How green bonds can help mobilise private sector finance

By András  Simor

Green Bond Principles: Second Annual Conference

Speech delivered by EBRD Vice President and Chief Financial Officer, András Simor at the Annual Meeting of the International Capital Market Association held at EBRD’s headquarters in London.

Ladies and Gentlemen, I am delighted to welcome you back to EBRD’s headquarters, and am impressed by how many have forgone the competing attractions of the England-Wales football game to be here.  That is surely the best testament to the excitement that surrounds Green Bonds, a market that has now surpassed $100 billion since the first issue in 2007.

Since we gathered here this time last year for the Green Bond Principles first AGM and conference, it seems that the world’s leaders have taken historic decisions about our sustainable future – and how it will be funded. 

At the United Nations General Assembly in New York last September, world leaders endorsed new Sustainable Development Goals, which were reaffirmed by the heads of the Multilateral Development Banks, including the EBRD.   Indeed, just days afterwards, we announced a major scaling up of our contribution to the global fight against climate change, with the launch of the EBRD’s new Green Economy Transition approach. 

With a stated goal of committing €18 billion of financing over the next five years, and mobilising a further €60 billion from co-investors over the same period, we expect our green projects to deliver an incremental cumulative Co2 emissions’ reduction of as much as 50 million tonnes each year by 2020.  Given our business model, we would also expect more than half of that financing to be in the private sector.

Our understanding of the Green Economy not only encompasses a market economy in which public and private investments are made with a specific concern to minimise the impact of economic activity on the environment, for markets on their own neither fully account for the real cost of economic degradation and neglect, nor do they fully recognise the value of services provided by nature.  Our definition of Green Economy Transition, therefore, also seeks to address market failures by recognising the inherent value of services provided by nature; managing related risks and catalysing innovation. 

Also in September last year, EBRD co-hosted a global energy efficiency finance forum in Istanbul together with the United Nations Environment Programme Finance Initiative, which was designed specifically to engage the financial industry in energy efficiency opportunities.  The event was attended by representatives from over 70 financial institutions, who endorsed a joint statement pledging to further integrate energy efficiency investments into both their own operations, and those of their clients.

The COP21 conference in Paris last December further strengthened our commitment to ensuring the successful implementation of the historic Paris Climate Change Agreement.  We look to support the countries of our region to fulfill their Intended Nationally Determined Contributions, under the COP21 Accord, through a sustained focus on energy efficiency improvement in cities, industries and utilities, where the fastest reduction in carbon emissions can be achieved. We are also increasing our activity in climate adaptation financing.

The Paris Agreement places a major emphasis on the transfer of finance to support climate investments in emerging and developing economies. It provides a good basis for developing further international consensus, as well as capacity- and trust-building in tackling global warming.

The conduit for financing this transformation, which Green Bonds and Green Funds can provide, is ever more important in developed and developing countries alike, as the recent introduction of regulations, rules and guidelines in China, France and India attest to.  That these are aligned to, or reference the guidelines agreed under the Green Bond Principles is to be welcomed.  This should reaffirm the legitimacy of the market-driven effort to develop and maintain self-regulatory rules governing Green Bond issuance, as successfully adopted by the Green Bond Principles 117 members and 71 observers.

Throughout the past year, under the leadership of ICMA, and based on input from the wider membership, the Green Bond Principles Executive Committee has undertaken a painstaking exercise to re-examine and update the framework for the issuance of Green Bonds, to ensure that they remain relevant, underpin best practice, and contribute to the integrity of the market.

This year has seen, amongst other things, a honing of the indicative categories for the use of Green Bond proceeds; templates for reporting on consistency of issuance with the Green Bond Principles; and a reference framework for impact reporting that has been developed by leading Multilateral Development Banks, including the EBRD, and which can be used or adapted by other issuers. Driving forward, while seeking consensus between issuers, investors and market underwriters has also been important to ensure that a diverse group of issuers can access the market.  Indeed, we are delighted to see the growth in issuance by utilities, power generation companies as well as the wider corporate sector over the last two years, and the broadening geography of issuers of Green Bonds.   

We, therefore, welcome the furtherance of the voluntary process guidelines for issuing Green Bonds, and endorse the guidance on transparency and disclosure that the Principles represent. Under its four pillars (of use of proceeds, process for project evaluation and selection, management of proceeds, and reporting), as well as its recommendations on the use of external assurance, the Green Bond Market should retain its credibility, integrity and investor trust.  This should allow it to fulfil its primary purpose: namely, to mobilise private sector finance to sustainable, green investments. 

At the EBRD, we shall look forward to playing our part, and contributing to this undertaking in partnership with you, so that together we do even more to support a better and greener future.