Green Bonds 102: A Brief History of Green Bonds
This is part 2 of a 6-part series on Green Bonds. This series was inspired by numerous conversations that prompted me to create an online compendium on Green Bonds. With the Kenya Bankers Association and other key market stakeholders creating a pipeline for the first green bond in Kenya, it is important to be informed on what green bonds are and their potential role in the Kenya’s sustainable development.
Going Down Memory Lane
- The first green bond was issued by the European Investment Bank (EIB) in 2007 to finance its climate-related projects which was listed on the Luxembourg Stock Exchange (LuxSE).
- The development of the voluntary Green Bond Principles in 2014 by a consortium of investment banks to promote disclosure, transparency and integrity in the development of the green bond market by clarifying the approach for issuance of a green bond. The International Capital Markets Association serves the GBP secretariat which handles its administative issues and provides guidance on green bond issues.
- IFC issued RMB 500 denominated green bond(approx USD 80.29M) listed on London Stock Exchange issued by a multilateal in offshore Chinese markets
- Toyota brought to market the first green asset backed securities (ABS) finance new Toyota and Lexus gas-electric hybrid or alternative fuel powertrain vehicles. [See Climate Bonds’ Briefing Paper on Green Securities ]
- South Africa pioneered its green bond in 2014 and has continued to drive the sustainability agenda by issuing green municipal and retail bonds.
- IFC issued 5 bond in offshore rupee markets (dubbed the first green masala bond) and raised 31.5B rupee for private sector investments to address climate change in India. According to London Stock Exchange, the bond issued under IFC’s USD 3B offshore rupee masala bond program whose proceeds will be invested a green bond issued by Yes Bank, one of India’s largest banks to fund renewables.
- India had issues a total of USD 1.1B done a number of private sector pioneers (Yes Bank, Export-Import Bank of India, CLP Wind Farms and IDBI Bank). Securities and Exchanges Board of India (SEBI) explicitly mentioned using the Indian green bond market as a key tool to help raise finance need to meet their ambitious intended nationallu determined contributions (NDCs) as stipulated by COP 21.
- People’s Bank of China (China’s Central Bank) published its Green Financial Bond Guidelines for green bond issuanced by financial institutions. Green Finance Committee of China Society of Banking and Finance(supervised by PBOC) issued Green Bond Endorsed Project Catalogue [2015 Edition] that defined China’s definition of a green bond
- Total issued labelled green bonds USD 47.8 B with issuance occurring in 14 out of the G20 countries
- In June, updated Green Bond Principles are released. They include new definitions and guidance on external reviews, references a wider universe of environmental and climate-themed bonds and suggested the adoption of GBP best practices were applicable
- Securities and Exchange Board of India (SEBI) proposed new framework for its official green bond requirements
- Luxembourg Green Exchange (LGX) was launched in September as the first platform exclusively for green instruments under the Luxembourg Securities Exchange (LuxSE). Prospective issuers will have to comply with a strigent eligibity criteria that required them to dedicated 100 percent of the raised funds to green investments.
- Apple became the first technology company to issue a labelled 7 year green bond of USD 1.5B backing projects on renewable energy for data centres, energy efficienct and green materials
- China emerged as a leader in green bond issuance. Within the first 7 months of 2016, it had reached USD 18.5B issuance in both local and oversear markets according for about 42 percent of global issuance during the same period (Reference: G20GFSG).
- Against the backdrop of Marrakech COP22, Morocco Agency for State Energy (Masen), a state owned solar power energy firm issued 1.15 billion dirhams ($118 million) green bond to finance renewable energy. Mexico city, Mexico becomes the first city in Latin America to issue a 5 year municipal bond of 1B Mexican Pesos (USD 50M) to fund climate-resilient infrastructure and mobility projects.
- Poland issued the first green sovereign bond of EUR 750Mn in December 2016, which was quite surprising given its coal-based economy and lukewarm attitude to overall climate change issues.
2017 and Beyond
It is clear from the above chart that there is increased issuance and interest in the green bond market especially as countries see it as an avenue to operationalise their ambitious nationally determined contributions (NDCs) as stipulated under COP 21. Some have dubbed 2017 as the year of sovereign green bonds as France opened the year by bringing to market its first green sovereign bond in January 2017 of EUR 7Bn sale to fund its energy transition. It now holds the record for the longest maturity of 22 years in a nascent bond market. Nigeria hopes to the first African country to issue a sovereign green bond in 2017 of a proposed NGN 20Bn (USD 63Mn) domestic issuance. The country is know to have issued a directive on sustainable banking principles, but the issue of a green bond will not only be a demonstration instrument for other African nations but also back their claim as being fully committed to sustainability matters.
Next: Green Bonds 103:Why Green Bonds as Financing Instruments
Disclaimer: All views expressed here do not necessarily reflect the opinions of my employers or clients, past or present.