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energetica-india-57_asiapowerweek

ENERGETICA INDIA Green Bonds-An Overview To achieve India’s clean energy and climate goals, new innovative financial instruments – such as green bonds – that tap into international resources to leverage a wider investor base such as pension funds, sovereign wealth funds and insurance companies, need to be scaled up Green Bonds’ Historical and International Trends The first green bond was issued in 2007 and was initially characterized as a niche product pioneered by a handful of development banks. The “Climate Awareness Bond” was issued by the European Investment Bank (EIB) in 2007, followed by the World Bank issuing a “Green Bond” in 2008. Between 2007 and 2012, governments began to join international organizations and issue their own green bonds and the market reached $10 billion by mid-2012. With a growing market appetite for green bonds, there is increasing diversification of issuers and investors in more currencies beyond the early investments by the United States and Europe. The largest issuer in 2015 was the EIB, with KfW, EDF, and the Agricultural Bank of China. New investors including Credit Agricole and HSBC made first time pledges, and various consortia of banks formed to issue guidance on impact reporting, aimed at bringing companies to market. Corporate sector engagement has increased substantially since 2013, indicating high demand among investors, including overall growth in the issuance of green bonds as well as the volume, diversity and size of issues. In 2014, the green bond market reached $37 billion, almost triple the total level of investment in 2013. The United Kingdom, China, Germany, Japan, the Netherlands, Norway, and the United States have shown significant growth in the green bonds market since 2014. Seven new markets released $3.2 billion worth of green bonds in 2015 – Brazil, Denmark, Estonia, Hong Kong, India, Latvia and Mexico. $46 billion worth of green bonds were sold worldwide in 2015, according to Bloomberg New Energy Finance. Investment is anticipated to continue increasing in 2016, following the strong climate agreement at the UNFCCC climate negotiations in Paris. Overall, Europe hosts the highest number of green bonds, with nearly $18.4 billion issued in 2015. About $10.5 billion came from the U.S., where the market was mainly driven by municipal green bonds. Within the next five years, China’s green bonds market may reap an estimated 1.5 trillion yuan ($230 billion) for renewable energy and environmental projects. The launch of diverse types of green bonds and geographic expansion has indicated that the market is maturing and investor interest is outpacing supply. Total investment in green bonds is expected to exceed $60 billion in 2016. In fact, banks are projecting the value of outstanding green bonds to almost double in 2016, to as much as $158 billion due to climate change-related projects becoming mainstream. This follows the upward trend of growing renewable energy investments worldwide, with investment in developing countries surpassing those in developed countries in 2015 for the first time. Following China’s leading $102.9 billion investment in renewables in 2015, India increased investment by 22 percent to $10.2 billion. Green bonds currently fund renewable energy (38.3 percent), building and industry (27.5 percent), transport (10.2 percent), water (9.7 percent), waste management (6.2 percent), climate adaptation (4.3 percent), and agriculture and forestry (3.9 percent). Although this represents rapid growth of the green bonds market, it is still small compared to the overall $100 trillion bond market. As the market matures, collaborative models are being created. For example, Green Bond Market Development Committees representing various stakeholders are currently being organized in Mexico, Brazil, Turkey, India, China, Canada and California to develop green bond markets. Top Countries for Green Bonds in 2015 USA 10.0 Germany 5.6 Netherlands 4.1 India 1.1 China 1.0 Norway 0.9 UK 0.6 Denmark 0.6 Brazil 0.6 Mexico 0.5 Japan 0.5 Hong Kong 0.3 Issuance of Green Bonds Globally 2008 0.4 2009 0.9 2010 3.9 2011 1.2 2012 3.1 2013 11.0 2014 36.6 2015 46.0 China’s First Domestic Green Bond The Shanghai Pudong Development Bank Co. raised 20 billion yuan ($3 billion) in RENEWABLE ENERGY 46 energética INDIA · MAY | JUN16


energetica-india-57_asiapowerweek
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