INTERNATIONAL FINANCING REVIEW ROUNDTABLE

JULY 2019 Sponsored by

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GREEN FINANCING
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FOREWORD
G
reen finance has become one
of the most important themes
driving global finance. It has
captured the attention of banks,
companies, investors, governments
and the general populace. And it
continues to gather pace as the notion
of a climate emergency demanding
urgent action increasingly takes hold.
The finance sector sits in the middle
of this debate. The role of the sellside,
buyside, corporate sectors and the
related institutional ecosystem in
supporting and furthering the green
agenda is being closely scrutinised.
From a banking perspective,
the discussion goes beyond client
selection, who banks lend to, the issue
of stranded assets and valuations.
These remain important aspects, but
climate change risk is far more than a
notional governance or business risk;
it is starting to be viewed on the same
level as operational risk, market risk,
liquidity risk, funding risk, credit risk,
as well as regulatory and supervisory
risk. It’s impossible to ignore.
From a corporate perspective,
environmental sustainability needs
to move on from being considered a
cost of doing business, and in many
respects a distraction from day-to-day
business, to a fundamental driver of
how the business is run. That takes the
discussion beyond potential basis-point
savings – to the extent that those can
even be achieved – from funding in the
green capital market.
Engagement by bond investors with
corporates around their sustainability
and environmental strategies is
becoming a bigger part of the overall
discussion. This is a critical component
of the green story and bond investors
need to continue upping their game
in this area because professional
institutional environmental activism
has the power to create lasting change.
The Green and Sustainable bond
market and the newer Green and
Sustainable loan market are growing,
but in truth both are insignificant
relative to the total amount of capital
raised each year. Some of that is down
to challenges of project selection at
the corporate level but if the green
capital markets are to play a role in
pushing the needle, corporates need to
accelerate their transition strategies.
Investors are looking more
forensically at corporate transition
COVER
strategies. If these are deemed to be
Palm Leaves - Abstract natural
unambitious or not credible, this may
green background with tinge
in the future prevent such companies
of red.
from issuing in the Green bond market
Dreamstime.com/
– even if the assets specifically being
Parin Parmar
financed or refinanced are pure green.
From a governmental perspective,
there are a number of initiatives at
play that rightly render climate-change
a truly global topic. The outputs of
the European Commission’s Technical
Expert Group on Sustainable Finance
– a classification system (taxonomy), a
Green bond standard, methodologies
for benchmarks, and guidance for
disclosure – were published on
June 18, some weeks after IFR’s
Green Financing Roundtable. The
expectations are that this or aspects
of it are adopted by others as part of
a much-needed global harmonisation
of standards. The fact that the
broad green finance market has
a multiplicity of definitions and
standards means it still lacks a
proper central definition that all can
adhere to.
Talk of “greenwashing” continues
to abound within broad conversations
about the Green bond market. And not
just on the issuer side; investors also
have a responsibility to ensure their
engagement with the green capital
markets is more than a detached box-
ticking exercise.

Chair: Keith Mullin Participants: Clare Dawson, Ines Faden da Silva, Monica Filkova,
Darko Hajdukovic, Stuart Kinnersley, Cristina Lacaci, Dominika Rosolowska
Event producer: Paul Holliday Head of production: Clive George
IFR production manager: Carole Styles Senior production executive: Gavin White
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International Financing Review Green Financing Roundtable July 2019 1

ROUNDTABLE GREEN FINANCING
Roundtable participants
STUART KINNERSLEY
Affirmative Investment Management
Stuart Kinnersley is managing partner of Affirmative
Investment Management, which is aligned to mobilising capital
markets in a more positive direction. He played a significant
role in creating the world’s first Green bond fund, launched
in 2010 in collaboration with the World Bank. He co-founded
AIM in 2014 after working in fixed income at Morgan Stanley
and ANZ before joining Foreign & Colonial as a fixed income
portfolio manager, where he spent 10 years. After F&C, he ran
Nikko AM’s London fixed income operation and became CIO.
DOMINIKA ROSOLOWSKA
European Investment Bank
Dominika Rosolowska works in the EIB’s sustainability
funding team, which is responsible for issuance of Climate and
Sustainability Awareness Bonds. She has been with the EIB
since 2010 and was previously a funding officer for Americas
and Asia-Pacific. Rosolowska has been a part of the EIB’s
efforts to develop the Green bond market, participating in the
due diligence and upgrading of Green bond administration,
creating the bank’s first Green bond impact report, drafting the
IFI Green Bond Impact Reporting Harmonization Framework
and the bank’s discussions within the Green Bond Principles.
2 International Financing Review Green Financing Roundtable July 2019
MONICA FILKOVA
Climate Bonds Initiative
Monica Filkova, CFA, is head of market intelligence at
Climate Bonds Initiative, administering the CBI Green bond
database, which provides Green bond information and data
to the market, undertakes annual research into post-issuance
reporting, and produces various publications. Filkova has 20
years’ experience in roles across bond markets and property
finance, including investment banking at Deutsche Bank,
structured finance and CMBS at Eurohypo/Commerzbank,
and debt and CMBS restructuring at Brookland Partners.
CLARE DAWSON
Loan Market Association
Clare Dawson is chief executive of the Loan Market
Association, joining in 1999 after two years in EMEA loan
syndications at Sumitomo Bank. Dawson spent two years
at the British Museum Development Trust raising funds for
the Great Court project and worked for eight years in the
international department of Sumitomo Bank, including two
years in Tokyo where she helped establish a syndications
desk. Dawson is a member of the Bank of England’s
Working Group on Sterling Risk-Free Reference Rates and
chairs the Sterling Loans sub-group.

DARKO HAJDUKOVIC
London Stock Exchange Group
Darko Hajdukovic is head of multi-asset primary markets
and investment funds at London Stock Exchange Group’s
capital markets business, responsible for primary market
offerings for international companies, debt and investment
funds. He has experience in equity and fixed income
transactions and is a member of the FCA’s Listing Advisory
Panel. Hajdukovic joined London Stock Exchange Group
in 2007 as a debt product manager looking after primary
fixed income business.
INES FADEN DA SILVA
Tideway
Ines Faden is treasurer at Tideway, the company building
the super sewer in London and a founding member of the
Corporate Forum on Sustainable Finance. Faden joined the
company in 2015 and moved into her current role in January
2018. Before joining Tideway, she was a consultant working
with a World Bank team advising the Brazilian government
on an infrastructure project. Prior to that, Faden had a 17-
year career at Citigroup, where she worked in securitised
markets, infrastructure and energy finance fixed income,
structured trade finance and corporate banking.
International Financing Review Green Financing Roundtable July 2019
GREEN FINANCING ROUNDTABLE
CRISTINA LACACI
Morgan Stanley
Cristina Lacaci is executive director and head of sustainability
bond structuring at Morgan Stanley and has worked at the
firm for 14 years. Lacaci has held multiple roles in capital
markets, starting in Iberia equity origination and covering
financial institutions in DCM since 2009. She has worked in
the structuring and execution of debt transactions for issuers
across Europe, including the structuring of Green bonds
for prominent issuers, with a focus on inaugural, strategic
transactions.
KEITH MULLIN
KM Capital Markets
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ROUNDTABLE GREEN FINANCING
KEITH MULLIN, KM CAPITAL MARKETS: GREEN
FINANCE HAS BECOME ONE OF THE SINGLE MOST
IMPORTANT DRIVING THEMES IN INTERNATIONAL
FINANCE, AND ONE THAT HAS CAPTURED THE
ATTENTION OF BANKS, COMPANIES, INVESTORS,
GOVERNMENTS AND THE GENERAL POPULACE.
THE FINANCE SECTOR SITS IN THE MIDDLE OF THIS
DEBATE. WHAT CAN THE FINANCE SECTOR – BANKS,
INVESTORS, COMPANIES ISSUING IN CAPITAL
MARKETS, AND THE RELATED FINANCING ECOSYSTEM
– DO TO FURTHER THE GREEN AGENDA?
FROM A BANKING PERSPECTIVE, CLIMATE
CHANGE RISK HAS MOVED FROM BEING A NOTIONAL
GOVERNANCE RISK TO SOMETHING THAT IS ALREADY
STARTING TO BE VIEWED AS A RISK ON THE SAME
LEVEL AS MARKET RISK, LIQUIDITY RISK, FUNDING
RISK, CREDIT RISK, AS WELL AS REGULATORY AND
SUPERVISORY RISK. IT’S IMPOSSIBLE TO IGNORE.
FROM AN INTER-GOVERNMENTAL PERSPECTIVE,
THERE ARE A NUMBER OF INITIATIVES AT PLAY; IT’S
TRULY A GLOBAL TOPIC. IN THIS SESSION, WE WILL
SEEK TO CAPTURE THE ESSENCE OF WHAT’S GOING ON
IN THE INSTITUTIONAL FINANCE SECTOR AND WHAT
VARIOUS PLAYERS ARE DOING.
I’D LIKE TO START WITH THE GREEN LOAN MARKET.
THE LOAN MARKET ASSOCIATION, ALONG WITH LSTA
IN THE US AND APLMA IN ASIA, RECENTLY ISSUED
SUSTAINABILITY-LINKED LOAN PRINCIPLES, FOLLOWING
UP ON THE GREEN LOAN PRINCIPLES. CLARE, COULD YOU
BRING US UP TO DATE WITH THE GREEN LOAN MARKET
AND THE SUSTAINABILITY LOAN MARKET?
4 International Financing Review Green Financing Roundtable July 2019
CLARE DAWSON, LMA: The Green loan market got going
somewhat later than the Green bond market but has
been growing quite rapidly. It’s still very dominated
by loans in the European market, but we are seeing
companies across the world doing Green loans; we’ve
had some in Latin America, in Asia and the US as well.
When the LMA decided to look at producing Green
Loan Principles, we were obviously aware of the
Green Bond Principles that ICMA had produced. Our
sister organisation in Asia, APLMA, was also looking
at Green loans as that market had started to develop
in Asia. The Green Loan Principles are very heavily
based on the Green Bond Principles for two reasons.
We didn’t want there to be arbitrage possibilities
between the two sets of principles depending on
whether you were doing a bond or a loan. We felt that
the standards should be maintained across the two
products.
Also, of course, it’s quite possible that banks might
want at some point to securitise their Green loan
books, so clearly it’s helpful if the Green loans that
underlie a securitisation follow the same principles
as the Green Bond Principles. The loan principles
follow the same core elements as the bond principles
– use of proceeds, project evaluation and selection,
management of proceeds, reporting, and there’s a
section looking at review.
Where there is a bit more flexibility in the
Green Loan Principles compared to the Green Bond
Principles is in the area of review. The relationship
between the lender and the borrower is, generally

speaking, considerably closer than the relationship
between a bond issuer and investors. Therefore, while
we encourage third-party review, we do say that,
in certain circumstances, it may be possible for the
borrower to self-evaluate because of its relationship
with the lenders and their understanding of the
company generally as part of their overall credit and
due diligence process.
In the area of reporting, loans are generally
private so borrowers may be reluctant to put quite
as much information in the public domain about a
loan as they have to about a bond. We acknowledge
that there should be some flexibility in terms of the
information that’s put in the public domain, although
we encourage that to be done.
We worked with APLMA on the first iteration of
the Green Loan Principles. Subsequently, during the
course of last year, LSTA joined in with this as the
US loan market had started to look at Green loans.
We published a second iteration of the Green Loan
Principles, which acknowledged that it might be
possible to fit a revolving credit facility and not just
a term loan under the Green Loan Principles if you
stuck with the use of proceeds and fulfilled the other
key elements as well.
We’ve subsequently produced the Sustainability-
Linked Loan Principles, again in coordination with
APLMA and LSTA. That was very much in response
to lenders, who were telling us that this is a very
rapidly growing part of the market. Effectively, the
difference between the two sets of principles and
the two products is that, in sustainability-linked
loans, you’re not looking at use of proceeds. You’re
looking at the overall performance of the company
and how that relates to its overall corporate and social
responsibility strategy, and setting out very clear and
challenging targets to improve overall sustainability
performance. That target setting is a key principle of
the Sustainability-Linked Loan Principles as opposed
to the use of proceeds.
The targets are intended to be challenging, to be
based off recent data and the recent performance of
the company so that it is setting a genuine course
for improvement. They look at the whole company
performance. I think this is important because
not all borrowers have specific projects or specific
assets that they are looking to either purchase
or produce at which they can target specific use
of proceeds. But if they can look at the overall
sustainability of their entire company and link that
to a set of targets, we believe that opens up the
market to a wider range of companies to engage
with this sort of financing, which is all targeting the
same aims.
KEITH MULLIN, KM CAPITAL MARKETS:
THE GROWTH OF THE GREEN MARKET IS
OBVIOUSLY FUELLED BY ISSUERS AND INVESTORS.
INES, COULD I ASK YOU TO TALK GENERALLY ABOUT
THE OVERALL FUNDING REQUIREMENT YOU HAVE
AT TIDEWAY, WHY YOU CHOSE GREEN BONDS AND
WHAT SPECIFIC CHALLENGES AND OPPORTUNITIES
YOU SAW AS A RESULT OF HAVING ISSUED IN THE
GREEN MARKET?
International Financing Review Green Financing Roundtable July 2019
GREEN FINANCING ROUNDTABLE
INES FADEN, TIDEWAY: Tideway is building the London
super sewer. We’ve raised about £2.5bn in the past
three years and have a little bit more to raise. The
company was created to address a sustainability issue
– pollution in the tidal River Thames – so it made
sense to align the financing of the company with the
company’s mission.
We are a pure-play issuer, so the low-hanging fruit.
Some people have said it’s really easy for us to issue
in this market and I would agree. But you have to
start somewhere and this market needs to grow. A
couple of years ago, we came up with a Green bond
strategy. Since then, we have been issuing Green
bonds. We’ve issued six to date. We did one in the
public market [a £250m 10-year in November 2017]
and have done five as private placements. We’ve
issued fixed-rate, inflation-linked (both CPI and RPI),
cash bonds and deferred bonds (with up to five years’
deferral). We’re very flexible, and issuing green has
been positive.
We worked with S&P on the second-party opinion
and we’re now considering “greening” our past
issuance, since all the money goes to construction
of the tunnel, which is a green asset. So we may just
harmonise that. It’s not very difficult for a pure-play.
We had to produce a framework and we got our
second-party opinion; overall, we’re pleased with the
benefits. Our shareholders were very happy, ditto our
stakeholders. As a regulated entity (we have some UK
government support), it was very pleasing for those
parties too.
Interestingly, the dynamic from all different areas
around financing was also very positive inside the
company; for the first time, people showed some in
the financing aspects. We were very pleased with that.
KEITH MULLIN, KM CAPITAL MARKETS: THE
EUROPEAN INVESTMENT BANK HAS BEEN AT THE
CENTRE OF THE GREEN BOND MARKET SINCE ITS
INCEPTION. WHAT IS YOUR PERSPECTIVE NOW,
DOMINIKA? HOW HAS THE MARKET CHANGED AND
HOW DO YOU SEE IT EVOLVING?
DOMINIKA ROSOLOWSKA, EIB: The EIB has been issuing
Climate Awareness bonds since 2007 and has done
around €25bn-equivalent across different currencies.
Back in 2007, the interest of the market was less
pronounced than today, and there was no clear
framework. The reason we ventured into this area
was European policy at the time. We are the bank
of the European Union so we follow EU policy in
all aspects, and this includes climate action and
environment.
Last year, we started issuing Sustainability
Awareness bonds to complement our Climate
Awareness bonds. They are basically two sides
of the same coin. CABs have a focus on climate
change mitigation, while SABs look at everything
beyond climate – other environmental and social
objectives.
Being the EU bank, we are also part of the
discussion within the European Union on sustainable
finance. We were part of the High-Level Expert Group
for Sustainable Finance in 2017 and we are now part
5
ROUNDTABLE GREEN FINANCING
of the Technical Expert Group on Sustainable Finance
(TEG), which has come up with proposals to the
European Commission on four work streams, notably
the EU taxonomy and the EU Green Bond Standard.
Anticipating what is going to come out of this
discussion, we have redrafted the use-of-proceeds of
our CABs and SABs to align with the EU taxonomy
[which was published on June 18] – the EU taxonomy
consisting of the differentiation between the
environmental objectives that you pursue with the
activities themselves, plus technical criteria that
will be elaborated by the TEG and will help market
participants determine whether something is green
“We have or sustainable or not.
When it comes to classification as to what is green,
redrafted and the question of lending and funding and what
Clare was referring to with the loan principles versus
the use-of- the bond principles, the necessary identity of green
definitions between bonds and loans is a crucial
proceeds of aspect.
The first article of the European Commission’s
our CABs and regulation proposal of May 24 2018 [Proposal for a
Regulation of the European Parliament and of the
SABs to align Council on the establishment of a framework to
facilitate sustainable investment] says that you need
with the EU to determine the greenness of an economic activity
to be able to establish the greenness of a related
taxonomy” investment. What underlies Green bonds is activities
in the real economy. In the end, this is what we are
trying to influence, to have markets steer the shift.
It is only if the two are the same in terms of what
classifies as green that you can achieve that.
What the TEG is trying to do is build a chain
of measurement and disclosure of impact on
the environmental objectives – a flow of reliable
information from the real economy to financiers,
be they financial institutions or multilaterals like
ourselves, and then to the capital markets and
the investors that require this information from
issuers.
Last year, we started granting Green loans – [the
first EIB Green loan was to Spanish utility Endesa for
€335m for 15 wind farms and three solar plants] – to
borrowers that want to highlight their engagement
in green activities, under the condition that these
activities live up to the requirements of our Green
bonds.
KEITH MULLIN, KM CAPITAL MARKETS: FROM THE
OTHER SIDE OF THE MARKET, STUART, WE KEEP
READING ABOUT HOW MANY ASSETS UNDER
MANAGEMENT ARE BEHIND THE GREEN CAUSE.
THERE SEEMS TO BE A LOT OF, I WOULDN’T CALL IT
ACTIVISM EXACTLY, BUT INVESTORS SEEM TO BE
PUSHING A LOT MORE ON COMPANIES TO GREEN
THEIR ACTIVITIES. HOW DO YOU SEE THE INVESTOR
SIDE HAVING EVOLVED IN THE LAST FEW YEARS
AROUND THE GREEN CAUSE? IS “ACTIVISM” THE
RIGHT WORD TO USE?
STUART KINNERSLEY, AFFIRMATIVE INVESTMENT
MANAGEMENT: That’s a good question. In the Green
bond market, there’s been a lot of focus on the issuer
and whether the issuer is “greenwashing”. The focus
6 International Financing Review Green Financing Roundtable July 2019
of the debate has started to turn actually on the
investor. Are the investors themselves greenwashing?
Are they being consistent? It’s a really pertinent
question for today.
What I feel about the Green bond market and its
importance is not just the numbers; we’re getting
this composition change in terms of moving from
supranationals to corporates. From 2016 onwards,
we actually had greater issuance coming out of the
corporate sector compared with the supranationals
and government-related entities. This is important in
terms of market breadth and depth.
However, even more important is the role of
the Green bond market in terms of the broader
financial markets, and within the overall economic
system. I often hear that impact investing is a
relatively recent fad or trend. In truth, all investing
has always had an impact. The problem is that the
impact, for many years, has been quite negative and
unknown.
What we should be talking about when
discussing the Green bond market is positive
impact investing. I was at The Economist’s
sustainability conference recently and one of the
questions posed was: ‘Are we living in an economic
system and a financial system that are broken?’
because neither adequately factor in the negative
externalities that are being generated from many
of the investments of today.
That’s a really great segue to the Green bond
market. It’s changed the narrative in that you have a
financial instrument that can actually demonstrate
a positive impact over and above financial return. In
time, I’m hoping it will create the template for the
financial system that looks at that third dimension.
Not just the two-dimensional risk-return but what
is the underlying positive impact or externality?
Where is the money going? What’s the transparency?
So the end-investors become more educated about
the investments they make. Creating this lens will
help us address climate change and other challenges
facing the world.
Going back to your original question on activism,
yes, generally for a bond instrument, all investors
used to care about was whether they were going to
get their money back and were they going to be paid
the coupon. Actually, there was no real legal right
to challenge where that money was going and for
what purpose. Now I see a change in the narrative
as a result of Green bonds promoting transparency
and outcomes, as well as financial returns. This has
unleashed the potential of bond markets. I strongly
believe the debt market will be the main driver of
scalable sustainable investing in the future, as it has
the ability to consider all stakeholders, whereas the
equity market still remains dominated by short-term
shareholder considerations.
It’s really important for us. At Affirmative, we only
identify and invest in debt instruments that have
a positive externality over and above the financial
return. We don’t think there’s a compromise to the
financial return. We run various strategies against
mainstream benchmarks and we’ve been able to do
that by focusing on a relatively small part of the debt

market. Our engagement and activism is very much
about knowing where the money is going, the level of
transparency, and commitment to reporting.
But we also look at the issuer itself and ascertain
whether the issuer is responsible and so, with regard
to activism and engagement, we’ve been very vocal
about reporting. There’s no point us saying we are
positive impact bond managers unless we can provide
the evidence or proof that the instruments we invest
in are generating positive impact. We have a lot of
engagement in terms of making sure the reporting
evidences and justifies what issuers say they’re doing.
“I strongly KEITH MULLIN, KM CAPITAL MARKETS: MOVING
TO THE SELLSIDE, CRISTINA, HOW HAS THE GREEN
believe the THEME EVOLVED IN THE LAST YEAR OR SO FROM
YOUR STANDPOINT AS AN INVESTMENT BANK
debt market INTERMEDIARY? HOW IMPORTANT IS GREEN WITHIN
THE ECOSYSTEM THAT YOU’RE DEALING WITH, OF
will be the ISSUERS AND INVESTORS?
main driver CRISTINA LACACI, MORGAN STANLEY: When thinking
about how the market has evolved in the last year,
of scalable we have changes to regulation and bond structuring.
On regulation, as Dominika was mentioning, the
sustainable EU Action Plan on Sustainable Finance will give us a
platform and some guidelines to continue structuring
investing in the the bonds. When you look at the regulations, what
is important is that they’re broad enough in terms of
future” the type of eligible projects, in terms of the activities
and the sectors, to make sure that you take into
account the specifics of each corporate and each
business model. That’s very important when you look
to structure Green or Sustainable bonds.
International Financing Review Green Financing Roundtable July 2019
GREEN FINANCING ROUNDTABLE
The other part, which I think is even more
relevant, is the fact that investors – and Stuart was
alluding to it – are placing much more importance
on the sustainability strategy, on the environmental
footprint, on the mitigation plans of corporates. I
would even say that’s not only relevant for Green
bonds; it’s becoming much more relevant for
corporates in general.
You start to see investors engaging with issuers not
only in the context of marketing a Green bond but
also asking them how they’re going to reduce their
CO2 emissions, making sure they set targets and that
their business model is starting to shift, especially
in carbon-intensive sectors. This has been the key
development we’ve seen in the last year.
Of course, for issuers, it’s important to look at
both. It’s about the credentials, the ESG strategy of an
issuer, as well as making sure that you then meet the
regulations, the use-of-proceeds categories and that
you also tick the box when it comes to meeting the
requirements that some Green bond funds have.
KEITH MULLIN, KM CAPITAL MARKETS: IF THE
MARKET MORPHS FROM A MARKET WHERE
ISSUANCE IS ASSESSED PURELY ON THE USE OF
PROCEEDS TO PERHAPS A MORE CONVOLUTED
SITUATION WHERE PEOPLE HAVE TO WEIGH UP THE
OVERALL FOOTPRINT OF THE ISSUER, HOW DO YOU
CALIBRATE THAT? WHO DECIDES AND HOW DO YOU
DECIDE WHETHER THE FOOTPRINT OF THE ISSUER
IS SUFFICIENTLY SUSTAINABLE, ENVIRONMENTAL,
TO THEN PASS MUSTER AT THE CORPORATE LEVEL?
CBI PLAYS QUITE A BIG ROLE IN THAT CALIBRATION.
MOST OF THE GREEN BOND INDICES ARE DEFINED BY
7
ROUNDTABLE GREEN FINANCING

YOUR IMPRIMATUR, SO YOU HAVE QUITE A BIG ROLE CBI recently conducted an investor survey.
TO PLAY HERE. IF THE MARKET SHIFTS FROM ASSETS One of the things we confirmed is the level of
TO ISSUER, IT STRIKES ME THAT THAT CREATES SOME engagement: a lot of the investors we spoke with –
QUITE SIGNIFICANT CHALLENGES. even though they’re bond investors – are engaging
with companies. The questions they are asking are
MONICA FILKOVA, CLIMATE BONDS INITIATIVE: It does about the wider strategy. We see that sentiment,
pose a challenge, and historically investors have that Green bonds are part of a strategy, over and
looked at companies more than the way they’re over again. One of the things that keeps coming
financed, in the sense that you look at the company across is that, if you label something green as an
and decide if it meets your requirements. One of the issuer, you’re taking on an obligation to report.
ESG requirements could be: ‘don’t invest in oil’. If You’re taking on an obligation to keep investing
one of your requirements is ‘don’t invest in oil’, how in the asset you said you would invest in and, from
do you participate in a Green bond that’s issued by a the reporting, people can see you are doing what
“Investors company in the oil and gas sector? you say you will do. It’s not just words; it is followed
It remains a challenge. The way we look at it is up by actions. That gives us comfort that, when
are placing really defined by the activities and assets. We’ve companies engage with the market, it is part of a
actually seen a lot of issuance from utility companies wider environmental strategy.
much more as they fund their transition to a greener asset The way we look at the market is very much
portfolio and that is expressed in renewable energy from the assets. That’s why we look at transitioning
importance in the context of the energy sector. They keep companies; we look at pure-play companies; we
coming back to the market. What that tells us is that look at various institutions that are looking to fund
on the they’re really engaged with this transition strategy. or facilitate the issuance of debt, whether that’s
As a general point, we acknowledge that transition loans, bonds, some other form of debt to finance the
sustainability is required. It would be great if you could just snap transition to a low-carbon economy.
your fingers and we’ve transitioned, but the reality When we do our screening, we’re looking to see
strategy, is companies need to move from A to B. One way to that practically all of the funding is going towards
indicate that transition is by labelling. climate assets so once you invest in those assets,
on the One of the main achievements of the Green bond those assets will continue providing a climate benefit.
market is the label itself because it has support Simply put, if you invest in a wind farm, the wind
environmental from a very wide stakeholder group. Whether turbines will keep spinning year after year so once
you agree about a particular bond and whether it you’ve made an investment, that’s positive; it has a
footprint, on meets your definition of what a Green bond should long-term impact.
be is, in a sense, not quite so important. What the We screen out companies that are allocating a
the mitigation label achieves is a communication of corporate substantial amount, for example, to general corporate
intentions. purposes or categories that are unclear. In China, the
plans of Green bond catalogue allows up to 50% to be invested
in general corporate purposes. We tend to screen out
corporates” GREEN BONDS: AMOUNT ISSUED BY ISSUER TYPE quite a lot of companies for that because it’s unclear
US$bn to us what the money is going towards. If we know
the money is going towards green assets, then we’re
180
OK with it.
160
STUART KINNERSLEY, AFFIRMATIVE INVESTMENT
140 MANAGEMENT: I think it’s quite clear, actually.
Integrity of the market is paramount because it’s
120
relatively new and people who invest in Green bonds
believe they are supporting transition. Engagement
100
is really important: looking at the issuer as to what
80 their real intentions are. If it’s an issuer whose
business model is all about fossil-fuel extraction
60 and they may be allocating 1% or 2% to investing
in wind farms, to us that’s not moving the dial; it’s
40
actually undermining the integrity of the market
20
and it’s really important at this stage that there’s no
confusion or ambiguity.
0 That doesn’t mean we will not invest in less green
2014 2015 2016 2017 2018 2019 entities. In fact, we’ve invested in utilities that are
ABS Financial corporate Non-financial corporate
predominantly using fossil fuels at present but
management have a clear ambition and a map to
Development bank Local government
increase renewables to a meaningful percentage.
Government-backed entity Sovereign Loan
That’s what I call supporting transition.
I think it’s really important because there are lots
As at May 20 2019 of mainstream investors out there who would love
Source: Climate Bonds Initiative just to take the label and put it in their portfolio and

8 International Financing Review Green Financing Roundtable July 2019


tick the box – this is when I talk about greenwashing.
It can come from the issuer and it can come from
the investor. If we start to do that then I think the
general public or institutions are not stupid and it
would potentially kill off the market, which I see as
potentially being one of the drivers for change in
sustainable finance.
KEITH MULLIN, KM CAPITAL MARKETS: DARKO,
LET ME COME TO YOU. AS A VENUE WITH A GLOBAL
BRAND, WHAT IS THE LONDON STOCK EXCHANGE
DOING TO FURTHER THE CAUSE OF GREEN FINANCE?
HOW IMPORTANT IS IT FOR STOCK EXCHANGES TO BE
PART OF THIS DEBATE?
DARKO HAJDUKOVIC, LONDON STOCK EXCHANGE:
Stock exchanges are infrastructure companies and
meeting places for investors and issuers. What we’re
doing at London Stock Exchange falls into several
categories. One is ensuring there is sufficient data and
information so that we don’t just end up labelling
things and saying: ‘it’s a Green bond because it does
one thing’ but then it doesn’t do other things. Or
in trying to achieve something good, issuers aren’t
failing in other aspects.
We’re trying to create a holistic framework. This
is where we’re different from other marketplaces
in this space. On one side, we have our markets
where companies list their securities and their
investment funds, which is very important and
a growing part of the market. And of course
companies. What is common among all these three
categories is that, through listing, companies will be
providing disclosures that can be used by investors
International Financing Review Green Financing Roundtable July 2019
GREEN FINANCING ROUNDTABLE
and information providers to give and extract data
that is relevant for green investing and sustainable
investing.
For example, through FTSE Russell, we cover 97% of
global market capitalisation. Over 10,000 companies
are included in our very detailed datasets, which we
make available to investors to assess impact investing.
As Stuart said, all investing has an impact; how do you
quantify the impact of that investing?
In terms of bond listings, we started with one bond
in 2007 and we have seen gradual but steady growth.
There are now 107, a mixture of corporates and
supranationals from the UK, Europe and Asia. What’s
interesting is that 36 of those bonds have listed in
the last two years so you can definitely see how it’s
accelerating. Funds started in 2013 and they had a
slightly different dynamic. We had five funds come
to the market in 2013 in renewable energy and today
we have 22.
In fact, one of those funds is now responsible for
production of 0.5% of the UK’s electricity, all from
renewable energy. What we’ve seen in that market
is evolution. Funds changed from owning wind and
solar farms to efficiency funds and solar funds. Just
recently, we welcomed the first US solar fund, which
is investing in the US. It’s not just the UK anymore;
it’s global.
Then we have listing of companies themselves.
What’s interesting about the companies is, because
of the data I mentioned and the taxonomy that FTSE
Russell has developed, we can actually say what
part of the revenues of our market are generated
from green. It’s 20%, equivalent to about £275bn
of market capitalisation. This is a headline figure
9
ROUNDTABLE GREEN FINANCING
but, actually, what we have underneath that are
very detailed datasets that we provide to investors
and we provide solutions so they can quantify
their investments, their portfolios and how they
are performing against their objectives supporting
climate change.
It’s not just about labelling; it’s looking beyond
that. How do we make sure that there is investing
with confidence and issuing in a marketplace that
will provide investor confidence?
KEITH MULLIN, KM CAPITAL MARKETS: IN TERMS
OF HOW THE MARKET MOVES FORWARD, WE’VE
“As much as TOUCHED ON THE PRINCIPLES THAT HAVE BEEN PUT
IN PLACE FOR GREEN AND SUSTAINABLE BONDS
we like to have AND LOANS. IN THE EU, WE ARE MOVING TOWARDS
A MORE REGULATED MARKET WITH FORMAL
a tick-box to DEFINITIONS. WHAT IS THE EU TAXONOMY GOING
TO LOOK LIKE? WILL IT BE RADICALLY DIFFERENT TO
determine that WHAT WE HAVE NOW? WILL IT BE A GAME-CHANGER?
a bond is green DOMINIKA ROSOLOWSKA, EIB: The short answer is
that it has the potential for being a game-changer.
up-front, one Looking at what has been happening in the Green
bond market, one area where it is extremely difficult
of the really to find consensus is how you define what is actually
green.
important Every player in the market, be they an investor, an
issuer, or an NGO, has a different definition of what
things is is green. In fact, when you look at the use of proceeds
of the Green Bond Principles, for instance, it lists
disclosure examples of project categories. Given these different
definitions and the lack of scientific consensus as to
and ongoing what can be classified as green, guidance is needed
from policymakers based on consensus facilitated by
information” market-neutral public policy intervention. In fact,
such intervention is needed to ensure a level playing
field. Here, the European Commission has been
acting in the context of the Capital Markets Union.
The EC’s Technical Expert Group on Sustainable
Finance has four work streams. One is focused on
taxonomy, one on disclosure, one on benchmarks
and the other on the EU Green Bond Standard,
which is the one that I have been involved in. The
mandate of the taxonomy sub-group is to define
what is green. It is called a sustainability taxonomy,
but the EC’s 2018 regulation proposal specified that
environment should be the first focus of this work.
And within environment, climate should be the first
area. [The TEG’s draft taxonomy was published on
June18].
The EU Green Bond Standard is based on the
taxonomy. Whatever comes out of the taxonomy
discussion has a direct impact on the assessment of
financial products, starting with EU Green bonds.
There was a public consultation by the TEG on
the draft EU Green Bond Standard in March that
presented the ideas we had as to what this should
look like. It is going to be conceived as a voluntary
standard based on best market practices like the
Green Bond Principles, while at the same time
introducing clarifications – as Cristina mentioned
– for instance with regard to the type of assets and
expenditures eligible for allocations.
10
MONICA FILKOVA, CLIMATE BONDS INITIATIVE: Sean
Kidney, CEO of Climate Bonds Initiative, is also part of
the Technical Expert Group and we’ve had a standard
since 2010 and a taxonomy that has been updated
pretty much on an annual basis since it was first
published in 2013. We’ve always used a taxonomy
that we’ve shared with the market. But even though
we might have a standard or there’s an EU standard,
investors are actually, in a sense, obliged to do their
own analysis.
One thing we’ve been working on over the last
year is expanding the number of sectors for which
we have specific criteria for certification. Our criteria
for certification are similar to what the EU is trying
to achieve in setting definitions of what is green. In
other words, what sort of metrics would an asset need
to achieve to determine that it is compliant with the
Paris Agreement or a scenario where global warming
was to be kept under 2°C?
Defining these criteria is incredibly time-
consuming and complicated. There are technologies
that come into play. So, while taxonomies and
standards do provide a rulebook, if that rulebook
becomes part of guidance or regulation then it has
wider implications. The market is evolving and
in our day-to-day work we’re seeing an increasing
number of issuers financing new sectors and new
aspects. In response, one of the things CBI is doing
at the moment is looking further at adaptation and
resilience. A lot of Green bond issuance to date has
focused on climate change mitigation. Adaptation
and resilience are an increasing part of the mix. It
needs to be part of the mix because, unless your
infrastructure is resilient, the fact that it delivers
other benefits is neither here nor there if it’s
damaged by the first flood or a rise in sea levels.
There will always be aspects that are unclear, that
are under development, or that require discussion.
We really welcome not just the work that the EU is
doing in terms of defining a taxonomy and trying
to harmonise definitions, but what’s also really
important is the impact of the Task Force on Climate-
related Financial Disclosures (TCFD) and, in general,
disclosure regulations.
As much as we like to have a tick-box to
determine that a bond is green up-front, one
of the really important things is disclosure and
ongoing information. If a company is providing
more information, informed opinions about what
it is doing, what the broader asset mix is, what its
strategy is for addressing climate risks etc, you can
always make better decisions on a particular issue.
Everybody needs to make their own assessments but,
to do that, you need disclosure. Any initiative that
brings forward that discussion, we’ll embrace it.
DARKO HAJDUKOVIC, LONDON STOCK EXCHANGE:
That’s absolutely right. I think the taxonomies and
standardisation of definitions are important, but
there is a balance that needs to be struck here and
that is that we can classify things but it’s important
that investors make those decisions. They’re going to
make decisions on the basis of detailed information
that companies provide.
International Financing Review Green Financing Roundtable July 2019

“Companies that have issued Green bonds
are at the forefront; they’re the ones you don’t
need to convince”
Every company that’s listed on our market will
have access to a lot of data from London Stock
Exchange. One of the data points is their green
score. We are hoping that when companies view
their scores and see how they benchmark against
others in their industry sector that this will provide
an incentive for them to improve. We’re not only
providing the score, but we also give them ESG
guidance to improve it.
Of course, one of the important aspects of this
is not just what companies are doing, as Stuart
alluded to, but about what companies are planning
to do. What’s the governance framework in which
companies are doing it? That, I think, is very
important in ensuring that a company does go
through that transition into a more sustainable
commercial model.
INES FADEN, TIDEWAY: I’d like to provide the corporate
view on this. You have a number of standards,
taxonomies and reporting requirements that are
being left to companies to implement. But there is a
balance that needs to be achieved. If I go to my board
and say I need to set up a mini cottage industry to
produce these reports, I know what they’re going to
tell me. On the other hand, a company that is doing
the right things will have that information in-house.
International Financing Review Green Financing Roundtable July 2019
GREEN FINANCING ROUNDTABLE
If someone has to produce new information to report,
they shouldn’t be doing it in the first place. There’s an
important balance here.
In January, 16 European companies came together
– we’re now 21 companies – representing about
two-thirds of European Green bond issuance to create
the Corporate Forum on Sustainable Finance to
address a number of issues to collaborate, exchange
information, assist with how best to report, but also
to have a voice in this process. Corporates have been
under-represented [in this discussion] even though
we’re the ones left to implement a lot of these things.
We’ve responded to the EU consultations on
taxonomy and on the Green Bond Standards. What
I would say is that, while corporates welcome the
initiative, there’s a lot of commentary on the detail and
not all of it has been particularly popular. I always ask:
‘What is the problem we’re trying to solve?’. A concern I
would have is that if we go too far in one direction – and
we’re already seeing it – and rather than issuing Green
bonds, people are going down the route of ESG-aligned
or SDG-aligned, it’s much easier and much broader.
Companies that have issued Green bonds are
at the forefront; they’re the ones you don’t need
to convince. They’re committed. But at the same
time, they’re a little concerned that it could go too
far in one direction – either the definitions are too
narrow or there are too many requirements. Bear
in mind there are initiatives at the national level,
European Union level, global level, and at the level
of associations. The regulators are coming up with
something, as is the British Standards Institute.
People want to report, but they want to go about their
normal business as well.
11
ROUNDTABLE GREEN FINANCING

DOMINIKA ROSOLOWSKA, EIB: One thing that you
mentioned – it also came up in the CBI’s intervention
– is the fact that the EU is just one of the jurisdictions
where you have this kind of process. We’ve had the
China Green bond catalogue that’s been there since
2015. In other jurisdictions around the world, you
have policymakers and authorities looking at defining
what is green, as well as setting the core features of
green financial products.
The important component of this process, and
this has been one of the EU’s explicit objectives,
is that you make taxonomies – or classifications –
comparable. Otherwise barriers built will prevent
“It’s really cross-border financial flows. With this in mind, the
EU is striving to structure its taxonomy in a way that
important would permit this comparison. You have this idea
of objectives and activities and technical screening
to bear in criteria. Green eligibility thresholds can then be
compared with those set up in other jurisdictions.
mind that Classification is one part. The important thing is
measurement and disclosure. That’s definitely the
corporates’ pillar of the thinking of the EU and others in this
market. The question is how you measure things
main focus is and how you report things. As CBI mentioned,
you have 200 metrics just for calculation and
on running reporting greenhouse gas emissions. There should
be more standardisation, more harmonisation
their business. of this information so that it can be processed by
investors to make decision-making more efficient.
We can’t create This is also what the EU is trying to address through
the coordinated discussion on the EU Green Bond
frameworks Standard and disclosures.
that make it so CRISTINA LACACI, MORGAN STANLEY: Just going back to
the comment around the taxonomy, I think it’s very
difficult to do useful to have definitions and it really helps us when
we’re trying to structure bonds. But at the same time,
that” you need to take into account that some projects are
easy to categorise - like renewable projects, clean
transportation, green buildings - but others can be
very difficult to classify.
It doesn’t mean that they’re not contributing
positively to the environment; it just means that it’s
more difficult to include them in a certain category,
particularly when you look at industrial companies
and manufacturing companies. The taxonomy will
be useful, but we’ve only seen half of the activities
covered in their first objective (…and that’s 100
pages). It’s going to take us several years just to have
the full list, which will have to be updated on an
ongoing basis.
Going back to the previous comment, it’s important
to look holistically at what the company is doing and
how it is performing on key ESG metrics (for example,
are its CO2 emissions going down, what is its water
intensity?). It’s important not to miss the bigger picture.
CLARE DAWSON, LMA: It’s really important to bear in
mind that corporates’ main focus is on running their
business. We can’t create frameworks that make
it so difficult to do that, whether it be reporting
or classifying things in the first place; that just
puts people off. You really can go down the route
of the perfect being the enemy of the good. We
involved the Association of Corporate Treasuries in
our working group when we produced our sets of
principles because we were keen to have a borrower
voice. But I think also that was one of the reasons
why we produced relatively high level principles.
Particularly in the loan market, because there is this
close relationship between lenders and borrowers,
we do feel that there should be flexibility below a
set of principles for people to look at the detail and
what actually works in an individual situation or an
individual company, because that’s not going to be a
one-size-fits-all solution.

STUART KINNERSLEY, AFFIRMATIVE INVESTMENT

GREEN BONDS: AMOUNT ISSUED BY REGION MANAGEMENT: I would echo a lot of the comments
US$bn made. We were asked our opinions, and gave them
and pushed back on certain things, but I think the
180
important thing here is that every bond that we look
160 at has its own nuances. If you have a straightjacket,
this market is still young and it’s still growing, we
140
really don’t want to stifle innovation or issuance. We
120
need issuers to come to grow this market; that’s my
concern.
100

KEITH MULLIN, KM CAPITAL MARKETS: IF I COULD

80
JUST EXTEND THAT POINT, WE TOUCHED ON IT
60 EARLIER, BUT WHAT ABOUT BROWN ISSUERS?
THEY NEED TO BE INCENTIVISED TO ISSUE IN THIS
40
MARKET AS WELL. FROM A PURE CLIMATE CHANGE
20 MITIGATION PERSPECTIVE, HAVING A BIG OIL
COMPANY DO SOMETHING WHICH “GREENS” ITS
0
2014 2015 2016 2017 2018 2019 ACTIVITIES, EVEN IF IT’S A SMALL PERCENTAGE,
IS POTENTIALLY MORE IMPORTANT FROM A
Global Europe North America Asia-Pacific PLANETARY PERSPECTIVE THAN IT IS FOR A
Latin America Africa PURE-PLAY COMPANY TO DO A GREEN BOND, WHERE
CARBON EMISSION MITIGATION IS REDUCED. THIS
As at May 20 2019 IS ONE OF THOSE KNOTTY QUESTIONS THAT THE
Source: Climate Bonds Initiative MARKET NEEDS TO GRAPPLE WITH.

12 International Financing Review Green Financing Roundtable July 2019


STUART KINNERSLEY, AFFIRMATIVE INVESTMENT
MANAGEMENT: It is knotty. Because of COP21, we talk
about targets for 2030/2050, but actually, we know
that action has to happen now and it’s not about
tweaking at the margins. If fossil fuel companies are
committed to changing their business model and
moving to low-carbon transition, we will support
them. But if it’s just doing a PR exercise at the margin,
we’re not really interested. Actually, it’s really
dangerous for that to happen because this market
will not be the driver of change that we need it to
be. Having pretenders join the ride at this stage will
create diversions and slow down progress.
KEITH MULLIN, KM CAPITAL MARKETS: BUT THERE’S
ALSO THE QUESTION OF HOW QUICKLY THAT HAPPENS.
THERE ARE PEOPLE OUT THERE WHO WILL SAY: ‘WE
CAN JUST SHUT DOWN COAL TOMORROW’. IT’S A
REASONABLE THING TO SAY BUT IT’S NOT NECESSARILY
A REALISTIC OR PRACTICAL THING TO SAY.
INES FADEN, TIDEWAY: Coal is, actually. It is realistic to
shut coal; gas and others, not so much.
STUART KINNERSLEY, AFFIRMATIVE INVESTMENT
MANAGEMENT: No, but I think it’s the ambition to
change. You’re right, we have to be realistic. But
“If fossil fuel companies are committed to
changing their business model and moving to
low-carbon transition, we will support them”
International Financing Review Green Financing Roundtable July 2019
GREEN FINANCING ROUNDTABLE
when a lot of fossil fuel companies are still budgeting
to pump trillions of dollars into exploration and
research to find new fields on the basis that carbon-
capture technology will allow those emissions to be
mitigated, there needs to be much more ambition to
change.
DARKO HAJDUKOVIC, LONDON STOCK EXCHANGE: Going
back to what Ines said, that companies have to run
their own business, this is something that has to
become business-as-usual for them. I always get asked
by issuers: ‘What’s in it for me? Climate change,
conscience - all fine - but if I’m going to convince my
board, I need to give them something extra. Am I
going to get better pricing?’.
Until last year, we were saying it’s just good to be
issuing and there is an element that the perception
of the company changes. But, actually, last year,
there were three pieces of detailed research that
looked at pricing. They found that certain issuers of
Green bonds achieve better pricing. What I found
fascinating, though, was that one of the studies
found that the issuers who issue Green bonds
achieve better returns on their equity by 1.7% over
a 20-day period after they’ve listed their bonds. That
is pretty material. It’s not just about climate change
mitigation, but also it makes good business sense to
do it.
KEITH MULLIN, KM CAPITAL MARKETS: CLARE, JUST
ON THAT SPECIFIC POINT, IN YOUR SUSTAINABILITY-
LINKED PRINCIPLES, THERE ARE INCENTIVES FOR
ISSUERS IF THEY MEET CERTAIN SUSTAINABILITY
TARGETS. THERE’S A MATERIAL PRICING BENEFIT TO
13
ROUNDTABLE GREEN FINANCING

THEM OVER THE COURSE OF THAT FACILITY THAT WE of scarcity or because people are putting a premium
HAVEN’T SEEN IN THE BOND MARKETS AT THIS POINT. on it? If we’re looking five years down the road and all
I’M CURIOUS TO UNDERSTAND WHAT IMPACT YOU the reporting is there, we won’t have to do additional
THINK THAT’S GOING TO HAVE? due diligence, but I think there’s growing evidence on
pricing, which is interesting.
CLARE DAWSON, LMA: There are two aspects that
borrowers look at. One is the wider picture: you’ve STUART KINNERSLEY, AFFIRMATIVE INVESTMENT
got borrowers who are committed, generally, to MANAGEMENT: I think it’s pretty marginal. The
improving their own performance. Clearly, if they are World Bank, and possibly EIB when they were first
going to get pricing incentives, that’s going to be very issuing, were hoping that they would get a pricing
attractive. It’s certainly something that can act as a advantage. I don’t think it’s materialised, at most a
motivating factor for companies to undertake some few basis points here and there. From an investor’s
extra work they might have to do in order to meet perspective, we’re very much operating on the basis
“Pricing is the requirements, from filing reporting requirements that we’re going to generate mainstream return and
and the evaluation process and potentially getting not compromise return. We’d look at the yield curve,
a language external review. I think it certainly broadens the and there are plenty of issuers that have issued
market. across the yield curve and their Green bonds are
people The loan market tends to be pretty tightly priced. not massively priced differently from the rest of the
How much potential there is for that to go completely curve.
understand across the board remains to be seen. But I think it’s I think issuers have other advantages. They’re
something that is a motivator in addition to the diversifying their investor base and it’s a more stable
very well. A broader sense of borrowers just feeling that they one. If an issuer is hoping to get a pricing advantage,
ought to do this, or stakeholder engagement or the that’s probably not a good enough reason, given
number of other, if you like, slightly softer incentives. This is the extra work involved with it. From an investor’s
clearly a very key, hard incentive. perspective, in the long term, we would argue that it’s
companies risk mitigation, that we’ve got a lot more information
KEITH MULLIN, KM CAPITAL MARKETS: IS THE coming from the company and, over time, that will
are well PROSPECT OF GETTING BETTER PRICING ENTICING? help improve risk-adjusted returns. There’s nothing
empirical to back that up quite yet, but common
advanced in INES FADEN, TIDEWAY: Pricing is a language people sense suggests that would be the case.
understand very well. A number of companies
understanding are well advanced in understanding the need for DOMINIKA ROSOLOWSKA, EIB: I agree with what Ines
transition and are very committed to being green. A said, that the risk of the issuer is the same whatever
the need for lot of others are not there yet and talking pricing is a type of bond – Green or not – has been issued. It is
much simpler language. But in the bond market it’s a therefore difficult to expect a priori different pricing
transition ... a little bit more difficult. I think there’s some evidence in the primary market. You might see some secondary
[of better pricing] but it’s complicated. It’s the same outperformance of Green bonds. Explaining this
lot of others cashflows, so are you achieving better pricing because might not be so straightforward though – rarity value
might play a role by itself as the amount of Green
are not there GREEN BONDS: AMOUNT ISSUED BY USE OF PROCEEDS bonds that an issuer can issue is naturally capped by
% the amount of eligible activities, which tends to be
yet and talking 100 smaller than the whole funding programme of an
issuer.
pricing is a 90 Then again, there are some studies that have
shown a pricing differential for some issuers. One of
80
much simpler the investment banks conducted a study correlating
70 the performance in the secondary market versus the
language” quality of the reporting provided by the issuer. This
60 shows a correlation between the quality of the impact
reporting – including the credibility of the external
50
review – and outperformance in the secondary
40 market.
Some issuers – we can observe this in euros,
30
where our conventional and green curves are
20
well established – can use this secondary market
outperformance as an effective reference for
10 primary pricing. So maybe there are marginal price
differentials that an issuer can lock in, but yet
0
2014 2015 2016 2017 2018 2019
without consistent patterns over time and across
issuers.
Energy Buildings Transport Water Waste

Land Use Industry ICT Unallocated A&R MONICA FILKOVA, CLIMATE BONDS INITIATIVE: There is a
As at May 20 2019 growing market interest in exploring Green bonds
Source: Climate Bonds Initiative and pricing. The sort of topics they’re trying to

14 International Financing Review Green Financing Roundtable July 2019


“ I think it’s very difficult to quantify the
“greenium”. We try to analyse this for each
transaction, but it’s always difficult to quantify”
explore are: if you have a Green bond programme,
does it impact your share performance? There have
been a number of studies that have looked at this but
also if you have an external review or certification
into the Climate Bond Standard, does it impact how
your bond prices?
We’ve been doing research on the Green bond
market and pricing in the primary market for a few
years now. Every now and then, there are bonds that
price inside the yield curve. But the evidence is mixed.
One of the reasons is that there is still a fairly limited
number of bonds that are priced in liquid currencies
so you can actually observe and compare, and where
there is enough issuance from the issuer to create a
yield curve in the first place.
One thing we have noticed with respect to EIB’s
vanilla and Green bond curve is that the green curve
sits inside the normal curve. That would indicate
on a very generic basis – and yes there are different
events that might impact the pricing of individual
bonds and how they perform – that investors are
perhaps placing value in the greenness of the bond.
But the EIB is the only institution where we’ve
been able to build a green yield curve since they’re
the only one that has issued enough bonds in
sufficiently big sizes, so in this case the evidence is
not anecdotal.
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GREEN FINANCING ROUNDTABLE
One of the other aspects that is quite interesting
is people trying to connect the level of information
provided on a bond to how it prices. At the end of the
day, that’s probably the more important thing. You
need historical evidence. The Green bond market has
been around since 2007 but in terms of meaningful
issuance volumes, it’s just five years old.
As the market grows and we’ve got more historical
evidence, we will be able to figure out how a bond
performed relative to the rest of the market over a
period of time.
CRISTINA LACACI, MORGAN STANLEY: I think it’s very
difficult to quantify the “greenium”. We try to analyse
this for each transaction, but it’s always difficult to
quantify. That said, it’s true that when you execute
a Green bond, it usually attracts more investors
because you have the mainstream investors but also
sustainable and green investors. As a result, you have
more momentum, which means that the dynamics
tend to be better.
At the end of the day, this translates into a few basis
points. Of course, you need to take into account that
the credit risk of the bonds is the same. As such, the
difference is not going to be massive but you will likely
see a difference due to the positive technicals. From an
issuer perspective, no-one will do this just for the price.
It’s about the commitment to sustainability; it’s about
showing their direction of travel rather than just the
technicals that you can achieve on a specific day.
AUDIENCE QUESTION: I feel that investor engagement
is still not as strong as it could be. Is this where a real
paradigm shift needs to happen?
15
ROUNDTABLE GREEN FINANCING
STUART KINNERSLEY, AFFIRMATIVE INVESTMENT
MANAGEMENT: In terms of our own engagement, it’s
pre-issuance a lot of the time ie, before an issuer
comes to market. They will be asking our opinion
and guidance on how to structure things, how to
report things. When the issue comes to market,
they will often have taken that into account. And
then post-issuance in terms of disclosures and
reporting. One of the big positives for the Green
bond market that is often overlooked – and it has
been mentioned here—is when companies go
through this process of pre-issuance engagement,
they start to look at their own internal processes
“Issuers who and change the way they do things. That’s
something we’re quite supportive of.
issue Green They’re not just issuing the Green bond but
they’re consistent in terms of some of the things
bonds achieve they’re looking at. We’ve found some issuers
went back and changed their corporate social
better returns responsibility policies and looked at greening
throughout the company, as a result of going
on their equity through the process of issuing a Green bond. I think
that engagement at all levels is essential.
by 1.7% over a
AUDIENCE QUESTION: How does the Green loan market
20-day period break down by industry? And as for green investment
in the manufacturing industry, what does the future
after they’ve look like?
listed their CLARE DAWSON, LMA: The Green loan market is
beginning to show the same sort of diversification in
bonds” terms of the borrowers, and the industries that they
represent as the Green bond market. It started very
heavily in energy and utilities but you’re definitely
16
seeing a much wider range of company in the Green
loan market now. If you move beyond purely green
to sustainability-linked finance, there are lots of
ways that manufacturing companies can tackle
various impacts that they have; as you’ve mentioned,
plastics, recycling, sourcing materials, water usage.
There are lots of ways that I think manufacturing
companies and their lenders can set meaningful
targets.
AUDIENCE QUESTION: Looking at FIs trying to get
sustainability financing, do you find it’s often
that they will look back at their assets and think:
‘Actually, we’ve got enough here for a bond anyway’?
Or do you find that they’re going out and originating
new assets? How much are banks actually changing
their systems and going out and generating new
sustainable financing?
CRISTINA LACACI, MORGAN STANLEY: I think it depends
a lot on the issuer. When you start to look at issuing a
Green bond, you look at the loans you are extending,
your internal processes, your sustainability strategy
and whether you should set specific targets for new
products.
It’s not only about what you already have in your
lending portfolio at that stage, it’s also about your
strategy going forward. When meeting investors,
they will ask you about it and will expect you to have
a strategy.
KEITH MULLIN, KM CAPITAL MARKETS: LADIES AND
GENTLEMEN, WE HAVE TO DRAW TO A CLOSE THERE.
THANK-YOU FOR YOUR COMMENTS. z
International Financing Review Green Financing Roundtable July 2019
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