In that regard, the macro and thematic backdrop for the green bond market couldn’t be better. Panellists assembled by IFR for the roundtable discussion unanimously agreed that the market is set to grow and prosper.
Yet it’s easy to look at bald primary market numbers and naysay the positive sentiment. Issuance in 2015 was around the US$40bn mark, an increase over the previous year but then again given the broad support for the environmental story, not material. And it fell far short of the US$100bn stretch aspirational target set at the beginning of the year.
Size isn’t everything, though, and it’s easy to forget that the green bond market is still in its infancy in terms of definitions and standards around the elasticity of the term, the content and structure of environmental reporting, and what constitutes proper impact reporting and what the boundaries are around that.
While at one level a regulatory norm for these factors might be welcome as it would settle the discussions, the consensus is that’s not and shouldn’t be the direction of travel. Issuers need to have the latitude to decide for themselves what makes sense and what best fits their sense of where they can and want to meet the climate agenda. And investors similarly need to decide for themselves which flavour of green best fits their engagement.
It’s not just that the green bond market needs to gain some consensus around the issues and move towards tighter standards. The issue at play now is not just defining and coming up with ways to ring-fence environmental actions; it’s about a deeper, more fundamental process of aligning the entire organisation with the climate agenda: where corporate strategy and treasury coalesce, if you like.
This is less an issue for the supranationals and government agencies that have tapped the market; more an issue for the corporate sector, which has yet to really show it hand in this market in a meaningful way.
The difference between carving out specific elements of your business as green and shifting the entire organisation in that direction is not trivial. If green bonds are an out-growth of a process of organisational re-alignment, it suggests that growth of the market won’t necessarily be explosive year-on-year but more of a gradual process. But it is a case of “build it and they will come”.
As best-practice metrics from across the issuer landscape and the broader environmental finance ecosystem develop and those best practices are shared, there is a strong sense that step-by-step improvements will accrue over time and create a set of more robust underpinnings in the green bond market; less as a stand-alone rather orphaned development but as a core component of a powerful alliance pushing forward on the basis of transparency, accountability and disclosure.
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