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10 Years of Green Bond Issuance at EIB

By European Investment Bank

03 Aug 2017

Developing a Lingua Franca for Green Bonds

Over the last decade, the European Investment Bank (EIB) has consistently been at the forefront of innovation and transparency in the development of the global green bonds market. Since launching the world’s first green bond in July 2007, EIB has raised over €19bn in climate awareness bonds, making it the largest issuer in this rapidly evolving market. While the use of proceeds for all EIB’s bonds already complies with high environmental and social standards, the bank’s green bonds are issued solely to finance renewable energy and energy efficiency projects. In the last 10 years, EIB’s green issuance has supported more than 160 of these projects in almost 50 countries.

More broadly, the EIB is the world’s largest multilateral financier of climate related investment, providing over €19bn for climate action projects worldwide in the last year alone. In support of the Paris Agreement, EIB has committed to deliver climate finance globally of around €100bn in the five year period to 2020.

Extending the Green Yield Curve

Aside from underpinning the progressive diversification of the market by issuing in 11 currencies, EIB has offered green bonds across an increasingly broad range of maturities. Most recently, for example, it established a notable milestone for the market with the launch of a 30 year €1bn climate awareness bond, which was the longest SSA green bond ever issued.

An important source of demand for EIB’s November 2047 ultra-long issue was the fast-growing community of green funds that have played a key role in supporting the growth of the market over the last 10 years. However, by appealing to institutions looking for exposure to top-quality names at the longer end of the curve, the 30 year issue built on EIB’s track record of attracting an increasingly broad investor base to the green market.

In the euro market, there is already evidence to suggest that the strength of demand from mainstream investors alongside dedicated green funds has pushed secondary pricing to a premium to EIB’s conventional bonds. This is because in each case the investor is exposed to the same credit risk.

Enhancing the Integrity and Efficiency of the Market

Markets are about free and efficient choices among a clear set of alternatives. Policy making is about clear indication of public priorities within those same alternatives. Without a common language, neither of them can work in a coherent and coordinated manner; without consistency of terminology and information flows there can be no traction.

The G20 Green Finance Synthesis Report has highlighted the lack of a common language in climate finance is one of the main hurdles that will need to be overcome if sustainable finance is to realize its potential.

As Bertrand de Mazières, Director General, Finance, EIB, explains, if multilateral development banks (MDBs) like EIB work in isolation to promote this convergence of definitions, the green bond market will remain a niche asset class. Recent landmarks such as the 22 year €7bn green benchmark from France’s Trésor, which generated investor demand of more than €23bn, are highly encouraging pointers for the green capital market. Total green bond issuance of $95bn in 2016, however, remains dwarfed by the total of $97.2tr held in debt securities around the world, according to numbers published by the OECD.

160x186kreiv — *Eila Kreivi, Director and Head of Capital Markets, EIB*

“Transparency and accountability are the core pillars of the Paris Agreement,” Eila Kreivi, Director and Head of Capital Markets, EIB, Chair of Executive Committee, Green Bond Principles says. “Prior to the COP21 talks, we initiated a dialogue among MDBs and other International Financial Institutions (IFIs) with regard to climate mitigation definitions in order to set up a harmonisation framework for impact reporting in renewable energy and energy efficiency.” The result, she says, is that investors now have access to a template of 10 indicators allowing for a more efficient comparison of projects.

*Aldo Romani, Head of Funding, Euro, EIB*

“We are now taking that work forward with regard to green finance definitions” Aldo Romani, Deputy Head of Funding, Euro, EIB adds. “Since there are different opinions on what is green, it is essential that market participants can articulate and compare their preferences with precision and without uncertainty. Multiple assessment (product and process) standards are possible if they share the same terminology.”

Market-based consultation

As a pioneer both of new issuance and of best practice in the green bond market, EIB aims to build a “Rosetta Stone” of existing climate finance definitions with the help of all relevant market groups. In other words EIB commits to facilitate clarification and harmonisation of climate finance lexicon, a condition for green finance integrity and accountability, to both spur the sustainable growth of the green bond market and to maximize capital market support to environmental policy objectives.

Recently, the interim report of the High-Level Expert-Group on Sustainable Finance recommends that the European Commission invites “the EIB to coordinate the development of an EU classification of climate change finance, conducted in consultation with relevant constituencies (technical specialists, market practitioners, policy-makers and civil society representatives)“.

At the same time, EIB is developing a constructive dialogue with the People’s Bank of China (PBC) and the China Green Finance Committee reflecting the major role of Chinese issuers in the green bond market last year. A formal cooperation agreement was announced by PBC Vice-Governor Yin Yong and EIB’s Vice President Jonathan Taylor in Beijing late March. One of the objectives is to map the PBC’s Green Projects Catalogue based on the GBP green policy objectives and in the area of climate change mitigation, the MDB-IDFC Common Principles for Climate Mitigation Finance Tracking.”