GLOBAL - Opportunities are opening up for institutional investors looking to invest in green bonds as a new certification scheme is due to launch next month, and State Street brings a new green bond fund to market today.
The Climate Bond Initiative scheme verifies the environmental credentials of green bonds and is due to launch 24 November. The Climate Bonds Standards and Certification will help investors tell the difference between green and non-green assets in different jurisdictions and organisers aim to certify some $300bn of suitable bonds per year.
Climate Bonds Initiative chair, Sean Kidney said: "What the investors that we speak to want to know is the money is really going to the right kind of investor in the context of climate change."
"The point of the certification is to signal that it's a credible climate change solution. We do not address creditworthiness, which is why S&P is ok being on our Industry Working Group; we're not in competition."
The initiative has a $300m certified bond coming out in November, with another $200m certified bond expected in early 2013. They are also looking at identifying existing bonds that would comply.
"In bond types we start off with corporate, project and portfolio bonds. In collateral types we start with wind energy and wind energy manufacturing assets. We will quickly add eligibility criteria for solar, energy efficiency and bio-energy investments" added Kidney.
Green bonds are currently issued primarily by the World Bank and the European Investment Bank and allocate the proceeds of the bond offering to fund environmentally beneficial development projects.
Green bond issuances from all multilateral development banks and multilateral financial institutions is estimated to be $12bn, according to figures from State Street Global Advisors (SSgA).
SSgA today announced the launch of a green bond strategy.
SSgA spokesman, Chris McKnett said: "Green bonds have similar financial features to conventional bonds of the same issuing entity, with the differentiating characteristic being the allocation of proceeds raised by the green bonds to fund or support environmentally beneficial development projects.
"Given the infancy of green bonds and the green fixed income investing market, the predominant issue is that of liquidity. Most outstanding green bonds are purchased in private placements and constitute part of investors' buy-and-hold strategies."
"At present we expect that the bid-ask spread for green bonds in the secondary market to be slightly wider than benchmark issues from the same issuer. In addition, the market itself is currently very small thereby decreasing secondary trading volumes. It should be noted that bonds issued by supranationals and MFIs are among the most liquid fixed income securities available, and issuers maintain buyback provisions as a liquidity backstop."
Kidney said he commended State Street for their initiative in this area.
"I'm not aware of any institutional investor focused funds of this nature. We need to see people like State Street moving, to kick the market along," he added.
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