September 24, 2014

Integrity for Green Bond market can be achieved without prescriptive standards

Green bond issuance in 2014 has grown rapidly and is already over two times larger than in 2013. Estimates are that the market will hit $40 billion by the end of the year. Deutsche Bank is one of the leading Green Bond underwriters.

The market is attracting more attention following the release of the Green Bond Principles (GBP) by a group of investment banks, including Deutsche Bank, in January. It is promising that mainstream institutional investors are starting to engage in the market. Green bonds must fill part of the “clean investment gap” if investment in clean energy and energy infrastructure is to double to $500 billion per annum by 2020 in order to keep climate change in check.

The growth of green bonds was the focus of a recent Euromoney conference in London which was co-sponsored by Deutsche Bank and attended by over 250 market participants.

Focus should be on expanding issuance and investor interest

Group Sustainability Officer Sabine Miltner spoke at the conference and warned that calls for standards and requirements on what is “green” are premature and risk choking a still embryonic market. She said “Despite impressive growth this year, focus should be on expanding issuance and investor interest. Over-burdening the market with prescriptive green standards is counterproductive at this stage. It is ironic that some people ask companies who intend to shift more resources toward sustainability to prove the greenness of this investment. This would put green bonds at a disadvantage over ‘brown’ bonds for which no disclosure requirements exist and could lead to perverse pricing. Clarity on how capital will be used should help investors to decide whether a particular green bond is appropriate for them. Therefore, verification that bonds meet the Green Bond Principles is important to ensure market integrity.”

The Green Bond Principles

Deutsche Bank was one of the founding members of the Green Bond Principles – which emphasize transparency when issuing a Green Bond. The Principles include guidelines for the use and management of bond proceeds, project evaluation and selection and reporting. Sixty three financial institutions and issuers are now signatories to the Green Bond Principles. The International Capital Markets Association (ICMA) is the secretariat to the Green Bonds Principles and has established an initial Executive Committee of 18 investors, issuers and underwriters.

Deutsche Bank is one of the leading green bond underwriters with notable recent deals including being a lead manager for:
 - the largest green bond - €1.5bn for KfW
 - Unilever’s £250mn green bond – the first bond to be directly linked to a company’s internal energy efficiency investments
 - EIB’s first climate awareness bonds to be priced in Sterling and also in Swiss Francs
 - First securitization of loans for residential energy efficiency

If you have any questions about green bonds, please contact our colleague per e-mail at:
murray.birt@db.com