Green bonds listed on the London Stock Exchange have raised in excess of $20.2 billion in seven currencies. (Source: LSEG December 2017)
Investment in the UK’s clean energy sector has surpassed £100 billion since 2004, representing 12.6% of all new investment in clean energy for the EMEA region.
2017 was a strong year for green bonds with a record $155.5 billion issuances in 2017, this is up from $92.2 billion in 2016 (Source: Climate Bonds Initiative)
Six renewable yieldcos have listed in London since 2013 with a collective market capitalisation in excess of £2.2 billion.
There are 59 Green Bonds listed on the London Stock Exchange in seven different currencies, including the first CNH and INR-denominated green bonds. (Source: LSEG December 2017)
There are 38 green companies which have raised $10 billion combined in London, including 14 renewable investment funds.
In the UK renewables generation has increased by 30% since 2014.
The UK Green Investment Bank has backed 98 green infrastructure projects, committing £3.4 billion to the UK’s green economy into transactions worth £12 billion.
121 UK energy projects have been funded visa crowd funding raising €118 in total across 5 energy crowd funding platforms, providing an average return of 7.36%
UK energy projects have been funded by crowd funding. (Source: IEFE May 2016)
The Green Finance Taskforce published its report, “Accelerating Green Finance” in March 2018 calling on Government to consolidate the UK’s position as a world-leading hub for green finance.
Funding any means of reducing carbon emissions or raising resource efficiency. Adherents range from world-renowned corporates like Apple, Starbucks and Unilever, to the World Bank, EBRD, Deutsche Bank, Allianz and Swindon Borough Council. It incorporates green crowdfunding for small-scale, community schemes right up to green bond issuance for major infrastructure projects or corporate energy-efficiency schemes.
‘Green’ products have been promoted for decades. Emissions trading was first considered in the 1960s. Creation of the modern green finance sector, however, began with issuance of the world’s first green bonds in 2007. Green finance products should be regarded as thoroughly twenty-first century.
The sector is not limited to green bonds though they do represent its vanguard considering their relative liquidity, high profile and simple structuring. They are increasingly sought by investors who once passively divested of high-carbon assets (e.g. oil and gas stocks) but now actively seek to learn about and obtain low-carbon products. Green assets provide a means of countering the increasingly high-profile divestment movement.
These include carbon-tilted indices, municipal green project financing, green crowdfunding platforms, green investment banks, renewable yieldcos, catastrophe bonds and green insurance. Landmark developments are also coming to market with increasing frequency, from the first renminbi- and rupee-denominated green bond issuances in London in 2015 to the Green Investment Bank’s mobilisation of total capital in excess of £10 billion.
Momentum in the sector is likely to increase following COP21’s commitment to a two-degree ceiling. Countries also submitted their climate action plans (or INDCs) at Paris and must now begin to implement them – green finance will be a key to their realisation. In China alone, and despite having by far the world’s largest sovereign reserves, 80% of climate mitigation projects must be funded by the private sector according to the PBoC.
Regardless of one’s position on the science of climate change, public health concerns are increasingly at the top of domestic agendas. New projects, e.g. addressing air pollution in Beijing, or flooding in Cumbria, can be financed by green issuances.
Green instruments benefit not only the environment but issuers too, typically broadening investor bases, maximising order books and tightening prices. The demand for TfL’s inaugural green bond in 2015 was so great that the agency secured its second-lowest cost of debt capital yet and tapped an entirely new cash pool. Fully 69% of the bond’s investors were green-only funds, many of them first-time investors not just in TfL but in sterling markets entirely.
Green investors include not only environmental-specific funds (though the assets they command are larger and faster growing than you might expect), but mainstream asset managers and institutional investors too, attracted by the integrity that transparent, fully accredited green products provide and who covet their value as a hedge against carbon-related risks.
Many asset owners, from pension holders to millennial investors, are demanding climate-conscious portfolios. This trend is not expected to dissipate, with ever greater ethical demands being placed upon the financial services sector. Green finance provides one of the chief vehicles for meeting such expectations.
Transparency, product accreditation by a credible third party, and regular reporting, are collectively referred to as the ‘green principles’. Investors need to see the impact their investment is having if the issuer promised environmental benefits. Second opinions and regular reporting can incur a cost, but typically no more than 1 bps on a transaction. The market will fail if it is perceived as a fix.
By virtue of its world-class financial expertise and global reach, London is already amongst the premier venues for the provision of green services. It has also witnessed a number of firsts – from issuance of the first renminbi- and rupee-denominated green bonds to the work of the world-leading Green Investment Bank.
London did not invent the green finance sector, but London can help to internationalise the sector. This will be crucial for governments everywhere to be able to attract the private funds they need in order to meet their environmental commitments.
Green definitions diverge sharply between countries. Emerging markets, for example, operate on a far longer time-scale than Europe. Even neighbouring countries will disagree about the role of nuclear or the acceptability of clean coal. As long as the financial products that facilitate the transition to a carbon-neutral economy are transparent and fully accredited however (i.e. they adhere to the ‘green principles’ outlined above), investors can choose for themselves the assets that suit their ethical parameters and the market will price instruments accordingly.
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