The term means many different things to different people, with the sector in its entirety frequently termed ‘green’ by many, even though it encompasses a whole lot more than simply environmental considerations.
But one thing is for certain: no matter what name is bestowed on the various facets that make up what is a multifarious asset class, it is growing.
The speed of development may have been a cause of disappointment to some, although signs from the bond market at least are that it is something that is increasingly towards the forefront of people’s minds – on both buyside and sellside alike.
The belief is that such issuance will become an important part of the risk management process for mainstream investors, while also playing a significant role in borrowers’ funding plans.
One situation that needs to be addressed, however, is that of reconciling disparate expectations. Essentially, it is a case of economics versus principles.
On the face of it, participants in an industry whose historical raison d’être has been to generate maximum financial returns might find it quite difficult to adapt to a scenario where that is not the be all and end all of the discussion.
But the various parts that form the market whole, be they concerned with social housing, microfinance, education, employment or whatever – and not forgetting the environment – are topics that are receiving more and more publicity. And this creates greater transparency, the situation helped in no small part by technological advances that have seen social awareness grow apace on a global scale.
The added onus placed on ethical outcomes might just provide the building blocks for the necessary bridge between the two.
Proof of the moral standing of such issuance is also therefore something that will come under closer scrutiny.
For example, up until now, much of the market has generally operated in accordance with the Green Bond Principles. The perceived problem as far as those are concerned is that they have historically been a voluntary set of values that provide general guidelines rather than hard-and-fast rules. Added to that, they were drawn up by the self-same market participants that are expected to abide by them – something that has not always played out well in financial markets.
But the rules never pretended to offer strict definitions, more so guidelines. They have been updated since they were first drafted in early 2014 and a third version is in the offing. Each iteration will have been a little more definitive than the last.
But those wishing for more prescriptive definitions and opinions are not left wanting, with no shortage of second-opinion providers ready and willing to share their thoughts.
Many of these companies are well established within the industry and have long track records. But competition is no respecter of reputations, and the prospect of a market that is growing at such a fast pace and on such a global scale will naturally attract a large number of interested parties.
The ratings agencies, for one, are looking to increase their involvement, and all the additional participants are sure to lead to a sector that comes in for much more scrutiny than once it did.
This will no doubt come as music to the ears of those who have suspected that some instruments in years gone by that carried a green label were not quite as squeaky clean as they could be. On the other hand, this could mean that a homogenous approach to appraisal is even further off.
Either way, it speaks of a market that is going places. It may not yet be part of the mainstream, but neither is it any longer a niche backwater.
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