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.
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.
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
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.