Emerging markets embrace green bond issuance

Source:Reuters-Global Times Published: 2017/8/20 18:08:39

Developing economies commit to financing environmental projects

Emerging economies are increasingly selling green bonds to Western investors hungry for environmentally-friendly investments, but there is a concern some of the new deals don't meet the standards required.

Green bonds are intended to finance environmental projects such as solar and wind farms.

A record $32.2 billion worth of them were issued in the second quarter of 2017, according to Moody's. Issuance from emerging markets has jumped from $2.3 billion to $9.2 billion year-on-year, about half the total from developed markets, versus 16 percent a year ago.

South Africa's Cape Town, Argentina's La Rioja Province, and the Brazilian Development Bank have all tapped the market.

"The market is stretching the boundaries... The push is there and I don't see this abating in the near term," said Rahul Sheth, executive director at Standard Chartered.

China accounts for over two-thirds of the total emerging market green issuance and one-fifth of the global tally, even though it is classed as a major polluter by carbon emissions.

The country issued $23 billion worth of green bonds in 2016, up from just $1 billion in 2015, according to the Climate Bonds Initiative (CBI).

China's green bond boom reflects an official push for cleaner energy, says Sherry Madera, the City of London Cooperation's special adviser for Asia. Just 2 percent of Chinese local debt is "green," but this must rise tenfold so the country can meet its climate change objectives, she said.

Meanwhile, at the other end, investor demand is growing. In Europe, Fitch identified 17 dedicated green bond funds whose assets have risen by 400 percent since 2015.

This means issuers can tap investors who might not have bought a conventional bond from the same place, says Bertrand Gacon, head of impact at Lombard Odier.

Investors get similar returns to ordinary bonds, but with an additional environmental benefit. "So for many institutions and private clients, it's just a no-brainer to switch part of their allocation into green bonds," he said.

But emerging green bond markets are still bedeviled by variations in standards and skepticism over how the proceeds will be used if there is no third-party verification.

Lombard Odier's Global Climate Bond fund, for example, did not buy Poland's sovereign green bond, issued last year, over concerns about issuer responsibility and so-called "greenwashing," when an issuer promotes green initiatives but operates in a way that damages the environment.

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