lunedì 27 febbraio 2017

Written by da Andrea Ballor 

On February 15th, Bocconi University and Green Light for Business hosted the conference “The lifecycle of a green bond”. With great hosts, working for the greatest European financial institutions, such as the London Stock Exchange and the EIB (European Investment Bank), we tried to create a canvas for a truly innovative subject: the green bonds.

Moderator prof. Stefano Pogutz introduced the debate in a very original and catchy way. He shows us an image of the Earth seen from space, clearly underlying the fact that we live on a limited planet. He hopes for the future, that finance will take that into account. Hopes it will push for responsible and low-carbon emission investments. He then introduces green finance as an industry divided into responsible investments (equity) and green bonds (debt). Both are necessary and complementary to work. Both are necessary to shift into a new path for finance, acknowledged of the limits and equally involving public and private sector.

What are we talking about when we say “green bond”?
We discussed about it with Aldo Romani, member of the Capital Markets Department at the EIB. You can take as a reference the Climate Awareness Bonds Statement for the year ended December 31, 2015. Fundamental for the issue of a green bond is the project which we are trying to finance. The latter must fulfil some requirements fixed by the EU, in order to be defined as green a project. Once verified the nature of the project, the instrument is issued and listed to the market. In 2015, the EIB issued EUR 4bn in Climate Awareness Bonds (CABs), remaining the largest issuer globally in the green bonds market. Unluckily, we lack a common definition, common methodology, common shared principles and common standard to give a precise answer to the question above. It was only in 2016 that KPMG published the first Indipendent Reasonable Assurance Report for the definition of a green bond.

We then went further into the topic with Sara Lovisolo, Group Sustainability Manager for the London Stock Exchange Group. She states that it is an instrument incredibly simple to issue. You don’t need to be a listed company. Any company can issue this kind of instrument, as long as the project underlying is really specific and truly green. They are then an industrial driven instrument, as they represent de facto, only one of the many ways to project financing.

Furthermore, the green bonds market has incredibly grown in the last few years, reaching a transaction volume of almost 100B dollar in 2016. However, it still represents less than the 0.01% of the entire bonds market (80 trillion dollar). This is due in part to the great innovativeness of the instrument, lacking a proper regulation. Moreover, there are problems on the supply side. The market is quick in the allocation of the new issued bonds, as the demand is high. Unluckily, it is rare that a company decides to finance a project with the issue of green bonds, preferring more classical and faster ways. Indeed, the great strength of the green bonds is the appeal they have to the consumer market. Ceteris paribus, the only difference in the financial instrument compared to traditional bonds is the care for the environmental problems behind it. The challenge for the future will be to adapt those instruments to the necessities of the potential issuers, strengthen even more the green bonds market.

Are the green bonds the solution to climate change?
Surely not, underlines Antonio Keglevich, Managing Director and Head of Green Bond Organization for UniCredit. However, it is a truly effective and powerful instrument. It is the way great financial institutions can actively participate to the change. The most effective way to sensitize the markets and finance to that shift Pogutz was hoping for in the introduction to the meeting.
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