Green Bonds 2014 Year end wrap up & prospects going forward

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1 Green Bonds 2014 Year end wrap up & prospects going forward Climate Bonds Initiative Network for Sustainable Financial Markets Sean Kidney, CEO, Climate Bonds Initiative Tess Olsen-Rong, Market Analyst, Climate Bonds Initiative

2 2015: Estimated $100bn+ Green Bonds global growth Proceeds earmarked for qualifying green investments Pricing generally equal with similar bonds Oversubscription usual $35bn $11bn USD $414m $909m $4bn $1.2bn $3.1bn

3 Billions A big year 6 5 Toyota EIB TD Bank GDF Suez EIB City of Gothenburg World Bank AfD EIB NIB Ontario KfW EIB Amount issued (USD) Number of bonds

4 2014 by issuer type Key Themes Muni/ provincial/ City Corporate bonds from zero to 11% 35% market share Regional bank 2% ABS 5% Bank 2% Development banks continue to dominate 45% Growing Municipal and city bond market growing to 11% US taking off in H Development Bank 45% Corporate 35% Corporate loan 0%

5 US$22.5 trillion Context: $45 trillion of interest $88 tn assets under management $30 tn Insurance $27 tn Pension funds 19 out of 20 are public sector $6 tn Sovereign wealth $25 tn Fund managers, mutuals, foundations (SRI = $13tn global) Emerging Market pension funds = $4.5tn 50-60% bonds Green/brown US$8 trillion US$8 trillion US$45 trillion

6 Commitment to green bonds Investor statement: $2.24tn AUM investors committed to grow a large and robust market that makes a real contribution to addressing climate change Global Investor statement on Climate Change, signed by investors with $24tn AUM acutely aware of the risks climate change presents to our investments. In addition, we recognise that significant capital will be needed to finance the transition to a low carbon economy $16tn insurance sector committed to double green investments to $84bn by end of 2015 and x10 by 2020 at UN climate summit + various investor pledges; Zurich, ACTIAM, Barclays

7 It s about Use of Proceeds Proceeds to Green Earmarking purpose Reporting / transparency Independent review Any entity Governments & DFIs Corporates this year s growth area Asset backed: PPPs, banks, utilities, etc Municipalities Issuer benefits Investor diversification Investor engagement: stickiness Longer tenors Multi-asset pools

8 Majority of green bonds had 2 nd opinion in % of green bonds have a review EIB issuance account for 16% of bonds without a second opinion Remaining 19% of bonds without second opinions EIB no review 16% No review 19% Independent review 65%

9 Size matters: GDF Suez EUR 2.5bn ($3.5bn) Proceeds to EE and Renewable Energy Liquidity needed to grow market Two bonds, 3 x oversubscribed EUR 1.3bn Tenor 12 EUR 1.2bn Tenor 6

10 Huge green ABS $1.75bn 5 tranches Tenor 1-6 years All oversubscribed up to 1.6x ABS EPA standards Different opportunity to Hannon Armstrong ABS

11 Municipal green bond District of Columbia green water bond Tenor 100 years $350m Rated AA Coupon 4.81% The proceeds will be used to construct a tunnel to transport stormwater and sewage to a wastewater treatment plant and reduce sewage overflows to waterways.

12 First green ABS US listed sustainable infrastructure investor (YieldCo) $100m Tenor 5 year Coupon 2.79% Asset-backed securitization of cash flows from over 100 individual wind, solar and energy efficiency installations; all with investment grade obligors. Quantitative annual reporting of greenhouse gas emission reductions, measured in metric tons per $1,000 of par value. The assets underlying the bond are "estimated to reduce annual... emissions by 0.61 metric tons per $1,000 bond".

13 High yield green bonds Issued high-yield bonds (i.e. below investment-grade) EUR500m (across two tranches in USD and EUR) US$300m 5 year B-rated bond Coupon 6.5% + EUR265m 5-year Coupon 5.5% No rating

14 First Asian Corporate green bond Taiwan s Advanced Semiconductor Engineering(ASE) Corporate green bond BBB $300m 6 years 6x oversubscribed Proceeds: green building construction, installation of waste water recycling facilities, waste water management and manufacturing energy efficiency. ASE is an integrated circuit packaging and testing services provider.

15 First Japanese green bond Japan is the second largest bond market in the world. Development Bank of Japan (DBJ) EUR 250m 3 year tenor Coupon 0.25% Rated Aa3 and A+ Over 3x oversubscribed EUR 750m Q3 this year Proceeds of the bond: green buildings

16 Emerging markets: City of Johannesburg ZAR 1.46bn/ $136m BBB South Africa June 1.5x oversubscribed 10 year Proceeds to be used for: Renewable Energy: solar-panel power generation, water heaters Other energy: Waste-water plants modified to generate electricity, Landfill methane gas capture and energy generation Transport: 152 hybrid-fuel buses Emerging markets will be an important area of growth for green bonds

17 Green Bond Principles = bank support Assets, not entities Transparency & reporting central

18 Mid 2014 snapshot Climate-themed bonds $502.6bn Project Bonds $7.8bn Green Bonds $51bn

19 Equity Project Bonds are about re-financing Development High risk Project finance First 2-5 years Mature asset Low risk, long-term holdings for long-term investors, years Corporate Bank loans Asset-backed Re-financing by utilities Bank securitization Corporate Public sector Public sector

20 Green Bond Indices

21 Standards & certification $30tn Climate Bond Standards Board Expert Committees: Green Property, Low-Carbon Transport, Bio-energy, Agriculture, Water Industry Advisory Group Indices

22 A broad universe = scale / liquidity Expert groups = science-based definitions Opportunities for Brazil Renewable energy Energy storage Hydro = c75% of electricity. Wind energy increasingly competitive. Green buildings Green cities c85% urbanisation rate: Sao Paolo, Rio and Curitiba are C40 members Industrial Efficiency Utilities must reinvest 1% of revenues in EE (1998 law) Rail, BRTs, EVs BRTs in Curitiba & many other cities Rail in Sao Paulo, Rio

23 A broad universe = scale / liquidity Expert groups = science-based definitions Opportunities for Brazil Clean water Storm adaptation Water unevenly distributed. + drought impact on GDP: hydro, agri Waste mngtm Methane reduction Hydro not run of river; agriculture Agriculture Forestry Food supply chain = c80% of emission cuts for 2020 tgt, mainly reduced deforestation. Biofuels industry. c26% of GDP from agri services

24 2015 expectations 1. Market growth National development banks expand issuance More corporate earmarked in EU, US, China Property, Energy, Rail, Water Boom in Green City Bonds USA & EU, China & India, Latin America ABS emerges Green mortgages Rooftop solar 2. Market developments Standards adoption Green Bond Principles pin down reporting requirements ETF and index linked funds UN Climate Agenda embrace

25 The road to a US$1 trillion market 1. Market creation: Tapping domestic pools of capital Green Bonds Market Development Committee China, India, Indonesia, Brazil, Chile and more 2. Role of public sector and development banks Leveraging private capital with risk-bridging Kickstarting domestic market issuance 4. Governments press policy & regulatory steps to support bonds Project deal flow shepherding Tax breaks Green securitization support

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