Barclays issued a green bond but is it a green issuer?

A 22 year old Canadian First Nations activist has flown 5,000 miles to berate Barclays for financing an oil pipeline through Alberta's tar sands. Investors in Barclays’ green bonds should be right alongside her. Those serious about climate change must look at issuers’ entire sustainability profiles, not simply green bond use of proceeds reports.

  • By Lewis McLellan
  • 01 May 2018
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The Tsleil Waututh Nation believes that the Kinder Morgan pipeline project threatens its land, water and food and will increase the risk of oil spills and pollution damage.

Barclays' response at its AGM was that it is “looking at the issue and preparing new policies for publication on extreme oil and on climate change” — with a publication expected in the second half of 2018 dealing with the bank's sustainability on a 'whole bank' basis.

Extracting oil from tar sands is a far costlier and more energy-intensive process than refining conventional liquid oil. It is also far dirtier — the high carbon content means that a barrel of tar sands oil accounts for about 15% more carbon dioxide emissions than conventionally refined liquid oil over its lifetime, according to data from the Union of Concerned Scientists. The process also results in around three times more water pollution — water which must then be stored in toxic storage ponds.

Away from the Kinder Morgan pipeline, Barclays prides itself on its green credentials. Barclays became the first UK bank to issue a green bond in November 2017, raising €500m with the six year non-call five deal. The proceeds financed mortgages on environmentally friendly homes in the UK. It’s a laudable and important project — and as such, it received certification from the Climate Bonds Initiative. 

It has also opted to keep a proportion of its liquid assets in green bonds issued by supranational borrowers.

But, with Barclays a leading name in financing a high profile environmentally destructive project, its green credentials have to take a knock. Last month, HSBC said that it would cease financing 'extreme oil' projects, a designation which covers tar sands.

If SRI capital markets are to change issuers’ behaviour, investors need to take a holistic approach to evaluating green credentials. Looking at issuers’ overall environmental and social impact would be a far more worthwhile approach than simply buying anything with a green label.

Many SRI-focused investors do have their own systems which they use to assess issuers’ commitment to sustainability. 

Indeed, assessing issuers based on their ESG impacts is a practice older than the green bond market itself. Zurich Insurance’s ESG integration assesses borrowers on their overall commitment to sustainability. Green bonds are, according to Zurich’s head of responsible investment, an “indication of broader commitment to sustainability” — though plenty of grubby businesses have placed green bonds, from oil companies to airports.

The green bond market is playing an important role in the transition to a green economy. Investors' increased focus on ethical investment and the subsequent influx of cash with an environmental mandate has led to a proliferation of important and useful work on assessing and quantifying the impact of sustainable finance.

With these improved assessment capabilities, it would be absurdly narrow for investors to focus solely on assets labelled green bonds, as if these financings were the only ones to have an impact on the environment. 

It would be disingenuous to claim that a labelled and reported green bond from an issuer that has made no attempt to clean up the rest of its portfolio has a better sustainability footprint than conventional bonds from the World Bank, which has a development mandate supposed to ensure all of its lending meets certain environmental standards.

That’s not to say only public sector borrowers with ethical mandates should sit in green portfolios. 

Green investment ought to be about changing issuers’ behaviour. Bonds from issuers looking to use the proceeds to transition their business to a sustainable economic model and those seeking to mitigate the impact of polluting activities are certainly worthy additions to a green investor’s portfolio.

But if investors don't look across the whole business of the issuers whose bonds they buy, the green bond market will be looked back on as a self-congratulatory boondoggle.

  • By Lewis McLellan
  • 01 May 2018

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 168,245.46 652 8.00%
2 JPMorgan 156,950.09 679 7.46%
3 Bank of America Merrill Lynch 152,294.90 499 7.24%
4 Barclays 132,419.52 457 6.29%
5 HSBC 114,461.86 531 5.44%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 26,737.07 34 9.51%
2 Citi 17,112.91 41 6.09%
3 SG Corporate & Investment Banking 15,824.91 49 5.63%
4 UniCredit 14,686.99 63 5.22%
5 Deutsche Bank 14,357.25 46 5.11%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Goldman Sachs 7,202.01 32 9.30%
2 JPMorgan 6,815.38 29 8.80%
3 UBS 5,503.59 15 7.10%
4 Citi 5,386.55 31 6.95%
5 Deutsche Bank 4,303.27 25 5.55%