Mobilising Bond Markets for the Low-carbon Transition – An Eight-point Plan
The European Investment Bank (EIB), for example, is the world’s largest clean-energy lender. That aligns them well with EU policy objectives. But at the same time they also have a even larger portfolio of high-carbon investments which serve to undercut the EU’s policy objectives. For example the bank is the majority funder for a new coal-fired power plant in Slovenia that will in itself use up all Slovenia’s allowable emissions in 2050.
The same thing applies to all the development banks (the European Bank of Reconstruction and Development, for example, still has a large programmes of high carbon lending coal lending).
We argue that, in the context of the large investment requirements to meet the EU’s emission reduction policy objectives, the bank should wind back its high-carbon financing and expand its low-carbon investments. They should also look at greater use of instruments that will leverage private finance, for example by offering guarantees for qualifying climate bonds.
It is time to better stretch that public sector balance sheet.
5 – Give Tax Incentives for Climate Bonds This is not rocket science – it has been used for many years to support the oil and gas industry in the US, for example. It is just a matter of defining what sorts of investments should qualify (in other words, the ‘qualifying universe’).
What will be very little treasury loss can be a big boost to investment. The climate bonds standards and certification scheme (see heading seven) is designed exactly to support such preferencing by governments.
6 – Build an Economic Recovery Narrative The money is there, much of it parked in cash, waiting for the financial crash to end. Shifting the economy by building productive investments is a recipe for a long-term economic stimulus plan.
The economy needs a narrative to right itself. A green-growth narrative does that, while addressing the single most substantial threat of our era. Part of that narrative is to signal where we can expect to see the economy go. As we address climate change we will need to revamp our economies across every sector.
7 – Use Climate Bond Standards as a Screening and Preferencing Tool
Climate Bonds offer a tool to help investors and policy-makers to scale-up finance and action rapidly for the transition to a low-carbon economy.
There is a growing appetite from the investment community for investment-grade bonds that are specifically targeted at financing the low-carbon economy. However, for the market to grow and for liquidity to develop, investors need tools to help them monitor and verify the climate effectiveness of their investments.
1. 2.
World Energy Outlook 2011, International Energy Agency, 2011. Available at:
www.iea.org (accessed 27 February 2012).
Bank for International Settlements, Securities 3.
• The public can know that vehicles for catalysing large-scale financial flows to ensure future environmental stability are available and that the financial sector is supporting this future.
A large and liquid climate bond market will stimulate innovation from banks, issuers and policy-makers alike and will make an important contribution to bridging the financing gap that currently exists.
8 – Make it Easy for Politicians
This is where real work is needed. Investors are aware of the risk of climate change; organisations representing $20 trillion have been calling for change for years – without huge success.
Perhaps this is because short-term election pressures faced by politicians mitigate against the immediate addressing of longer-term issues such as reducing emissions. The very large lobbying budgets of fossil fuel companies doesn’t help.
If concerned bond investors and business issuers are to see the policy settings needed to address climate change, they have to get better at packaging politically sellable solutions (investor statements at the moment often seem to be as inchoate as the demands of protesters in the street).
This means working on and supporting industrial and investment plans that can address the challenge; it means showing how multiple sectors of the economy can be engaged in the task; and it means developing marketing campaigns to get those plans adopted and help politicians see how they can successfully sell those plans to voters.
It is time to match the fossil fuel lobby. n
statistics and syndicated loans, 2011. Available at:
www.bis.org/statistics/secstats.htm (accessed 27 February 2012).
Insurers worth $3.5tn call for climate bonds and
support standards, Climate Bonds Initiative, 2011. Available at:
http://climatebonds.net/2011/12/ insurers-worth-3-5tn-call-for-climate-bonds-and- support-standards (accessed 27 February 2012).
There are many benefits to having standards for bonds related to climate-change solutions:
• •
Governments can provide broad-scale tax credits and preferencing to signal their encouragement for and then track relevant private capital financial flows.
Institutional investors, particular public sector funds that dominate the rankings of the largest funds in the world, can use standards as a macro-screen for investments and, by reporting on that, assure the public that institutional capital is being invested in their interest.
A large and liquid climate bond market will stimulate innovation from banks, issuers and policy-makers alike
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MODERN ENERGY REVIEW – VOLUME 4 ISSUE 1
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