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Green Bond Market Shoots Up

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By Sunny Lewis

 WASHINGTON, DC, October 27, 2016 – (Maximpact.com News) – The green bond market reported a worldwide milestone in August when aggregate green bond issuance topped US$150 billion for the first time since the World Bank issued the inaugural green bond in 2008. It was a US$400 million four-year bond issued in Sweden during the depths of the 2008 financial crisis.

 Green bonds finance projects that achieve energy efficiency, pollution prevention, sustainable agriculture, fishery and forestry, the protection of aquatic and terrestrial ecosystems, clean transportation, sustainable water management, and the cultivation of environmentally friendly technologies.

 Green bonds are similar to traditional bonds in terms of deal structure, but they have different requirements for reporting, auditing and proceed allocations.

A green bond is distinguished by its “use of proceeds” pledge, which earmarks the proceeds from sale of the bonds for specific projects with environmental benefits. Marketing and branding values not available to traditional bonds arise from this difference.

With the heightened awareness of global environmental and climate challenges, green bonds are increasingly seen as a tool that could allow the private sector to take an active part in raising the funds needed to put our society on a more environmentally sustainable footing,” wrote Charles Smith in an article ‘How the green bond market works‘ for the European Bank for Reconstruction and Development (EBRD) earlier this month.

 The EBRD first started issuing green bonds in 2010, and its portfolios of green projects now include 261 investments worth a total of €2.7 billion.

Smith, who is responsible for the day-to-day running of green bond issuance for the EBRD, views green bonds as “a new tool for helping the private sector green the world.”

Mobilising green projects is the goal but, ultimately, I think it is a much larger transition process,” Smith told a roundtable organized by the publication “Environmental Finance” last November. “It is about changing the way companies and entire societies think about and engage with the environment. And that is not done in a day.

At the same roundtable, some of the challenges were outlined by Yo Takatsuki, associate director, Governance and Sustainable Investment, BMO Global Asset Management. BMO Financial Group is a service mark of the Bank of Montreal.

I think one of the challenges is that the underlying assets that are being financed through green bonds are mostly renewable energy or energy efficiency. If we want a broader range of corporates to come to the market we need to encourage opening up the focus of projects beyond just climate change,” said Takatsuki.

I think people are struggling with impact reporting,” Takatsuki said. “For renewable energy, it is relatively straightforward, but for other types of projects the impact reporting is either not agreed or is not sufficiently established.

Smith comments on this issue in his article on the EBRD site, writing, “The reporting is made more complicated by the broadening range of issuer types – from banks to corporates in various industries – with different green assets and operating in dissimilar regions.

This makes comparing the bonds challenging to say the least, and the reputational risk for the issuer in making a mistake in the reporting could be considerable,” Smith writes.

Despite the challenges, the green bond market is growing quickly.

In 2015, green bond issuance hit what was then a record high, amounting to US$41.8 billion worth of investment worldwide. Compare that to 2012, when green bond issuance worldwide amounted to just $2.6 billion.

Of all the green bonds issued in 2015, $18 billion worth was issued in the European Union and $10.5 billion was issued in the United States, making these regions the leaders in the green bond initiative.

India and China are expected to get more involved in this type of investment in the near future.

The World Bank is a important issuer of green bonds. The bank has been very active through the first half of 2016, especially in the United States, where its issuances total over US$496 million and in India, where its issuances total over US$2.7 billion Indian rupees.

World Bank green bonds finance projects such as India’s Rampur Hydropower Project, which aims to provide low-carbon hydroelectric power to northern India’s electricity grid.

The World Bank Green Bond raises funds from fixed income investors to support World Bank lending for eligible projects that seek to mitigate climate change or help affected people adapt to it.

The product was designed in partnership with Skandinaviska Enskilda Banken (SEB) to respond to specific investor demand for a triple-A rated fixed income product that supports projects that address the climate challenge.

 Since 2008, the World Bank has issued over US$9 billion equivalent in green bonds through more than 125 transactions in 18 currencies.

World Bank Vice President and Treasurer Arunma Oteh said, “We have a responsibility to our clients to help them both recognize and respond to the risks that climate change poses.” 

To date, green bond issuer groups include supranationals, government agencies, cities, states, and also corporate entities.

Investors have expressed a desire for more choice of products for their growing portfolios – green bonds from more issuers and more diverse types of green bond products that offer different risk profiles, according to the World Bank.

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Green-bond supported wind farm in Penonome, Panama. (Photo by Alessandra Bazan Testino / International Finance Corporation) Posted for media use

There are several types of tax incentives policy makers can put in place to support the issuance of green bonds. The incentives can be provided either to the investor or to the issuer.

With tax credit bonds, bond investors receive tax credits instead of interest payments, so issuers do not have to pay interest on their green bond issuances.

An example of tax credit bonds in the area of clean energy is the U.S. federal government Clean Renewable Energy Bonds (CREBs) and Qualified Energy Conservation Bonds (QECBs) program. The program allows for the issuance of taxable bonds by municipalities for clean energy and energy conservation, where 70 percent of the coupon from the municipality is provided by a tax credit or subsidy to the bondholder from the federal government.

With direct subsidy bonds, bond issuers receive cash rebates from the government to subsidize their net interest payments.

This structure also is used under the U.S. federal government CREBs and QECBs program.

With tax-exempt bonds, bond investors do not have to pay income tax on interest from the green bonds they hold, so the issuer can get a lower interest rate. An example is tax-exempt bond issuance for financing of wind projects in Brazil.

Green bond issuers report both use of proceeds and the impact achieved. Still, specific reporting requirements are under development and currently non-standard.

A coalition of organizations including leading issuers and buyers are working together to establish reporting procedures. Anticipated reporting standards include third party review by an auditor of the sustainability of qualifying projects, and annual reporting on a universal template.

Meanwhile, the Green Bond Principles (GBP) are voluntary process guidelines that recommend transparency and disclosure and promote integrity in the development of the Green Bond market by clarifying the approach for issuance of a Green Bond.

The Green Bond Principles are intended for broad use by the market, according to the World Bank. They provide issuers guidance on the key components for launching a credible Green Bond; they aid investors by ensuring availability of information for evaluating the environmental impact of their Green Bond investments; and they assist underwriters by moving the market towards standard disclosures that will facilitate transactions.


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Image: Green shoots growing in the kitchen gardens, Tatton Park, Cheshire, England, May 2010 (Photo by Will Clayton) Creative Commons license via Flickr

In Search of a Water-Wise World

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The drought in Somalia has lasted for years. This image of two men carrying a water can on a dusty road was shot on December 14, 2013. (Photo by the African Union Mission in Somalia, AMISOM) Creative Commons license via Flickr

By Sunny Lewis

ENSCHEDE, Netherlands, July 4, 2016 (Maximpact.com News) – Rukiyo Ahmed, 26, discovered she was pregnant just as drought began to parch her village in the East African country of Somalia. Her household lost all its livestock. When the drought intensified, Ahmed and her family had to seek relief with extended family members living in the town of Dangoroyo, 35 kilometres away.

“I was so worried that I would have a miscarriage due to the effects of the drought,” said Rukiyo. “We had so little to eat. I became very weak and could barely walk.”

This story has a happy ending. With the help of the UN Population Fund , Ahmed eventually gave birth to a healthy boy.

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China fights the advancing desert by planting trees in Inner Mongolia, May 2010. (Photo by Cory M. Grenier) Creative Commons license via Flickr

Still, water scarcity is a real and present danger for the two-thirds of the global population – four billion people – who live without enough water for at least one month of each year. Half a billion face severe water scarcity all year round, many in China, India and Africa.

Professor of water management Arjen Hoekstra and his team at University of Twente in The Netherlands have come to this conclusion after years of extensive research in a study published in the journal “Science Advances“.

“Groundwater levels are falling, lakes are drying up, less water is flowing in rivers, and water supplies for industry and farmers are threatened,” Hoekstra warns.

Until now, scientists had thought that about two to three billion people were suffering severe water scarcity. Four billion thirsty people is “alarming,” he said.

Professor Hoekstra’s team is the world’s first research group to establish the maximum sustainable “water footprint” for every location on Earth, and then investigate actual water consumption by location.

“Up to now, this type of research concentrated solely on the scarcity of water on an annual basis, and had only been carried out in the largest river basins,” says Hoekstra.

Severe water scarcity exists if consumption is much greater than the water supply can sustain. That is the case particularly in Mexico, the western United States, northern and southern Africa, southern Europe, the Middle East, India, China, and Australia.

There, households, industries and farmers regularly experience water shortages. In other areas, water supplies are still fine but at risk in the long-term, the Dutch team reports.

In the United States, 130 million of the country’s 323 million people are affected by water scarcity for at least one month of each year, most in the states of California, Florida and Texas.

Hoekstra observes that the subject of water scarcity is climbing higher and higher on the global agenda. “The fact that the scarcity of water is being regarded as a global problem is confirmed by our research,” he said. “For some time now, the World Economic Forum has placed the world water crisis in the top three of global problems, alongside climate change and terrorism.”

“All over the world,” Hoekstra said, “it is clear that the risks associated with high water consumption are being increasingly recognized. The growing world population, changes in consumer behavior, and climate change are having a significant impact on the scarcity and quality of water.”

Hoekstra’s work is confirmed by many other authoritative research teams.

About one-third of Earth’s largest groundwater basins are being rapidly depleted by human consumption, according to two new studies from the University of California, Irvine, the first to identify global groundwater loses using data from space. The data is drawn from the Gravity Recovery and Climate Experiment (GRACE) satellites flown by the U.S. National Aeronautic and Space Administration (NASA).

This means that millions of people are consuming groundwater quickly without knowing when it might run out, conclude the researchers, whose findings were published June 16 in “Water Resources Research.”

In the first paper, researchers found that 13 of the planet’s 37 largest aquifers studied between 2003 and 2013 were being depleted while receiving little to no recharge. In a companion paper, they conclude that the total remaining volume of the world’s usable groundwater is poorly known, with estimates that often vary widely.

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California fruit growers, farmers and ranchers are suffering through an epic drought, Coalinga, California, April 23, 2015 (Photo by ATOMIC Hot Links) Creative Commons license via Flickr

“Available physical and chemical measurements are simply insufficient,” said UCI professor and principal investigator Jay Famiglietti, who is also the senior water scientist at NASA’s Jet Propulsion Laboratory in Pasadena, California. “Given how quickly we are consuming the world’s groundwater reserves, we need a coordinated global effort to determine how much is left.”

“The water table is dropping all over the world,” said Famiglietti. “There’s not an infinite supply of water.”

A NASA study released in March finds that the drought that began in 1998 in the eastern Mediterranean Levant region of: Cyprus, Israel, Jordan, Lebanon, Palestine, Syria, and Turkey, is likely the worst drought of the past 900 years.

In a joint statement, the UN’s Food and Agriculture Organisation and the Famine Early Warning Systems Network said late last year, “El Niño will have a devastating effect on southern Africa’s harvests and food security in 2016. The current rainfall season has so far been the driest in the last 35 years.”

El Niño conditions, which arise from a natural warming of Pacific Ocean waters, lead to droughts, floods and more frequent cyclones across the world every few years.

Meteorologists say this year’s El Niño is the worst in 35 years and is now peaking. Although it is expected to decline in strength over the next six months, El Niño’s effects on farming, health and livelihoods in developing countries could last through 2018.

In Central America, El Niño conditions have led to a second consecutive year of drought – one of the region’s most severe in history,

In Africa, Abdoulaye Balde, the World Food Programme’s country director in Mozambique issued a dire warning. “Mozambique and southern African countries face a disaster if the rains do not come within a few weeks,” he said.

“South Africa is six million tonnes short of food this year, but it is the usual provider of food reserves in the region,” said Balde. “If they have to import six million tonnes for themselves, there will be little left for other countries. The price of food will rise dramatically.”

Zimbabwe declared a national food emergency this month, according to the WFP rep in the capital, Harare. Food production is just half of what it was last year, and the staple grain, maize, is 53 percent more expensive.

Water scarcity remedies range from simple conservation and efficiency, to tree planting and wastewater re-use, to highly technical and expensive facilities such as nuclear desalination plants as advocated by the International Atomic Energy Agency  that would turn seawater into freshwater.

Finding sustainable solutions to water scarcity will be the focus of the annual World Water Week in Stockholm, held this year from August 28 to September 2. Hosted and organized by the Stockholm International Water Institute (SIWI), this year’s theme is Water for Sustainable Growth.

Water experts, technicians, decision makers, business innovators and young professionals from more than 100 countries are expected in Stockholm to network, exchange ideas and foster innovations that could help satisfy the urgent needs of four billion people for water.

One such innovation is the world’s first certified green bond. It was just issued by the San Francisco Public Utilities Commission (SFPUC) under the Water Climate Bonds Standard, whose criteria was co-developed by SIWI and the Alliance for Global Water Adaptation.

The Water Climate Bonds Standard is a screening tool for investors that specifies the criteria that must be met for bonds to be labeled as “green” or earmarked for funding water-related, resilient, and low-carbon initiatives.

Proceeds from the SFPUC’s $240m Wastewater Revenue Bond  will fund projects in sustainable stormwater and wastewater management.


Featured image: California fruit growers, farmers and ranchers are suffering through an epic drought, Coalinga, California, April 23, 2015 (Photo by ATOMIC Hot Links) Creative Commons license via Flickr