Loans with an environmental focus
Like all other bond types, green bonds are financial loans, issued on the market by a company, organization or government. They differ from other bonds because they only finance environmental projects: infrastructure projects that contribute to the environmentally friendly energy transition (renewable energies, energy efficiency, sustainable waste and water management, sustainable land use or clean transport) or help make necessary upgrades to adapt to climate change. Another difference from classic bonds is that green bonds include detailed reports concerning the financed investments.
A rapidly growing market
Investors around the world are increasingly attuned to the challenges of climate change and the energy transition. More and more of them are clamoring for investment tools that take environmental criteria into account. They are showing a growing interest in these bonds and “100% green” investing.
And while green bonds remain a relatively small phenomenon, the market is expanding rapidly. In fact, Green Bond investing quadrupled in just two years, rising from $11 billion in 2013 to $42 billion dollars in 2015! They are estimated to reach $100 billion in 2016.
Seizing on the focus on environmental challenges during Conference of Parties (COP) 21, France announced in September 2016 that it would issue the first sovereign Green Bonds starting in 2017. The French government estimates that it could raise between €6 billion and €9 billion. The bond issuance will also enable France to set the bar: during COP, French public financial institutions were encouraged to take part in financing environmental projects and “to launch Green Bonds, dedicated to environmental investment projects” through the “Paris Declaration”.
The first platform for listing Green Bonds
Another sign of the mounting enthusiasm for green bonds: in September 2016, the Luxembourg Stock Exchange announced the opening of the “Luxembourg Green Exchange (LGX)”, the world’s first platform dedicated to green financial instruments. It aims to capture a significant chunk of a market that is expected to become enormous.
When the platform opened, 114 Green Bonds were already listed, amounting to over $45 billion. The bonds meet strict requirements, notably concerning invested funds, which must be “used exclusively for financing or refinancing 100% green projects.”
BNP Paribas: issuing Green Bonds since November 2016
Green Bonds must be able to demonstrate the “green” use of invested funds, which requires an external guarantee. To obtain this, these funds may receive support from activist organizations, such as the World Wildlife Fund (WWF), or meet principles issued by leading organizations in this market like the International Capital Market Association (ICMA).
For example, when BNP Paribas issued its first Green Bonds in November 2016, for a total of €500 million, the Group outlined its Green Bond Framework, a strict framework established in compliance with the ICMA’s Green Bond Principles. Invested funds will go exclusively to financing or refinancing eligible assets in renewable energies, energy efficiency, public and collective transport, water treatment and management and recycling.
The initiative responds to the commitments made in the Group’s name by Jean-Laurent Bonnafé, Director and CEO of BNP Paribas, in the field of environmental protection: investing in renewable energies and helping innovative clean-tech startups. In addition, the Carbon Risk Management Procedure aims to integrate carbon footprints into financial decision-making.
As responsible bank, we supporte compagnies and countries that are committed to the transition to sustainable energy use
The first issuance operation was a success that confirmed the strong expectations of investors and once again demonstrated BNP Paribas’ strong commitment to sustainable development and supporting environmental projects. Its ambition: to become one of the top three global players in this market by 2018.