Green bond market faces growing pains

green bond marketWhen it was published The Fable of the Bees caused a scandal. The poem, released in 1714 and subtitled Private Vices, Publick Benefits, argued that individual viciousness could work towards the general good; commerce and industry depend on avarice and pride, take them away and mass unemployment would result.

It is a similar reasoning that lies behind the nascent green bond market, which looks to harness companies’ self-interest as a way of persuading them to clean up their acts.

The market is swelling as the push by governments to lower global carbon emissions, underlined by December’s Paris climate change accord, provides fresh impetus for trillions of dollars of investment into cleaner energy. Green bond issuance is on course for a fifth straight record year, according to Bank of America Merrill Lynch, with the bank forecasting up to $90bn to be sold in 2016.

“If you step back, what those instruments are there to do is to finance the transition to a low carbon economy,” says Tanguy Claquin, head of sustainable banking at Crédit Agricole. Energy, transport and real estate, he argues, are key to the shift, as well as banks.

However, the rapidly growing market remains self-regulated. While the International Capital Market Association has a set of guidelines for issuers that requires companies to make more disclosures if they are followed, anyone can issue a bond and claim it is green. The market relies on the expectation that no company would want to incur the shame of issuing a “green” bond and not using the proceeds for environmentally friendly ends.

That leaves the vexed question of trying to work out a commonly held definition of “green”, with the struggle to do so throwing up some uncomfortable ramifications for a market intended to accelerate the spread of a low carbon economy.

“Sometimes we have highly polluting companies issuing green bonds,” says Frederic Samama, deputy global head of institutional sales at Amundi, Europe’s largest listed asset manager. “And at the opposite end we had green issuers that were refusing to issue green bonds because of the extra cost.”

Companies and banks have accounted for 58 per cent of green bonds sold in 2016 to date, according to BAML, alongside supranational agencies, like the European Investment Bank, and governments.

The vast majority of the corporate issuance comes from banks, which are now the dominant issuer responsible for $25bn of the $121bn of bonds labelled green ever sold.

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  • Avatar

    JayPee

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    Maybe we can solve the problem if the ” Green Bond Market ” would start buying its own bonds just like the Federal Reserve does.

    Maybe that way they’ll sell.

    Reply

  • Avatar

    Al Shelton

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    Green bonds will go the way of green energy stocks in due course. — down.
    If Trump gets in, one would think that there would be a sell-off and get a “junk-bond” rating.

    Reply

  • Avatar

    Al Shelton

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    Of course the green bond issuers will have issued all those bonds to the gullible pension funds, green energy funds, green endowment funds, green sucker funds of any type.
    Like the pump-and-dump green energy stocks they[the issuers] will get wealthy at the “greenies” expense.
    AND… all the while claiming to be helping the poor.

    Reply

  • Avatar

    Amber

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    Green Bonds are just another flavor of the month way to suck people in to buying debt .
    Green bonds will turn to Red will turn to Black .

    Keep Buying Suckers . The planet feels oh so much cooler doesn’t it ? All those politically correct universities lined up to invest in Screw Me Bonds . What could go wrong ?

    This is not going to end well .

    Reply

  • Avatar

    David Lewis

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    I can think of a very reliable form of energy that has zero carbon dioxide emission. That is nuclear energy. Shouldn’t it qualify for green bonds? If it did, it would be the only form of energy where the bonds are worth anything in the long run.

    Reply

  • Avatar

    JayPee

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    Bonds can be not only a solid , but very profitable investment.

    But the so-called ” green ” bonds ?

    The same as the 80’s & 90’s ” junk ” bonds.

    The only way you made money on those was by selling when the dopes were buying.

    Reply

  • Avatar

    Amber

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    Was that Green bonds or Green bombs ?
    Any pension fund manager propping up this green bond fable should look for a job back at Wendy’s .

    Reply

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