{"id":5350,"date":"2013-11-18T07:09:57","date_gmt":"2013-11-18T12:09:57","guid":{"rendered":"http:\/\/www.jasonapollovoss.local\/?p=5350"},"modified":"2018-09-21T02:03:59","modified_gmt":"2018-09-21T06:03:59","slug":"has-the-climate-for-climate-bonds-changed","status":"publish","type":"post","link":"https:\/\/jasonapollovoss.com\/web\/2013\/11\/18\/has-the-climate-for-climate-bonds-changed\/","title":{"rendered":"Has the Climate for Climate Bonds Changed?"},"content":{"rendered":"

A recent report co-authored by HSBC<\/a> and the Climate Bonds Initiative<\/a>, titled Bonds and Climate Change: The State of the Market in 2013<\/em><\/a>, is a strong indication that the climate for climate bonds has improved<\/a>. In the report, HSBC estimates that to transition to a low-carbon economy, $10 trillion needs to be invested globally between 2010 and 2020. At the same time, many global investors now consider the carbon footprint of prospective investments as a part of their analyses when just a few years ago this was a concern for only a fringe segment of investors.<\/span><\/p>\n

How else is the climate for climate bonds different? Many changes are afoot.<\/span><\/p>\n

More Stringent Definition of Climate Bonds<\/b><\/span><\/p>\n

Thanks to the Climate Bond Initiative, a climate bond now must meet strenuous criteria for how its proceeds are ultimately invested to receive the \u201cclimate bond\u201d label. This emphasis on actual use of proceeds marks an important analytical shift away from considering a bond \u201cgreen\u201d based solely on its stated intention to use proceeds to lower carbon output. Standard setting around nomenclature now allows investors to buy a bond marked \u201cclimate bond\u201d with confidence that it will meet the rigors of investment policy statements and charters. Furthermore, diligent and continuous evaluation by the Climate Bonds Initiative ensures that an issuer\u2019s claim to be a \u201cgreen bond\u201d is accurate. By comparing a firm\u2019s revenue breakdown and description of \u201cuse of proceeds\u201d on Bloomberg with company disclosures, as well as other market sources, the Climate Bonds Initiative is able to affirm that climate bonds meet tough underwriting standards.<\/span><\/p>\n

Improving Liquidity and Credit Quality<\/b><\/span><\/p>\n

Early in the history of climate change investing, bond financing was a distant second to equity financing. Climate change investments were perceived as too risky and too volatile to generate the steady stream of cash flows that bond investors covet. But now we seem to have reached a tipping point, with climate-themed bonds totaling $346 billion globally. What’s more, fully 89% of these bonds are considered investment grade, with approximately $163 billion considered benchmark-type investment grade. This amount is double the amount outstanding at year-end 2012.<\/span><\/p>\n

With both of the classic concerns of bond investors \u2014 liquidity and credit quality \u2014 improving, investors are beginning to turn their attention to more hierarchical needs. What additional steps need to be taken for climate bonds to evolve further?<\/span><\/p>\n

Public Sector Support of Climate Bonds Market<\/b><\/span><\/p>\n

Public sector support is already in place in the climate bonds market, for example:<\/span><\/p>\n