Green bonds lure attention at Islamic finance forum

Organisations have greatly raised the awareness of the importance of green bonds

The lure of green bonds, one of the instruments to steer capital for long-term or even potentially urgent environmental transitions projects, was keenly discussed at a recent international Islamic finance event in Scotland.

“There is a lack of expertise among investors in understanding green bonds,” Tawreeq Holdings Ltd executive VP Lim Say Cheong told the second Global Ethical Finance Forum (GEEF) 2017.

The former Maybank Islamic Bank Bhd banker, now with the United Arab Emirates/Luxembourg-based group, which is specialising in comprehensive supply-chain finance solutions for small and medium enterprises and their corporate clients, was one of the panel members at the forum held on Sept 13-14 recently.

Fellow panellists for the green bonds session include Ario Advisory Ltd founder director Mike Clark, London Stock Exchange fixed-income manager Lilian Georgopoulou and Shariyah Review Bureau CEO Yasser Said Dahlawi.

In a tweet, Simply Ethical Ltd CIO Stuart Hutton said standardisation versus innovation is one challenge ahead within green bond market as well as also ensuring understanding of what is green.

“Seeing plenty of firsts for green issues, but lack of projects are hindering growth. Plus, we need greater education around green,” he said in a tweet.

Simply Ethical is dedicated to offering ethical investments and pension solutions for private, corporate and intermediary clients.

The green bond market has grown at an impressive 50% compound growth rate, from close to zero at its inception in 2007 to US$91 billion (RM384.02 billion) in 2015. However, this still represents less than 0.1% of the total global market for debt securities, according to statistics quoted by a KPMG report.

Preliminary estimates for green bond issuance in 2017 by a number of platforms suggested they would an excess of US$100 billion, signifying the massive opportunity this sec- tor harbours.

While the financial industry-led Green Bond Principles launched in 2014 have triggered market growth, organisations like Climate Bonds Initiative have greatly raised the awareness of the importance of green bonds and helped in developing standards for specific asset classes that would qualify as green bonds, according to a note from the conference organiser.

However, despite the significant opportunities that lie in green financing, the sector faces a number of key obstacles, the note added. These include an extremely diversified market making it complicated to develop standards effectively, the mindset of bond issuers where they believe that meeting such standards could lead to additional costs, and treating the relevant expertise, additional monitoring and reporting needed in such cases as a big burden.

A green bond is a debt security that is issued to raise capital specifically to support climate-related or environ- mental projects, according to a document available at the World Bank website.

This specific use of the funds raised — to support the financing of specific projects — distinguishes green bonds from regular bonds. Thus, in addition to evaluating the standard financial characteristics (such as maturity, coupon, price and credit quality of the issuer), investors also assess the specific environmental purpose of the projects that the bonds intend to support.

Green bonds allow issuers to reach different investors and promote their environmental credentials. For example, the International Bank for Reconstruction and Development (IBRD) designed the green bond as part of its overall bond programme to cater to sustainable and responsible investors and promote its support of climate change projects in its borrowing member countries. As a multilateral development cooperative, IBRD offers the same pricing in its lending to all of its member countries in lending rates that reflect its total average funding cost plus a percentage spread.

GEEF 2017, which returned after its maiden round in 2015, took place at the Royal Bank of Scotland Group plc’s prestigious Conference Centre in Edinburgh, Scotland.

On the second day, the State Bank of Pakistan deputy governor Jameel Ahmad and The Big Issue Co Ltd chairman Nigel Kershaw presented the keynote addresses.

The two-day forum culminated in an exclusive civic reception at the historic Edinburgh Castle, hosted by Scottish government Cabinet secretary for the economy, jobs and fair work Keith Brown.