Green Bonds

Workshop on Sustainable Finance Initiatives

RESERVE BANK OF FIJI
 Global Trends in
1 Green Bonds
Global Trends in Green Bonds: Continued Growth

Continued Growth

Globally, 2016 was a milestone year for green bonds with

$82B issued, a significant jump from the $37B issued in 2015
and $33B in 2014. Momentum has continued in 2017, with
$20B of green bond issuance in Q1/17, bringing aggregate
issuance to $190B+ since the first issue in 2007.

Going forward Global green bond issuance will be driven by

the nearly $500B per year of investment that will be
required to achieve greenhouse gas emissions targets laid
out in the 2015 Paris Agreement. At the recent Climate Bonds
Initiative (CBI) conference held in March 2017, estimates for
green bond issuance in 2017 ranged from $123B (Bloomberg)
to more than $200B (Moodys). The CBI says issuance could
swell to $1T per year by 2020, with green issuance out of China
leading the way.

Green Bonds 2017 Baker McKenzie | 2

Global Trends in Green Bonds: Issuance
Continued Growth
Supra-nationals were pioneers, but corporate issuance has
grown quickly. Green bonds were first issued in 2007 by the
European Investment Bank (EIB), and until 2012, green bonds
have largely been the domain of the supranational issuers
(World Bank, European Investment Bank) and governments
(federal and provincial governments, local agencies). As the
market evolved during 201316, issuer types expanded
meaningfully, with commercial banks, non-bank financial (i.e.,
REITs), and corporate (non-financial) accounting for sizable
percentage of total issuance.
Green bonds have been issued predominantly as AAA-
rated securities. The proportion has declined from last year,
as private corporations have been more meaningful issuers. eg
iGreen. In 2016, Apple issued $1.5B in green bonds dedicated
to financing clean energy projects across its global business
operations,
Green Bonds 2017
Prior to 2013, green bonds were issued
predominantly as AAA-rated securities by
supranationals, but the market has
expanded rapidly since in terms of issuer
diversity, number of issuers, and investor
involvement. From 2007 through 2013, 65
100% of annual green bond issuance was
done by supra-nationals, with the rest from
municipal/provincial/national governments.
The European Investment Bank has been
the largest green issuer to date.
European Investment Bank (EIB) has been
the largest issuer of green bonds across 31
issues, bringing the total outstanding for EIB to
$19.8B. International Bank for Reconstruction
& Development (IBRD), a World Bank Group
member institution, has 106 issues with
~$9.6B of green bonds outstanding.
Baker McKenzie | 3
Global Trends in Green Bonds:
Investors and Investments
Continued Growth

Increased issuance by governments and National banks-

China, France, Canada, Fiji.- Most are Sovereign Debt Bonds.

Several global initiatives are mobilizing stakeholders to

join in climate improvement efforts at the same time that
governments are increasingly looking to infrastructure
investment to spur economic growth and improve climate
outcomes linked to NDCs. These factors, along with the
accelerated growth in green investment, have created strong
momentum for the green bond market, which is quickly
becoming scaled with meaningful: (i) breadth of
issuers, projects, credit ratings and term to maturity; and (ii)
depth repeat issuers, larger bond issues, and a growing base
of institutional investors.

Seeing different structures: Green use of proceeds bonds,

project development bonds, Securitization bonds.

Green Bonds 2017 Baker McKenzie | 4

Global Trends in Green Bonds: Investors
Continued Growth

Paris Climate Agreement and infrastructure focus

globally provide plenty of scope for applying green
standards to new projects

Several global initiatives are mobilizing stakeholders

to join in climate improvement efforts at the same
time that governments are increasingly looking to
infrastructure investment to spur economic growth
and improve climate outcomes linked to NDCs.
These factors, along with the accelerated growth in
green investment, have created strong momentum for
the green bond market, which is quickly becoming scaled
with meaningful: (i) breadth of issuers, projects, credit
ratings and term to maturity; and (ii) depth repeat
issuers, larger bond issues, and a growing base of
institutional investors.

Green Bonds 2017 Baker McKenzie | 5

 Green/Blue/Sustainable/
2 Social bonds
Cornerstone of a green bond
is the utilization of its proceeds
Green Bonds

The primary purpose of green bonds is to invest funds that

support verifiable projects intended to achieve a specific
climate or environmental purpose. However, there is no
universal or standardized approach of designating a project as
green. There are divergent views on what constitutes a green
project. Green projects are defined as projects designed to
promote climate and environmental sustainability.

Issuers of green bonds outline the green project categories

(i.e., renewable energy, energy efficiency, mass
transit) in their public disclosure (use of proceeds section of
the prospectus) so as to allow investors to assess whether the
bond meets their environmental and social mandates.

Renewable energy and energy efficient projects have been

the big beneficiaries but also signal a lack of adventure.
Although the selection criteria for green projects are broad,
renewable energy and energy efficient projects have attracted
significant investment from green bond proceeds.
Green Bonds 2017 Baker McKenzie | 7
Underlying Investments must be green
Green Bonds

Many project categories have been

recognized as acceptable for green
bond proceeds, such as LED light
retrofits, smart grid and smart metering
investments, solar power, the
construction of green office buildings,
transit projects, investments in low-
carbon and clean technology
programs, such as energy efficiency
and renewable energy, wind power
generation, and projects aimed at
reducing water usage, among many
others. There has been green bond
issuance related to specific green
projects.

Green Bonds 2017 Baker McKenzie | 8

Certification
Green Bonds and Climate Bonds

Issuers also typically establish a green bond framework which sets

out guidance on the green project selection process.

The Green Bond Principles are voluntary guidelines elaborated

by key market participants under the coordination of the
International Capital Markets Association (ICMA) acting as
secretariat. The GBP, updated most recently in June 2016, have
achieved broad market acceptance as well as growing recognition
by policy makers and regulators.

The Climate Bonds Standard provides clear, sector-specific

eligibility criteria for assets and projects that can be used for
Climate Bonds and Green Bonds. Certification is available for
assets and projects that meet the requirements of the Climate
Bonds Standard.

To further enhance transparency, issuers may hire an independent

third party (environmental research institution) to carry out a
second opinion vetting on the green bond framework and set-up.
Green Bonds 2017 Baker McKenzie | 9
Blue Bonds: IUCN
Green Bonds and Climate Bonds

Issuers also typically establish a green bond framework which

sets out guidance on the green project selection process.

To protect the Seychelles Mahe Plateau fishery a detailed

detailed management plan has been developed, which is
estimated to cost USD10m and will result in a more
economically valuable and financially sustainable fishery, with
healthier fleet and supply chains, better and more secure jobs,
and a healthier environment. To raise the required capital for
the implementation of the plan, the Seychelles Government
plans to issue a sovereign bond named Blue Bond, a novel
financing initiative which taps into capital markets for funds.
The proceeds from this bond will specifically be designated for
the implementation the Mahe Plateau fishery management
plan. Repayment of the bond will be the obligation of the
Seychelles Government, which may be supported by specific
revenues derived from the Mahe fishery after a period of time.

Green Bonds 2017 Baker McKenzie | 10

 Opportunities and risks of
3 green bonds
Opportunities and Risks
Green Bonds

.Far more money to invest. Institutional investor allocations to green investments is

poised for continued growth. Looking ahead, allocations to green investing should
continue to grow as investment and pension fuds increase their green allocations.

But lack of high quality investments.

Greenness, transparency, reporting, and standardisation must be increased to

ease the development of green bonds and manage costs and ensure that there is no
greenwashing.

To issue and monitor and report back on green Bonds adds cost. Investors
willingness to pay more for deeper shades of green could help issuers to defray
the cost of reporting. One development worth watching is whether investors will be
willing to pay more for greener bonds, all else being equal. In our view, investment
funds with a socially responsible investing (SRI) mandate may be more willing to do so
than those that do not. From the issuer perspective, if greenness, or deeper shades of
green, generates greater investor interest and price at a premium to bonds that are less
green, it could help issuers to pay for the green reporting obligations and incentivize
new issuers to look to the market.
Green Bonds 2017 Baker McKenzie | 12
Greater Innovation and Investment for Nature
Forest Bond

On the Issue Date, investors in the Notes paid US$152

. million, in aggregate, to IFC in issue proceeds, in
exchange for the issuance of the Notes.
IFC entered into a swap with BHP, where IFC will pay
USD LIBOR in exchange for the IFC Bond Yield annually.
Noteholders will receive an annual coupon of physical
delivery of VCUs, VCUs monetized at the pre-agreed
price per VCU, or a combination. They have 3 options for
their coupon credits: (i) to retire them to offset emissions;
(i) monetize the credits through a guaranteed price floor
with the IFC provided by BHP; or (iii) sell them on the
carbon market.
Coupon: 1.546% annual USD fixed rate amount (default
option) or VCU coupon equivalent VCU coupon
calculation: Should a noteholder elect to receive delivery
of eligible VCUs, the noteholder will receive a whole
number of Eligible VCUs determined by rounding
the accrued interest amount for such Noteholders Notes
up to the nearest number divisible by 5, and dividing by
US$5.00 (which is the fixed price per Eligible VCU

Green Bonds 2017 Baker McKenzie | 13

4 Fiji Sovereign Green Bond
Fiji Green Bond
Leverage

Announced in the Budget Fiji Green Bonds (Green Bonds) will raise funds for a
pool of eligible green projects (Eligible Projects), including new and existing
projects, which should have clear environmental benefits and promote the
transition to low carbon and climate resilient growth.

Eligible Sectors provide a broad outline of categories of eligibility for Eligible

Projects to address key areas of concern. The Green Bond Framework aims to
promote environmentally sustainable actions now and in the future. Eligible
Projects fall within the following Eligible Sectors:

Renewable and efficient energy;

Climate change adaptation;
Clean and resilient transport;
Pollution prevention and control;
Sustainable wastewater and water management;
Sustainable management of living natural resources and land use;
Insurance measures; and
Eco and energy efficiency
Green Bonds 2017 Baker McKenzie | 15
 How Fiji can leverage its
5 COP 23 Presidency.
COP 23 Presidency
Leverage

Through the negotiations Fiji is focussed on showcasing best

practice for transformative climate action and enhanced ambition
and making the Paris Agreement fully operational. This creates
enhanced ambition and a greater need for climate finance.
There are also opportunities for focussing efforts on regional
investments and programmes such as;

A regional Pacific NDC Hub and Financing

A dedicated focus on Climate Finance
A dedicated focus on climate Insurance as per the budget
A Fiji Green Bond
Pacific Green Climate Bond
Renewable Energy Roadmap, Readiness Assessment and
investment plan
Fiji Development Bank GCF Accreditation

Green Bonds 2017 Baker McKenzie | 17

www.bakermckenzie.com PRIVATE AND CONFIDENTIAL

Our difference is the way we think, work and behave we combine an instinctively global perspective with a
genuinely multicultural approach, enabled by collaborative relationships and yielding practical, innovative advice.
Serving our clients with more than 6,000 lawyers in over 45 countries, we have a deep understanding of the culture
of business the world over and are able to bring the talent and experience needed to navigate complexity across
practices and borders with ease.
Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the
common terminology used in professional service organizations, reference to a "partner" means a person who is a
partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm.
www.bakermckenzie.com
2017 Baker & McKenzie. All rights reserved.

Reference: Note much of this PowerPoint is drawn from RBC Capital Markets Industry
note, April 4, 2017, Green Bonds: Green is the new black, April 4 2017