Green Bonds on London Stock Exchange Page 1
What is a Green Bond? • Green bonds are any type of bond instrument where the proceeds will be exclusively applied to finance or re-finance in part or in full new and/or existing eligible Green Projects and which are aligned with the four core components of the Green Bond Principles. • The key feature of green bonds is the use of proceeds, which are described in the bond’s legal documentation, separately managed within the company, as well as monitored and reported throughout the life of the instrument. • Categories of potential eligible green projects include: Renewable Energy Sustainable Management Sustainable Water Management Energy Efficiency Pollution Prevention Clean Transportation Climate Change Adaption Biodiversity Conservation Eco-efficient products Page 2
A growing market • With growing investor emphasis on sustainability, green bonds are one of the fastest growing market segments internationally. • $36.5bn of green bonds were issued in 2014 , almost tripling 2013 total green bond issuance. • A record of $41.8bn green bonds were issued in 2015 making it the biggest year ever for green bonds. • As of June 2016, $28.7bn green bonds were issued globally 1 Source: Climate Bonds Initiative 1 Source: Bloomberg Page 3
Green bonds geography • The green bond market expanded further in 2015, thanks to a wider range of issuers and types of green assets, as well as new geographies. Source: Climate Bonds Initiative Page 4
A diversified issuer base • • 2015 saw a wider range of issuers and types of green The UK, China, Germany, Japan, the Netherlands, Norway projects or assets. There was a widening of the type of and the US have shown significant growth in green bond projects financed by green bonds with more proceeds market size last year. leveraged for other green sectors outside of the renewable • energy space, in particular low carbon transport and Overall Europe remains the region hosting most green bonds, sustainable water. with nearly USD 18.4 billion issued in 2015 Country Amount ($) Country Amount ($) USA 10bn UK 0.7 Germany 5.6bn Denmark 0.6 Netherlands 4.1 Brazil 0.6 India 1.1 Mexico 0.5 China 1 Japan 0.5 Norway 0.9 Hong Kong 0.3 Source: Climate Bonds Initiative Page 5
LSEG and Green Financing • LSEG is a partner exchange of the United Nations Sustainable Stock Exchanges (SSE) initiative. • London Stock Exchange Group’s activity in green financing is focussed on two key areas: fixed income products and information services/indices. Through a range of new initiatives, LSEG intends to broaden its offering and support London in becoming the preferred listing venue for debt and equity Low Carbon Economy (LCE) financial instruments. • Through its FTSE Russell business, LSEG is looking at further opportunities to increase transparency in the green bond market, by providing issuers with a more efficient tool to report on sustainable initiatives, and offering investors a comprehensive product to assess a wide range of financial instruments against an innovative Low Carbon Economy (LCE) framework. Page 6
Green Bonds on London Stock Exchange • LSEG has welcomed 34 green bonds to its markets denominated in 7 different currencies, which have raised approximately $7.5 billion equivalent. • In 2015, 12 green bonds were listed on LSE – this translated to a 14.5% market share of total green bond on EEA exchanges. • London Stock Exchange has launched a range of dedicated ‘green bond’ segments, offering issuers a flexible range of market models, covering both Regulated Market (RM) and MTF segments, comprising retail and wholesale, and offering the choice of trade reporting, end-of-day and continuous quoting. • No other global exchange has such a comprehensive specialist offering for green bonds. • Issuers can benefit from the additional transparency of secondary market trading and global reach of the London markets. "Together with the London Stock Exchange, UNEP and the Cambridge Institute for Sustainability Leadership, we hope to impress upon you London's commitment to build on existing market activity to ensure that green finance sits right at the very top of the financial industry's agenda .“, Mark Boleat Policy Chairman of the City of London Page 7
Green Bonds on London Stock Exchange London Stock Exchange Green Bond milestones: • Dec 2009 : first green bond listed by World Bank on London Stock Exchange’s markets • Mar 2014 : International Finance Corporation (IFC) issues the first Renminbi-denominated green bond , raising RMB 500 million. This set the precedent as the first green bond issued by a multilateral institution in the offshore Chinese markets. • May 2014 : London Stock Exchange Group joins UN’s Sustainable Stock Exchanges (SSE) initiative. • Apr 2015 : Transport for London lists its debut green bond , raising £400 million, to improve sustainability of London transport network. • Jun 2015 : London Stock Exchange expands its range of dedicated green bond segments to offer increased flexibility for issuers • Aug 2015: IFC issues the first offshore Indian Rupee denominated green bond , raising INR 3.15 bn. • Oct 2015 : Agricultural Bank of China lists a $1bn triple tranche, dual currency green bond, the first green bond out of China and largest green issue on London Stock Exchange’s markets . • Nov 2015: London Stock Exchange becomes an Observer to the internationally-recognised ICMA Green Bond Principles guidelines • Jan 2016: LSEG joins the Green Infrastructure Investment Coalition (GIIC) which was launched at COP21 by alliance of global investors, development banks, financial sector associations & NGOs. Its aim is to support the financing of a rapid transition to a low-carbon and climate resilient economy. • Jan 2016: LSEG joins the City of London's Green Finance Initiative run in partnership with HMT and the Department of Energy and Climate Change. • Apr 2016: London Stock Exchange Group (LSEG) becomes the first global exchange to join the Climate Bonds Partnership Program Page 8
How to list Green Bonds • Green bonds have the same regulatory status of equivalent “non - green” bonds and can normally be issued through standard base prospectuses. • To admit green bonds to London Stock Exchange’s dedicated Green Bond segments, issuers are required to provide the Exchange with the relevant “second opinion” document that certifies the ‘green’ nature of the bonds. • The choice of the certification provider is up to the issuer and its advisers. London Stock Exchange has outlined guidance on a set of criteria that the certifier should meet in order for the certified instruments to be included in the relevant LSE green bond segment. Page 9
Green Bonds Certification Issuers admitting bonds to the green bond segments on London Stock Exchange must provide a third party certification that the instruments are considered “green bonds” and a written confirmation that the entity that has been appointed to conduct the green bond certification meets the following criteria: • Be a legal entity with a registered office in the European Economic Area or Switzerland and that such entity have the required financial resources to conduct the verification. • Be independent of the entity issuing the bond, its directors, senior management and advisers. In particular, the organisation providing the second opinion must not be a subsidiary or owner, either in full or in part, of the entity issuing the bond. • Be remunerated in a way that prevents any conflicts of interests arising as a result of the fee structure. • Have the required financial resources to conduct the verification. • Be an entity* specialising in assessing the framework of the bonds’ environmental objectives, with sufficient financial and mark et- specific expertise to perform a comprehensive assessment of the use of proceeds. Such expertise could be demonstrated for example by: Affiliation with relevant and widely recognized industry bodies Significant and appropriate previous experience in providing second opinions on green bonds *e.g. a research organisation or a certification company, or an entity of which one of its departments offer services in the relevant certification industry Page 10
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