14. Green Bonds Catherine Reichlin
Head of Financial Research, Mirabaud & Cie.
Green bonds first appeared in 2007,1 but it took almost seven years longer for the market linked to sustainable, climate-related projects to really develop. The first to be interested in green bonds were environmentally conscious investors and development banks, such as the World Bank and the EIB. In 2013, public authorities and companies brought momentum to the market, diversifying a business so far dominated by euro-denominated issues. Things really picked up speed in 2014, with the arrival of new issuers and more substantially sized borrowings. A major turning point was the issuance, by GDF Suez (now Engie), of a EUR2.5 billion bond to finance such projects as the construction of wind farms. The bond was oversubscribed almost three times, and 36% of the issue was bought by non-ESG investors, which was critical to “democratise” the field. It wasn’t only energy companies that contributed to this ramp up. Unilever blazed a trail by issuing the first ever green bond to finance the reduction of its carbon footprint. After manufacturing came the finance industry—banks in particular—with governments finally getting involved fairly late in the game, with Poland and later France issuing bonds in 2016 and 2017, respectively.
What Makes a Bond “Green”? One of the main, albeit not the sole, criteria is that the bond is issued exclusively to finance environmental projects. In 2014, given the growing interest for this market, banks and issuers adopted the Green Bond Principles and entrusted coordination of them to the International Capital Market Association (ICMA) in its capacity as governance body for capital markets. These non-binding principles have four core components: •• Use of Proceeds •• Process for Project Evaluation and Selection 2 •• Management of Proceeds •• Reporting The Green Bond Principles have been updated each year since their inception, and the next update will need to take account of recent market 112
