26 May 2021
Even green bonds champion Sean Kidney has been surprised by the exponential growth in green over the last 12 months. The Climate Bonds Initiative’s CEO gave an exuberant and optimistic presentation at TRANSFORM. Here’s why he got us all talking about green finance…
1. Demand for green bonds has not dropped. “We’ve seen the appetite for green grow exponentially. This is not what we expected,” Sean said. Governments, in particular, are responding to the COVID-19 crisis with a “sense of building back better”. Sean pointed to Italy, which tapped the sustainable debt market for the first time by raising a record €8.5bn from green bonds in March. The European Union is rolling out a €750 billion recovery and resilience fund, a third backed by green bonds, with an emphasis on energy efficiency projects. Why energy efficiency? “Because of the jobs,” Sean said.
2. Net zero commitments are making their mark: More than US$1 trillion in green bonds have been issued, driven by the “110 countries [that] have committed to net zero targets by 2050 – a change from just one [country] 18 months ago”. The WorldGBC’s Net Zero Carbon Commitment is also “upping the ante of ambition”. Climate Bonds Initiative is currently looking at “programmatic certification” for organisations that commit to such targets.
3. Sustainability helps with stickiness: Green bond issuers are getting a price benefit. “But they are not doing it for price,” Sean said. “They all tell me they are doing it because they want a deeper relationship with their investors.” They want to attract a wider pool of investors and for those investors to be “sticky”.
4. The fight to quality is on: The COVID-19 crisis has confirmed that green bonds hold their value. “In March of last year, when the bond markets globally froze, I was hearing from investors that they were still able to trade green bonds.” What does this mean? “It means [green bonds] are a valuable product.”
5. Banks are stepping up the pace: Sean pointed to the Commonwealth Bank’s green loan to help customers purchase renewables and EuroPACE’s financing model, where 100% of energy efficiency upgrade costs are repaid through annual property tax. These programs won’t “solve demand” but “they are part of the underlying architecture”.
6. We are heading towards a $30 trillion green building market: A massive 40% of our emissions reductions must come from buildings, and the scale of the challenge ahead is “incredible,” Sean said. “Two thirds of the hard assets on the planet are property assets. People forget this. If we marry 40% reductions with two-thirds of assets, it needs to be a $20 to $30 trillion market – and right now it’s $160 billion.”
All of the signs point to a green premium – a “greenium” – in the bond market. And that’s good news for green buildings.
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