Credit Agricole

Crédit Agricole: sowing the seeds of the green bond market

Green Bonds

The transition to a low-carbon economy is crucial to avoid more than 2 degrees Celsius of global warming. To get there, we need to upgrade much of our old infrastructure.

The New Climate Economy estimates that we will need US$89 trillion by 2030 just to keep economic growth going with what exists already. To make the shift to low carbon across the whole economy will take another 5% of upfront infrastructure investment. [1]

Green bonds could help. They are like standard bonds, but with a commitment from the issuer to use the proceeds for green assets. [2] The issuer labels them as “green,” which is often verified by an independent expert. [3] The beauty of green bonds is that they match green infrastructure projects with mainstream bond issuers who generally have the capacity to issue large bonds with a good credit rating.

Because green bonds are relatively new, potential investors and issuers needed some reassurance before getting fully on board. A consortium of investment banks, co-founded by Crédit Agricole CIB, therefore drafted the Green Bond Principles, a set of voluntary guidelines for green bond issuance. These principles help build investors’ confidence and promote best practice and transparency by issuers and underwriters. [4]

Early movers

Crédit Agricole CIB was an early mover in the green bond market—since it started, the company’s sustainable banking team has been involved in shaping it. [5] In fact, Credit Agricole CIB was the only European bank to be involved in both founding and drafting the Green Bond Principles.

The principles were released in January 2014 and support for them came quickly from almost all of the large investment banks as well as issuers, investors and environmental groups. [6]

Setting standards

The principles are there to make sure the green bond market develops transparently and securely. They set out for issuers what’s involved in launching a credible green bond, give investors the information they need to evaluate the environmental impact of their investments, and help underwriters by making transactions more standardized. [7]

Standards are vital in new markets like this—especially with the climate at stake. We’ve seen this before with carbon offsets: without standards, it can be hard for buyers to distinguish poor-quality offsets from high-quality ones. [8]  So setting standards early on has played an important part in developing the green bond market.

Huge growth

The green bond market has been generating huge growth. The market trebled in size in 2014, with US$36.6B of bonds issued that year. It looks like that figure could increase to US$100B in 2015. So far, Crédit Agricole CIB has arranged more than 50 green bonds, including a EUR1.4 billion (nearly US$1.9B) bond issued by EDF which was 200% oversubscribed. [9]

“We are very pleased to have coauthored and announced the establishment of the Green Bond Principles,” says Tanguy Claquin, managing director at Crédit Agricole CIB. “This is an important first step towards a more coherent approach to the market of green and sustainability bonds, which will ultimately increase their attractiveness for investors [and encourage] investments into sustainability projects.” [10]

RESOURCES:
[1]  http://newclimateeconomy.report/
[2]  http://www.climatebonds.net/market/explaining-green-bonds
[3]  http://www.climatebonds.net/market/second-opinion
[4]  http://mediacommun.ca-cib.com/sitegenic/medias/DOC/94509/2014-01-13-cp-cacib-green-bond-principles-en-final.pdf
[5] http://www.ca-cib.com/group-overview/the-sustainable-banking-team.htm.
[6]  http://mediacommun.ca-cib.com/sitegenic/medias/DOC/94509/2014-01-13-cp-cacib-green-bond-principles-en-final.pdf
[7]  http://www.icmagroup.org/Regulatory-Policy-and-Market-Practice/green-bonds/green-bond-principles/
[8] http://www.climatebonds.net/resources/understanding/faqs
[9] http://www.climatebonds.net/2014/05/edf-closes-humdinger-eur14bn-green-bond-75yr-2-x-oversubscribed-wow-how-investors-vote
[10] http://mediacommun.ca-cib.com/sitegenic/medias/DOC/94509/2014-01-13-cp-cacib-green-bond-principles-en-final.pdf

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