Green Bonds 2014 Year end wrap up & prospects going forward

Climate Bonds Initiative

Network for Sustainable Financial Markets

Sean Kidney, CEO, Climate Bonds Initiative

Tess Olsen-Rong, Market Analyst, Climate Bonds Initiative

16 December 2014

Proceeds earmarked forqualifying green investments

Pricing generally equal with similar bonds

Oversubscription usual

USD

$1.2bn$909m$414m

$4bn

$11bn

$3.1bn

$35bn

20

15

: Est

imat

ed $

10

0b

n+

Green Bonds global growth

A big year

0

5

10

15

20

25

0

1

2

3

4

5

6

Bill

ion

s

Amount issued (USD) Number of bonds

Toyota

EIB

TD Bank

GDF Suez

EIB

City of Gothenburg

World Bank

AfD

EIB

NIB

Ontario

KfW

EIB

2014 by issuer typeABS5% Bank

2%

Corporate35%

Corporate loan0%

Development Bank45%

Muni/ provincial/ City

11%

Regional bank2%

Key Themes

• Corporate bonds from zero to

35% market share

• Development banks continue

to dominate – 45%

• Growing Municipal and city

bond market growing to 11%

US taking off in H2 2014

$88tn assets under management

$30tn Insurance

$27tn Pension funds – 19 out of 20 are public sector

$6tn Sovereign wealth

$25tn Fund managers, mutuals, foundations

(SRI = $13tn global)

Emerging Market pension funds = $4.5tn

50-60% bonds

Green/brown

Context: $45 trillion of “interest”

US$45 trillion

US

$2

2.5

trilli

on

US$8 trillion

US$8 trillion

Investor statement:

$2.24tn AUM investors committed “to grow a large and robust market that makes a real contribution to addressing climate change”

Global Investor statement on Climate Change, signed by investors with $24tn AUM

“acutely aware of the risks climate change presents to our investments. In addition, we recognise that significant capital will be needed to finance the transition to a low carbon economy”

$16tn insurance sector “committed to double green investments to $84bn by end of 2015” – and x10 by 2020 – at UN climate summit

+ various investor pledges; Zurich, ACTIAM, Barclays

Commitment to green bonds

It’s about Use of Proceeds

• Earmarking purpose

• Reporting / transparency

• Independent review

Proceeds to Green

• Governments & DFIs

• Corporates – this year’s growth area

• Asset backed: PPPs, banks, utilities, etc

• Municipalities

Any entity

• Investor diversification

• Investor engagement: “stickiness”

• Longer tenors

• Multi-asset pools

Issuer benefits

Majority of green bonds had 2nd opinion in 2014

• 65% of green bonds

have a review

• EIB issuance account for

16% of bonds without a

second opinion

• Remaining 19% of bonds

without second opinions

Independent review

65%

EIB – no review16%

No review19%

EUR 2.5bn ($3.5bn)

Proceeds to EE and Renewable Energy

Liquidity needed to grow market

Two bonds, 3 x oversubscribed

– EUR 1.3bnTenor 12

– EUR 1.2bnTenor 6

Size matters: GDF Suez

$1.75bn

5 tranches

Tenor 1-6 years

All oversubscribed up to 1.6x

ABS – EPA standards

Different opportunity to Hannon Armstrong ABS

Huge green ABS

District of Columbia green water bond

Tenor 100 years

$350m

Rated AA

Coupon 4.81%

The proceeds will be used to construct a tunnel to transport stormwater and sewage to a wastewater treatment plant and reduce sewage overflows to waterways.

Municipal green bond

US listed sustainable infrastructure investor (YieldCo)

$100m

Tenor 5 year

Coupon 2.79%

Asset-backed securitization of cash flows from over 100 individual wind, solar and energy efficiency installations; all with investment grade obligors.

• Quantitative annual reporting of greenhouse gas emission reductions, measured in metric tons per $1,000 of par value.

• The assets underlying the bond are "estimated to reduce annual ... emissions by 0.61 metric tons per $1,000 bond".

First green ABS

Issued high-yield bonds (i.e. below investment-grade)

EUR500m (across two tranches in USD and EUR)

US$300m

5 year

B-rated bond

Coupon 6.5%

+

EUR265m

5-year

Coupon 5.5%

No rating

High yield green bonds

Taiwan’s Advanced Semiconductor Engineering(ASE)

Corporate green bond

BBB

$300m

6 years

6x oversubscribed

Proceeds: green building construction, installation of waste water recycling facilities, waste water management and manufacturing energy efficiency.

ASE is an integrated circuit packaging and testing services provider.

First Asian Corporate green bond

Japan is the second largest bond market in the world.

Development Bank of Japan (DBJ)

EUR 250m

3 year tenor

Coupon 0.25%

Rated Aa3 and A+

Over 3x oversubscribed – EUR 750m

Q3 this year

Proceeds of the bond: green buildings

First Japanese green bond

ZAR 1.46bn/ $136m

BBB

South Africa

June

1.5x oversubscribed

10 year

Proceeds to be used for:

Renewable Energy: solar-panel power generation, water heaters

Other energy: Waste-water plants modified to generate electricity, Landfill methane gas capture and energy generation

Transport: 152 hybrid-fuel buses

Emerging markets will be an important area of growth for green bonds

Emerging markets: City of Johannesburg

Assets, not entities

Transparency & reporting central

Green Bond Principles = bank support

Mid 2014 snapshot

Climate-themed

bonds $502.6bn

Green Bonds

$51bnProject Bonds

$7.8bn

Bonds are about re-financing

Asset-backed Re-financing by utilities Bank securitization

Corporate

Corporate

Mature assetLow risk, long-term holdings for long-term investors, 15-25 years

Public sector

DevelopmentHigh risk

Project finance

First 2-5 years

Equ

ity Bank

loans

Pro

ject

Public sector

Green Bond Indices

Standards & certification

Industry Advisory

Group

Expert Committees: Green Property, Low-Carbon

Transport, Bio-energy, Agriculture, Water

$30tn Climate Bond

Standards Board

Indices

A broad universe = scale / liquidityExpert groups = science-based definitions

Renewable energy Hydro = c75% of electricity.

Energy storage Wind energy increasingly competitive.

Green buildings c85% urbanisation rate: Sao Paolo,

Green cities Rio and Curitiba are C40 members

Industrial Utilities must reinvest

Efficiency 1% of revenues in EE (1998 law)

Rail, BRTs, EVs BRTs in Curitiba & many other cities

Rail in Sao Paulo, Rio

Opportunities for Brazil

A broad universe = scale / liquidityExpert groups = science-based definitions

Clean water Water unevenly distributed.

Storm adaptation + drought impact on GDP: hydro, agri

Waste mngtm

Methane reduction Hydro not run of river; agriculture

Agriculture = c80% of emission cuts for 2020 tgt,

Forestry mainly reduced deforestation.

Biofuels industry.

Food supply chain c26% of GDP from agri services

Opportunities for Brazil

2015 expectations

1. Market growth

National development banks expand issuance

More corporate earmarked in EU, US, China

Property, Energy, Rail, Water

Boom in Green City Bonds

USA & EU, China & India, Latin America

ABS emerges

Green mortgages

Rooftop solar

2. Market developments

Standards adoption

Green Bond Principles pin down reporting requirements

ETF and index linked funds

UN Climate Agenda embrace

The road to a US$1 trillion market

1. Market creation: Tapping domestic pools of capital

Green Bonds Market Development Committee

China, India, Indonesia, Brazil, Chile and more

2. Role of public sector and development banks

Leveraging private capital with risk-bridging

Kickstarting domestic market issuance

4. Governments press policy & regulatory steps to support bonds

Project deal flow shepherding

Tax breaks

Green securitization support

www.climatebonds.net