transit and microfinance.

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The HSBC Group recently pledged to provide $100 billion in sustainable financing and investment by 2025. It also announced in November that it launched a $1bn corporate sustainable development bond, becoming he first ever private sector entity to issue a bond of this scale - based on the United Nations Sustainable Development Goals (UNSDGs).“For more than a decade, HSBC has helped clients break new ground in the green bond markets in Europe and Asia, and to finance some of the biggest climatefriendly infrastructure projects in the world. The $100bn commitment… acknowledges the scale of the challenge in making a transition to a lowcarbon future. We are committed to being a leading global partner to the public and private sectors as they make that transition,” HSBC Group Chief Executive Stuart Gulliver said.

The $100bn sustainable financing goal is one of five new commitments that HSBC is making to tackle climate change and support sustainable growth in the communities it serves. The Group will intensify its support for clean energy and lower-carbon technologies, as well as projects that support the implementation of the United Nation’s Sustainable Development Goals.

The sustainable bond issuance is the first time that a private sector entity has issued a benchmark-size bond of this type and reflects the Group’s commitment to financing projects that benefit communities and the

100%

HSBC has pledged to purchase all of its energy from

renewable resources by 2030.

environment, according to the HSBC Group. The $1bn proceeds from the sustainable development bond will be used to offer broad social, economic and environmental benefits as aligned to seven selected UN SDG targets including: improving access to education, essential healthcare, fresh water and sanitation, increasing the share of renewables in the global energy mix, building sustainable cities and transport systems, and helping communities adapt to the effects of climate change.

to accelerate the transition to a clean-energy economy. The $1bn raised from the HSBC SDG bond, which matures in 2023 and was three times oversubscribed, will be used to support projects that offer broad social, economic and environmental benefits as aligned to seven selected SDG targets. These could include hospitals, schools, small-scale renewable power plants and public rail systems.

“A dramatic expansion in creative financing is going to be crucial for catalysing the transition to a low carbon, sustainable world. It is happening, but needs to happen with greater urgency, speed and scale. So, congratulations to HSBC for this innovation and its explicit support for the SDGs and the Paris Climate Change Agreement—we look forward to many more financial institutions following suit,” Patricia Espinosa, Executive Secretary of UN Climate Change, said.

HSBC has continued to improve its own environmental performance in key areas.

According to HSBC, since 2011, it has reduced water usage by 41%, carbon emissions by 39%, and energy consumption by 34%. It has also signed agreements with clean energy producers to source 24% of its electricity from renewable resources, advancing towards its 2030 targets.

HSBC Group also pledges to: • Source 100% of its electricity from renewable sources by 2030, with an interim target of 90% by 2025.

By signing long-term agreements with suppliers, HSBC aims to support the development of new renewable power facilities.

• Reduce its exposure to thermal coal and actively manage the transition path for other highcarbon sectors. This includes discontinuing financing of new coal-fired power plants in developed markets and of thermal coal mines worldwide.

• Adopt the recommendations of the Task Force on Climaterelated Financial Disclosures to improve transparency. In its next two Group annual reports, HSBC will give more details on its approach to climate-related risks and opportunities.

• Lead and shape the debate about sustainable finance and investment. This includes promoting the development of industry-wide definitions and standards.

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Issue 03 | December 2017

The Sustainabilist |GREEN FINANCE

Green Growth and Climate Action abdrahimmahfar/Shutterstock.com

Engaging the private sector

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also, energy-efficiency measures among SMEs with best available technologies could result in significant savings in final energy consumption in the order of 10% to 30% globally.

A lack of access to finance hinders efforts to investing in clean technologies and environmental solutions among businesses in developing countries. According to data from the World Bank Enterprise Surveys from 2010-2017 in

The IEA (2015) estimates that SMEs account for 13% of final energy consumption annually, but

Figure 1.1 Top business environment obstacle to private sector operation and growth in developing countries

These financial constraints are exacerbated for green growth and climate action in which the private sector is sometimes reluctant to invest, in part, due to a lack of proven and readily available business models or a failure to understand the business case. Development cooperation can address both the demand side and offer side of the access to finance equation.

Transitioning to green growth pathways will require significant finance and investment in

The major share of private sector engagement is occurring in activities targeting climate change mitigation, including clean energy and green financial products and services. A larger share of climate related development flows targeting the private sector is going towards climate change mitigation activities (i.e. those that aim to reduce greenhouse gas emissions) compared to adaptation activities.

Mitigation activities comprise just under 80% of climate-related development finance supporting private sector engagement in 2013, while 11% targets adaptation, and a further 12% targets both mitigation and adaptation. This is roughly in line with the findings of other studies. For example, OECD estimated that in 2013-14, over 90% of mobilised private climate finance targeted mitigation – this included finance associated with export credits for renewable energy.

Often, mitigation activities are perceived by the private sector to have a clearer path to profitability and to generate obvious revenue streams and savings, while the business case for adaptation is often less known. In addition, adaptation is a much more recent policy concern and thus

providers are only just now beginning to target their private sector engagement efforts to also include adaptation objectives.

Leveraging or mobilising private climate finance is one of the main objectives for development partners to engage the private sector for climate change. Work conducted to date under the OECD-led Research Collaborative on Tracking Private Climate Finance, highlights that measuring private climate finance mobilisation is challenging due to the lack of comprehensive data on private finance, methods to estimate the mobilisation impact and the range of actors and complexity of interactions associated with mobilising private climate finance (Jachnik, Caruso and Srivastava, 2015).

In order to contribute towards building an evidence base for private sector engagement approaches targeting green growth and climate change, there is a need for best practice guidance and the sharing of cases - both successes and failures. There is a need for gathering evidence on financial instruments for private sector engagement that are currently gaining momentum in the development co-operation community (e.g. guarantees for low-carbon and climate resilient infrastructure, green credit lines to promote energy-efficiency and renewable energy among SMEs), particularly with a focus on identifying the success factors determining environmental outcomes, and how trade-offs are managed.

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There is a need to scale up innovative approaches and develop project pipelines.

While there are several examples of successful, innovative ways to engage the private sector in promoting green growth, there is still a need to scale up such approaches and develop bankable projects. Besides being a source of finance for sustainable development, businesses also play several important roles in delivering development outcomes. Private sector companies and entrepreneurs are a major source of innovation to help achieve growth

without further damage to the environment.

Private businesses are also an important channel and target of implementation for development projects and activities, where their business networks and links provide unique avenues of influence and embed established understanding of local needs, capabilities and requirements.

Percentage of firms indicating the item is the top obstacle to their establishment’s operations and growth

Private sector engagement needs to go beyond the ‘low-hanging fruit’ and target a range of environmental issues and countries. In order to expand efforts in other areas – such as sustainable forest management and climate change adaptation – and in more challenging lower income countries, there is a need to further develop, pilot, document and scale up innovative ways to engage the private sector.

Efforts to mobilise private investment and work through the private sector should be aligned with local contexts and priorities e.g. through nationally determined contributions nationally determined contributed (NDCs) and national adaptation plans (NAPs).

developing countries, access to finance is the foremost barrier to firm development.

developing countries, and more importantly, a major shift and scale up in the way both the public and private sectors invest. The expected infrastructure financing gap in developing countries over the next two decades is a good illustration of the scale of resources still needed.

urbans/Shutterstock.com

EDITORIAL

“Private sector companies and entrepreneurs are a major source of innovation to help achieve growth without further damage to the environment.”

Source – OECD

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rd October 2017 Issue Issue 0103 | 23 | December

The Sustainabilist |GREEN |SUSTAINABLE. FINANCE BUSINESS. DEVELOPMENT

Green Investment Banks Innovative public financial institutions scaling up private, low-carbon investment Investment funds GIBs can set up their own debt or equity investment funds.

One prominent example is the UK Green Investment Bank’s Operating Offshore Wind Fund. In April 2015, a first close of GBP 463 million was achieved for this fund, to which the UK Green Investment Bank intends to provide 20% of capital when it reaches its full size of GBP 1 billion. The fund reached a second close of GBP 818mn in October 2015, securing investment from UK based pension funds and international institutional investors, including a large sovereign wealth fund. New investments allow project developers to sell their stakes and finance new projects (UK Green Investment Bank, 2015).

Investing in clean cities Many of the investments GIBs mobilise are undertaken in urban areas, where 54% of the world’s population lived in 2014 and where 66% is projected to live by 2050. For example, the Clean Energy Finance Corporation is providing finance to help the City of Melbourne undertake an AUD 30mn programme of clean energy initiatives to help it reach its goal of zero net emissions by 2020.

Energy efficiency partnerships with financial institutions

Nattiya Wiwasukhu/Shutterstock.com

In February 2014, the UK Green Investment Bank formed a GBP 50mn energy efficiency partnership with Société Générale Equipment Finance, with each party committing GBP 25mn. The partnership will provide loans for CHP plants, boilers, building retrofits, lighting or energy reduction technologies for production processes. Loans will be structured so that repayments are less than the value of energy savings, meaning borrowers can save money on day one of the loan.

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Australia’s CEFC formed an energy efficiency fund with Commonwealth Bank, with each party investing AUD 50mn. The fund will make individual loans in the range of AUD 500,000 - 5 mn, aimed at reducing energy costs.

Australia’s CEFC also has financed National Australia Bank via a corporate bond purchase in exchange for offering a concessional loan product for financing equipment and vehicles that meet CEFC standards of efficiency.

The ‘Energy Efficient Bonus’ is offered to the end user as a 70 basis point

Property-Assessed Clean Energy (PACE) programme The Connecticut Green Bank has implemented one of the most successful commercial building energy efficiency programmes in the United States, using the property-assessed clean energy (PACE) structure. Through this structure, building owners can receive long-term financing (up to 20 years) to perform energy upgrades on buildings and pay the loan back as a new tax lien on the property. Linking the lien to the property increases lending security and enables a much longer payback term; default rates on tax payments are typically lower than for debt repayments. The lien structure also makes it easier to buy and sell property with an outstanding efficiency loan.

Warehousing Energy Efficiency Loans (WHEEL) The Warehouse for Energy Efficiency Loans (WHEEL) is a cross-state energy efficiency financing platform launched in the United States to attract institutional investors by achieving scale through aggregation of projects and consistency through project standardisation. Based on a programme started in Pennsylvania, WHEEL provides a credit enhancement to a centralised, privately-funded, national warehouse, which, in exchange, provides capital to fund energy efficiency loans in that state.

Municipal street-lighting loans There are over seven million street lights in the United Kingdom which generate over GBP 300mn in electricity costs. The electricity needed to power street lights produces 1.3 mn tonnes of CO2 annually, equivalent to the emissions of 330,000 cars on the road or 674,000 households. Despite the financial and environmental case for improved energy efficiency, fewer than one million street lamps are energy efficient. To encourage municipalities to

make the switch to low energy lighting, the UK Green Investment Bank created an innovative Green Loan product in 2014 for municipalities which is specifically tailored to help cities upgrade their street lighting to more energy-efficient light emitting diodes (LEDs). The efficient lighting technology produces energy savings that exceed the cost of the loan payment, allowing borrowers to be cash-flow positive throughout the period of the loan.

G.Bender/Shutterstock.com

COMMENTARY

(0.7%) discount from the prevailing equipment finance rate. This provides equipment sales persons with a talking point about energy efficiency and entices the purchaser to compare the costs of a more efficient product with the costs of less efficient products that do not qualify for the Bonus.

Promoting innovation in early-stage companies and projects In March 2016, the Australian government announced the creation of a new AUD 1bn Clean Energy Innovation Fund. The Fund will be jointly managed by the CEFC and the Australian Renewable Energy Agency and is designed to provide both debt and equity for clean energy projects. It will focus on early-stage companies, business and projects seeking growth capital or early stage capital..

Overcoming financing barriers for residential solar project developers In 2015, NY Green Bank provided a $25mn warehouse credit facility to a New York based solar provider that designs and installs systems for residential homes at no cost to the consumer. The project will demonstrate the commercial viability of solar developers which have had early market success but have had more difficulty accessing financing than larger, better known developers.

Financing waste-to-energy A consortium comprising the UK Green Investment Bank and other partners10 invested GBP 47.8mn in a plant that will convert recovered wood into electricity using gasification technology.

Over its expected 20-year lifetime, the plant is forecast to supply approximately enough renewable energy to power 17,000 average homes each year and is expected to deliver emissions reductions of around 2.1mn tonnes of CO2 equivalent, and to save around 1.3mn tonnes of wood from landfill sites each year.

Source – OECD

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Issue 03 | December 2017

Rawpixel.com/Shutterstock.com

The Sustainabilist |GREEN FINANCE

2017 Green Bond Certificates In addition to the awards, organisations have also been granted Recognition Certificates, encompassing the following categories: Sub-national/Municipal, Development Banks, Commercial Banks, Corporates, Structured, Certifications, and Market Infrastructure.

Certificate Recipients by Category: Sub-national/Muni, Largest Overall Issuer New York MTA, USA

Corporates, Country Pioneer New Entrant Hyundai, South Korea

The First Chinese Policy Bank Green Bond Issuer Export-Import Bank of China

Corporates, Largest Overall Iberdrola, Spain

Development Bank, Largest Overall Issuer European Investment Bank

Structured, Country Pioneer New Entrant, 1stABS Flexigroup, Australia Structured, Country Pioneer New Entrant, 1stABS Suzano/EcoAgro, Brazil

The Green Bond Awards will raise the profile of green bonds while acknowledging global leadership in the sector. The Awards recognise pioneers who, through their actions, have demonstrated the potential of green bonds, energised the market and, by positive example, have called investors, governments and businesses to action.

Green Bond Award Winners by Category

New Country Issuances

First Sovereign Green Bond - Poland Philippines - AP Renewables First Green Schuldschein - Nordex (Germany) Colombia - Grupo BanColombia First RMBS - Obvion N.V (Netherlands) Costa Rica - Banco Nacional de Costa Rica Largest Single Green Bond - Bank of Communications (China) Largest Non-Financial Corporate Green Bond Grupo Aeroportuaro Ciudad de Mexico (Mexico) Largest Overall Issuer - SPD Bank (China) Innovative Regulator - People’s Bank of China PboC (China) Most Second Opinions in 2016 - CICERO (Norway)

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Finland - Municipality Finance (MuniFin) Morocco - Masen Luxembourg - Alpha Trains

Regional Sub - Sovereign - Mexico City (LatAm) Regional Sub - Sovereign - Treasury Corporation of Victoria (Asia-Pacific)

Structured, First Dual Recourse in China – Bank of China Structured, Largest ABS in 2016 Toyota, Japan Certifications, First Water San Francisco Public Utilities Commission (SFPUC) USA Certifications, Largest Certified (and first in France) SNCF Réseau, France Certifications, First certified Green Bond from a University Monash University, Australia Certifications, First Indian Certified Bond Hero Futures Energy, India

Certifications, First Certified German Bank Bond DKB,Germany Certifications, Indices: First Unlabeled Green Bond Index CCDC, China Market Infrastructure, Pioneer Listing Rules Shanghai Stock Exchange Market Infrastructure, Pioneer Listing Rules London Stock Exchange Market Infrastructure, Pioneer Listing Rules Mexico Stock Exchange Market Infrastructure, Pioneer Listing Rules Luxembourg Stock Exchange

Certifications, First Certified Green Loan Strasser Capital/MEP Werke, Germany

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Issue 03 | December 2017

energy resources, according to HydroMiner. It is environmentally friendly, carbon-neutral and natural. Hydro power allows HydroMiner to manage its resources sustainably and enables low-emission production. Using hydro power stations in the Alps region, HydroMiner reaches one of the lowest prices per kilo Watt in Europe. According to HydroMiner’s website, its cost of electricity is currently 85% lower than the average in Europe. The cryptocurrency company finds further cost savings by using the water for cooling its mining equipment.

COMMENTARY

Two Sides of the Coin

CarbonCoin is another example of a cryptocurrency that aims to reduce not only its carbon footprint, but mitigate environmental impact overall. CarbonCoin has eliminated mining for profit – the aspect of cryptocurrencies responsible for harming the environment, through wastage of electricity.

By Ivano Iannelli CEO, Dubai Carbon

The CarbonCoin Trust’s CarbonCoin was started by a developer who had grown frustrated with the amount of electricity being unnecessarily wasted in the coin mining process of Bitcoin.

While cryptocurrencies do have the power to assist climate change, the environmental footprint of trading cryptocurrencies cannot be ignored

Research such as this is not isolated, and all conclusions are the same; the environmental footprint of cryptocurrencies is a grave concern and we need to ask ourselves tough questions about what these findings mean for our environment and how to mitigate the impact.

The solution Bitcoin trading per day is using 0.17% of the worlds daily electricity consumption, according to an index by Digiconomist. With Bitcoin prices the way they are currently, it would be profitable for Bitcoin miners to burn around 24 terawatt-hours of electricity annually as they compete to mine more Bitcoins, according to Digiconomist. That electricity consumption is almost equal to the entire energy consumption of Nigeria annually, a country of 186 million people.

Currently there are around 1.8 million cryptocurrency transactions daily, 450,000 of those are Bitcoin. Bitcoin’s estimated annual power consumption is 31.6 TWh, that’s more power than Ireland uses annually. The electricity consumed for a single transaction is 251

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kWh, which is sufficient to power 8.49 typical households in the US for a day. The Index also shows that Bitcoin miners worldwide could be using enough electricity to power about three million American homes. Triple that figure, and that is close to the amount of electricity used annually for cryptocurrency mining and trading.

Enough to power over nine million homes.

Research by Sebastiaan Deetman, Researcher Resource Efficiency at Leiden University, shows that if the Bitcoin network keeps expanding at the current rate, it could lead to a continuous electricity consumption that lies between the output of a small power plant and the total consumption of a small country such as Denmark by 2020.

On the one hand, you have the ability of cryptocurrencies to support climate change and sustainability, and on the other you have the massive energy usage issues associated with cryptocurrencies. Several cryptocurrencies are addressing this.

Vienna-based HydroMiner, for example, uses renewable hydroelectric power for its bitcoin operations. HydroMiner believes it’s crucial that as much of the energy consumed by its cryptocurrency trading comes from an ecologically friendly resource. Its goal is to have the industry’s lowest carbon footprint.

Hydro power is generally thought to be one of the most effective and lowest-cost renewable

CarbonCoin aims to stop energy being wasted on the mining process without jeopardising the security of the network, and is also looking at what can be done to rectify the damage already done to the environment.

To mitigate energy waste by cryptocurrency mining, CarbonCoin plants biodiverse forest on land that is not currently being used for anything else. CarbonCoin is designed not just to generate wealth for everyone who uses it, but also to fund the planting of millions of trees worldwide to address the problem of soaring emissions.

CarbonCoin works independently of any bank, central or otherwise. It also operates fully automatically, without the need for any human administration at all.

However, according to CNN Money, the solution to this massive electricity usage is not as simple as investing in renewable energy facilities along with bitcoin mining equipment, as this would only increase risk and make any potential return of investment for the operation take longer.

may be the solution to this problem. The media is hailing Chia, a cryptocurrency developed by BitTorrent creator, Bram Cohen, as the world’s first environmentally friendly cryptocurrency.

The Chia website states that it is “building a blockchain based on proofs of space and time to make a cryptocurrency which is less wasteful, more decentralised, and more secure”.

According to Cohen, when it comes to Chia, they will use the term farming instead of mining, as it’s a more environmentally friendly process.

This system requires significantly fewer energy resources.

Bitcoin trading per day is using

0.17% of the worlds daily electricity consumption.

Bitcoin mining is a complex process which requires vast amounts of processing power to

solve its algorithms and accommodate its hashing operations. To solve the growing problem, Chia network created a new token which operates in an entirely different way using proof of space.

Chia farming does not require ASICS or any other specialised hardware. Technically it can be done on a normal computer. Chia utilises unused storage space on a device that is not even monitored by the internal file storage system.

Seeing as the rewards are proportional, a farmer will receive rewards that are the equivalent of the amount of work they put in.

Chia is set to launch towards the end of 2018.

Upon launching, Chia will incorporate Lightning Network Channels for faster transactions.

The team also intends to bring about other tweak and changes that they believe will make the cryptocurrency the better and more environmentally friendly Bitcoin.

Cohen’s goal is to make a better Bitcoin, fix centralisation problems, reduce environmental impact and remove the instability that can happen when miners have an excessive amount of influence on mining operations from cheap electricity and massive mining operations.

Looking to the future, investors need to not only look at the direct impact of their investment on the environment, but also how the process of creating and trading that investment affects the environment for their money to truly be making an impact on the world.

Cryptocurrencies may seem an attractive investment, but do investors know the real impact of their investment?

PixieMe.com/Shutterstock.com

The Sustainabilist |GREEN FINANCE

A new cryptocurrency due to launch at end 2018

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The Sustainabilist |GREEN FINANCE

INDEX

Top 10 Countries for Climate-Aligned Bonds Rest of the World 11% Germany 2% Russia 2% India 2% South Korea 3%

China = $246bn

China 36%

Canada 4%

South Korea = $19.6bn

China = $246bn

UK 9%

Japan = $2.6bn

France 9%

India = $16.9bn

United States 16%

Hong Kong = $1.5bn Thailand = $3.2bn Eastern Europe = $15.7bn Russia accounts for largest proportion of climate-aligned bonds from Eastern Europe.

The majority of these were linked to the Russian Railways who met our criteria of less than 50% of revenue coming from the transportation of fossil fuels. Remaining Eastern European issuance is small and includes only one unlabelled climate-aligned issuer from Hungarian Enefi Energy. There have been two labelled green bonds out

Source: Climate Bonds Initiative

of Eastern Europe thus far: Nelja Energia from Estonia (for renewable energy) and Latvenergo out of Latvia.

Australia = $2.5bn

Asia Pacific (excluding China) = $48bn Excluding China, the Asia region is dominated by India and South Korea South Korea has almost equal issuance in energy and transport themes with two dominant issuers: Korea Railroad and Korea Hydro & Nuclear. In the labelled green bonds space, Hyundai issued Korea’s first corporate green bond linked to energy efficient and electric vehicles in 2016.

India’s only presence in our report. However, changes in Indian policy have led to issuances of labelled green bonds from Hero Wind Energy (2015), Axis Bank (2016), Yes Bank (2016) and others. We expect to see many more in the future.

Australian issuance of unlabelled climate-aligned bonds is small and dominated by rail operator Aurizon. However, Australia has proven to be an active region for labelled bonds certified by the Climate Bonds Initiative with bonds from banks: ANZ Bank (2015), National Australia Bank (2014) and Westpac (2016).

We did not find any unlabelled climate-aligned issuance from the Philippines, but note that the first labelled green bond from the Philippines was issued by AP Renewables in 2016. It finances geothermal and hydro power projects.

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