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Inside magazine issue 12 | Part 03 - From a corporate perspective From happy hippies to tenacious traders? Welcome to conscious capitalism Julie Becker Head of International Primary Markets Member of the Executive Committee Luxembourg Stock Exchange Talk of caring for the environment may have once conjured up images of happy hippies huddled together around a campfire or doggedly scaling tall buildings. But, as green goes mainstream, that image may soon be replaced by… bond traders? Julien Froumouth Head of Business Project Management Luxembourg Stock Exchange Chiara Caprioli Business Development Manager Luxembourg Stock Exchange Pascal Martino Partner Deloitte Digital Leader Deloitte Louisa Bartolo Consultant Technology & Enterprise Application Deloitte When two worlds collide Next time you’re at a dinner table with a mix of traders, financiers and environmental activists and fearing an uncomfortable silence, you may want to turn the conversation to green bonds. First issued by the EIB in 2007, this unconventional—and increasingly promising—financial instrument is emerging as definitive proof that something a little bit magical happens when the worlds of finance and environmental do-gooding collide. But first, what is a green bond? There is currently no legal definition of green bonds. A green bond is technically a “private purpose bond,” 1 no different from any other plain bond. It works in much the same way: investors buy the bond from an issuer, and the latter pays investors the principal amount back, p<strong>lu</strong>s interest over a set period of time (until the bond reaches maturity). What makes a green bond distinctive, though, is that it carries with it the promise that the bond’s proceeds will be “earmarked”— and go toward projects that have a positive environmental impact. Notwithstanding this widely accepted description of a green bond, the lack of a legal definition means that the market is composed of issuers that are, effectively, self-labelling and self-regulating. Currently, it is issuers themselves who determine if their bonds are green and, by means of the investment information disclosed in the prospectus, how green they are (although many are increasingly turning to second opinions in an effort to reinforce the credibility of their investment statements, satisfy an increasingly demanding investor class and allay fears of “greenwashing”). 98
Inside magazine issue 12 | Part 03 - From a corporate perspective Sizing the market In many ways, the excitement around green bonds is related more to their apparent potential than their current market share. Indeed, to date, the green bonds market is still a very young market in spite of having been launched in 2007. Relative to the fixed income space, outstanding green bonds represent just close to 1 percent of all outstanding bonds. Still, the year-on-year growth of the market has been impressive. With US$41.8 billion worth of labelled green bonds issued in 2015 2 and a truly global presence, 3 there’s certainly cause for enthusiasm. Expected green bond issuance vo<strong>lu</strong>mes are situated somewhere between US$50 billion and US$100 billion in 2016 according to reputable sources such as Bloomberg and Moody’s. That’s not a small sum. Annual issuance of green bonds (2012-2015) US$ billions 45 41.8 40 37 35 30 25 20 15 11.5 10 5 2.6 0 2012 2013 2014 2015 ABS Bank Corporate Development Bank Muni/Provincial/City Source: Climate Bonds Initiative: 2015 Green Bond Market Roundup 99
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Inside magazine issue 12 | Contents
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Inside magazine issue 12 | Foreword
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Inside magazine issue 12 | Part 01
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Page 48 and 49: Inside magazine issue 12 | Part 01
Page 144 and 145: Inside magazine issue 12 | Contacts
Page 146: Our expert authors, who are brimmin
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