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January 14, 2014
Banks Announce Support for Green Bond Principles
    by Robert Kropp

Thirteen investment banks indicate their support for a measure designed to ensure transparency, disclosure, and integrity in the development of a more robust green bond market.

To achieve the goal of keeping global temperature increases under two degrees Celsius, $36 trillion in global clean energy investment will have to occur by 2050, a 2012 International Energy Agency report stated. That amount averages out to approximately $1 trillion per year. However, according to research by Bloomberg New Energy Finance, only $281 billion was invested globally in clean energy in 2012.

Furthermore, as Paul Clements-Hunt, the former Head of the United Nations Environment Program Finance Initiative (UNEP FI), stated in 2009, “85% of financing for climate change mitigation will come from private investment.”

As global emissions continue to rise, especially among the heaviest emitting companies, and governments indicate their willingness to let business as usual persist at least until 2020, the outlook for effectively dealing with climate change on a global scale seems increasingly bleak. It's unlikely that a recent initiative, developed by investment banks along with sustainable investors and environmental advocates, will singlehandedly turn the tide toward adequate investment in climate finance. But if it signals a commitment to climate finance on the part of some of the world's largest financial institutions, it could be a start.

The Green Bond Principles (GBP), according to Ceres, “serve as voluntary guidelines on recommended process for the development and issuance of Green Bonds. They encourage transparency, disclosure and integrity in the development of the Green Bond market.” Yesterday, Ceres announced that thirteen investment banks—Bank of America Merrill Lynch, Citi, Crédit Agricole Corporate and Investment Banking, JPMorgan Chase, BNP Paribas, Daiwa, Deutsche Bank, Goldman Sachs, HSBC, Mizuho Securities, Morgan Stanley, Rabobank and SEB—have stated their support.

“The GBP recommend concrete process and disclosure for issuers which investors, banks, investment banks, underwriters, placement agents and others may use to understand the characteristics of any given Green Bond,” the Principles state. The Principles have four primary components: use of proceeds; process for project evaluation and selection; management of proceeds; and reporting.

Among the projects recognized by the Principles are renewable energy, energy efficiency, sustainable waste management, sustainable land use, biodiversity conservation, clean transportation, and clean water and/or drinking water.

“The GBP recommend the use of quantitative and/or qualitative performance indicators which measure, where feasible, the impact of the specific investments,” the Principles further state. “Much progress towards standardization has been made in the past several years. Issuers are recommended to familiarize themselves with impact reporting standards and, where feasible, to report on the positive environmental impact of the investments funded by Green Bond proceeds.”

On the utterly crucial matter of third-party assurance, the Principles recommend, among other options, publicly available reviews and audits.

It must be noted that many of the investment banks that have announced their support for the Green Bond Principles—especially those headquartered in the US, such as Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, and Morgan Stanley—rank among the worst in the world in continuing to finance mountaintop removal and new coal-fired power plants; the burning of coal “is the largest contributor to US greenhouse gas emissions,” according to the 2013 Coal Report Card. “US banks financed a combined $20.8 billion for the worst-of-the-worst companies in the coal industry in 2012.”

Given that the two approaches to energy finance are incompatible, the jury is likely to remain out for some time on the strength of the banks' commitment to green energy. But according to Bloomberg New Energy Finance, “Green bonds sold by development banks, projects and companies reached about $14 billion last year, a record.” With a new international climate change agreement scheduled to be agreed upon by all parties to the United Nations Framework Convention on Climate Change (UNFCC) in 2015, which will include targets of emissions reductions starting in 2020, perhaps the banks are beginning to see the light.


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