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EDINBURGH BUSINESS SCHOOLClimate BondsSean Kidney, CEO, Climate Bonds InitiativeInvestor-focused NGOMobilizing debt capita...
Bonds markets are untapped                                                      Bond                                      ...
A history of bond financing                                       Building the sewers of LondonFunding the North’s army in...
Bond typology   Organisation-guaranteed       Sovereign / national            + State            + Muni       IFI (pooled ...
Bonds are ideal for renewables                           High capital                           cost, stable              ...
Big buyers: institutional investors  $80tn assets under management          $30tn Pension funds – 19 out of 20 are public ...
Investors want Scale                      ProjectBond structures                      bonds                               ...
We need to bundle
Shifting institutional capital   Better understanding risk - hard work       Macro economy risks of climate change – Stern...
Public sector risk sharing   Regulatory       Policy certainty – e.g. energy efficiency directives       Bond regulation: ...
Projects to shift the system  Making it easy for investors            Definitions for investors: Climate Bond Standard    ...
Green Securitisation project  Issues      Regulatory frameworks: ABS, covered bonds      Standardisation            Qualif...
Conduit entities / platforms  Collaborations between Governments and investors      Eastern Europe EE      Latin America o...
Mitigation+adaptation+sequestration                                                            Bio-energy       Wind      ...
Standards coalition                                        Industry Advisory GroupTo grow a $300 billion climate bond mark...
Objectives 1. Assure investors that investments are for climate change solutions     •    Institutional investors aware ma...
How Certification works
18Benefits for issuers     New investors     Reputation enhancement     Exposing the market to underlying assets, in prepa...
Greening new markets
http://www.climatebonds.net
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Sean Kidney, CEO Climate Bonds Initiative (4.03.13)

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Climate bonds: Mobilizing debt capital markets for climate change solutions' presented by Sean Kidney at the University of Edinburgh Business School

Sean Kidney is co-founder and CEO of the Climate Bonds Initiative. His background is in stakeholder communications, social change strategy and issues marketing. Sean is also a director of the Network for Sustainable Financial Markets, an international, non-partisan network of finance sector professionals, academics and others who see the need for fundamental changes to improve financial market integrity, stability and efficiency. He is also a member of Mercer’s Sustainability Opportunities Fund Advisory Panel, and was previously a marketing advisor to a number of the largest Australian pension funds and a social marketer and publisher.

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Sean Kidney, CEO Climate Bonds Initiative (4.03.13)

  1. 1. EDINBURGH BUSINESS SCHOOLClimate BondsSean Kidney, CEO, Climate Bonds InitiativeInvestor-focused NGOMobilizing debt capital markets50 member international Advisory panel
  2. 2. Bonds markets are untapped Bond market $78 trillion We need around $1tn p.a. vs Equities $53 trillionTotal clean energyinvestment 2011$260bn
  3. 3. A history of bond financing Building the sewers of LondonFunding the North’s army inthe US Civil Creating the US and War Italianhighways network Housing mortgages: unemployment solution
  4. 4. Bond typology Organisation-guaranteed Sovereign / national + State + Muni IFI (pooled backing) Corporate Asset-backed Dual recourse / Covered / Pfanbriefe = pools Securitization / portfolio bonds = pools Project bonds Social return bonds
  5. 5. Bonds are ideal for renewables High capital cost, stable returns, minimal running cost over 20-30 years Scary end-of-life exposure Running cost risks Illustration courtesy Jason Langley AXA IM
  6. 6. Big buyers: institutional investors $80tn assets under management $30tn Pension funds – 19 out of 20 are public sector $27tn Insurance $3tn Sovereign wealth $20tnMutuals& Foundations Local pension funds 50-60% bonds Green/brown
  7. 7. Investors want Scale ProjectBond structures bonds Aggregation $500m-$1bn Wind and solar farms Re-financing by banks and utilities Bank or corporate bonds First 2-5 years 15-25 years Bank Bond re-financing Equity loans by banks &utilities
  8. 8. We need to bundle
  9. 9. Shifting institutional capital Better understanding risk - hard work Macro economy risks of climate change – Stern, Mercer High-carbon risks: over-valuations, stranded assets Better understanding opportunity - necessary Massive and rapid shift to low-carbon Economic sustainability Changing the settings of the system to maximize outcomes – main game Universal Owner: alignment of fund outcomes with economic outcomes Oil & Gas, Housing, Defense Germany 1990s Industry planning – Jean Monnet
  10. 10. Public sector risk sharing Regulatory Policy certainty – e.g. energy efficiency directives Bond regulation: covered bonds, securitization Enhancement Junior equity Wrappers Partial and full guarantees Deal development Collaborations
  11. 11. Projects to shift the system Making it easy for investors Definitions for investors: Climate Bond Standard $174bn universe - HSBC report & Bloomberg listing Climate Bonds Index Policy agenda Public Finance Mechanisms Green Securitization policy agenda / RECBs Regional bundling: loan securitization with development bank support EBRD & EE in EE platform IFC and ESCO cash flows in Mexico platform Southern Africa renewables platform
  12. 12. Green Securitisation project Issues Regulatory frameworks: ABS, covered bonds Standardisation Qualifying environmental criteria Loan / credit characteristics Multi-jurisdiction harmonizatio Credit support Energy contracts / offtake agreements Junior equity, subordinated debt Loan flow and loan book analysis Platforms (conduit entities)
  13. 13. Conduit entities / platforms Collaborations between Governments and investors Eastern Europe EE Latin America or Southern African renewables Indian green buildings Iberian renewables Credit support Loan volumes Issues Standardisation
  14. 14. Mitigation+adaptation+sequestration Bio-energy Wind Solar EE buildings Transport: rail aviation Transport: Transport: Water electric Green NAMAs Broadband Mass transit infrastructure vehicles Sustainable EE Industrial Power grid Geothermal Hydro energy Agriculture Low-carbon Transport: Transport: Sustainable urban Energy Storage shipping aviation fisheries development Flood Methane Climate Marine energy protection management programs
  15. 15. Standards coalition Industry Advisory GroupTo grow a $300 billion climate bond market$11tn Climate Bond Standards Board– Making it easy for investors Technical Working Groups Definitions
  16. 16. Objectives 1. Assure investors that investments are for climate change solutions • Institutional investors aware macro risks, but hard to quantify • If offered two investments with same risk/reward profiles, one “brown”, one “green”, they will choose green 2. Standardize across a large pool = increase liquidity • Energy, transport, water, etc 3. A simple preferencing tool • The easier it is to use the faster the market will grow • Authoritative: a coalition of asset owners & NGOs An environmental, not a financial standard. Investors still have to do their own credit analysis
  17. 17. How Certification works
  18. 18. 18Benefits for issuers New investors Reputation enhancement Exposing the market to underlying assets, in preparation for ABS post- Basel III Need for improved capital ratios will further squeeze business lending Re-financing allows focus on project development lending ….. Lower rates and a $300bn p.a. market
  19. 19. Greening new markets
  20. 20. http://www.climatebonds.net

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