LEDS GLOBAL PARTNERSHIP

Annual Event

Climate Bonds Deep-Dive Session

29 August 2014Bethany Speer

www.ledsgp.org

Trends

In 2014… $USD 16.6 billion of climate bonds issued as of June; Market

expected to surpass $40 billion by year end. This is three times the volume in 2013.

Bonds are increasingly being issued in local currencies (Peru, Rwanda) or other foreign currencies (Japan, Australia).

“Bond markets…generally start with high grade issuance from public sector bodies, then move on to corporates, municipals and asset-backed…Potential local issuers then become aware of the opportunities, investors slowly develop appetite, and bingo (assuming no disasters) we're away.” - Climate Bonds Initiative

Sources: BNEF, http://about.bnef.com/white-papers/green-bonds-market-outlook-2014/

Bond Types

1. Organizational Guaranteed – coupon (interest rate) based on issuer’s credit rating

1.1. Supranational/International ->another key contributor to bond market growth in 2014

1.2. Corporate self-labeled -> $USD 9 billion in 2014

1.3 Municipal

2. Asset-Backed Securities and Project Bonds– coupon based on performance of underlying project -> new for climate technologies

3. Dual Recourse Bonds – dependent on issuer’s and underlying project’s performance

Sources: BNEF, http://about.bnef.com/white-papers/green-bonds-market-outlook-2014/ CBI, http://www.climatebonds.net/resources/understanding/types-of-bonds

International/Supranational Examples

Trends 2013: issuances amounted to $7.1 billion, a 70% increase over 2010. Jan. 2014 to June 2014, $6.1 billion has been issued. 2014 will likely

see the highest volume yet. The average size increased by 370%, from $86 million in 2012 to

$375 million in 2013.

Agriculture – Argentina: $40 million facility Banco Galica will on-lend to agricultural sector players in Argentina to

increase their access to finance.

Avoided Deforestation – Indonesia/Various: $25 million Biocarbon (Singapore) has been established to invest in AD projects

in emerging markets. Objective is to conserve forests from being converted into other forms of land-use and generate carbon credits (the main source of income)

Sources: IFC, http://www.ifc.org/wps/wcm/connect/8dff9180412777f1b343bbdf0d0e71af/Green+Project+Summary+Database+sept+2013.pdf?MOD=AJPERES

Sources:

Sources:

Municipal Bond Examples

Energy and Transport – Johannesburg SA: $139 million Johannesburg as a BBB credit rating; 10-year bond priced at 185

bps over 2023 government bond, 1.5x oversubscribed Will include solar-panel power generation, water heaters, waste-

water plants modified to generate electricity, landfill methane gas capture and energy generation, and152 hybrid-fuel buses

Green Bond - Ile de France (Paris): $829 million Multiple projects including typical renewable energy and energy

efficiency developments plus innovative initiatives like ecological corridor development.

Also issued the first green muni bond in 2012

Sources: BNEF; CBI, http://www.climatebonds.net/2014/06/just-out-first-emerging-market-green-city-bond-city-johannesburg-green-bond-approx-r15bn

Project Bonds

In 2013, $3.1 billion clean energy project bonds issued; 53% increase over 2012.

Project bonds Can support an individual project or a portfolio. Portfolio project

bonds may be a growing mechanism to support groups of small projects as large onshore wind and PV projects slow U.S – Solar PV: Individual Project a $1 billion

Largest issuance was by US-based Berkshire Hathaway Energy backed by the 580 MW Solar Star PV Project

U.S. – Wind: Portfolio Exelon to back 13 wind farms Swedish – Wind: Portfolio Swedish based Arise to back 10

wind farms

Sources: BNEF, http://about.bnef.com/white-papers/green-bonds-market-outlook-2014/

Asset-Backed Securities

Sources: BNEF, http://about.bnef.com/white-papers/green-bonds-market-outlook-2014/

Clean energy – U.S: $USD 100 million Issued by Hannon Armstrong Sustainable Infrastructure’s’ backed

by the cashflows of over 100 wind, solar and energy efficiency projects at 20 properties across the US.

Solar City – U.S.: $54.4 million + $70.2 million Over-collateralization, a risk enhancement for investors, was

61%, a huge figure versus other niche ABS types (where 10% is typically high)

Residential systems = 90% of the ABS by value; 71% by number of systems; The delinquency rate of payments 120 days or more past due is 0.31%; FICO scores: 680-886, average of 762

Priced at 300 basis point. The securities are priced at around a 300 basis point (3.0%) premium above auto loan ABSs of comparable maturity

Example of Emerging Perspectives

‘"to distinguish green bonds from other bonds … they should have lower financing costs and greater support from the government, such as tax exemptions”.

Green banks, with a special mention of the useful example of the UK’s Green Investment bank.

Green insurance. Green education of financial product consumers. Environmental risk disclosure. Quasi-public environment cost analysis that people can interrogate. Green Investors Network (perhaps modelled on the Investor

Groups on Climate Change that are board members of the Climate Bonds Standard?)’

Sources: http://www.climatebonds.net/2014/07/my-new-hero-people’s-bank-china-chief-economist-ma-jun-argues-green-finance-and-green-bonds-

Ma Jun, new chief economist at the People’s Bank of China: