Just few days ago, former UN climate chief Christiana Figueres and colleagues wrote that the issuance of «many more green bonds» is needed to finance climate-mitigation efforts. The green bonds market is rising and is expected to rise even more quickly over the next months and years. Chris Wigley, Senior Portfolio Manager at Mirova, kindly agreed to answer some questions from mondosri about the present and the future of green bonds.
mondosri: Green bonds seem the latest “big thing” in the sustainable and responsible investment (Sri) market. Somebody called them a sort of alliance between the financial industry and the environment. What’s your opinion around that? Why green bonds are so “sexy” in the eyes of investors in general, not only of the Sri ones?
C.W.: It is true that Green Bonds may be said to have double the impact. On the one hand, they produce a return similar to a conventional bond. Since the issuer is the same entity as for a conventional bond, the credit risk is the same. If the credit risk is the same, then the return should be the same. On the other hand, what is significant about Green Bonds is that they disclose the use of proceeds, for example renewable energy, green transport, etc. This is appealing to a lot of investors who are not just seeking a financial return but a non-financial return too.
mondosri: One of the main issues about green bonds deals with transparency, principles and standards. Is it correct, in your opinion, to consider principles and standards something absolutely essential – and welcome, too – for the green bonds market to be trustworthy, but not sufficient? What more could be needed? In which way do you address the issue at Mirova?
C.W.: Mirova is a member of the Green Bond Principles (GBP). The GBP are at the core of Green Bond standards globally. The GBP require Green Bond issuers to disclose the use of proceeds, and not to just use the money for general corporate purposes such as share buy-backs. Going forward, Mirova would like to see more development in impact metrics. This way, we as investors will know that Green Bonds issued are having real impact in reducing global warming.
mondosri: Corporate green bonds, green bonds by supranational institutions (first of all the World Bank), sovereign green bonds: which issuers are supposed to drive the green bond market in the coming years? In view of the big efforts the world’s countries are to make if they’re serious about the achievement of the SDGs (Sustainable Development Goals), do you expect sovereign issuers sooner or later to become dominant in the green bonds market?
C.W.: When the Republic of France issued a Green Bond in January, we welcomed that because we saw a country following through on their commitment in Paris in late 2015, to keep global warming to plus two degrees or lower. We see potential also in emerging countries issuing Green Bonds as climate change and air pollution is so acute in many developing countries. However, for financial markets to be truly transformational in terms of climate change, it requires the private sector to become more sustainable and issue Green Bonds. Corporate Green Bonds are a significant part of the market, but they have the potential to be much bigger.
Many thanks, Chris.