Despite a growing number of green bond and SLB issues alongside new commercial microfinance, concerns are growing about use of proceeds and transparency in green finance, and consistency between targets and behaviour by US banks. Meanwhile the UN calls for more funding for nature while Australia warns of massive economic pain due to climate change.
Green finance is evolving but there’s insufficient clarity on credit
There is growing focus on the importance of small scale commercial local lending, as the European Bank for Reconstruction and Development, alongside the GCF, has approved the award of a $4m loan to Tajik microfinance institution (MFI) IMON International for green lending. This is the third loan that will focus on the creation of lending products allocated to mitigation and adaptation technologies.
Meanwhile the International Finance Corporation (IFC), a member of the World Bank, and Internacional de Inversiones (IDEI), a developer of sustainable real estate projects, announced the issuance of a green bond for 800 million pesos (around $45 million dollars) in order to promote sustainable construction in Mexico.
The bond will contribute to the development of green financing for construction in Mexico, while strengthening the country’s climate financing market by promoting the broader adoption of certified sustainable construction and green financing standards. The issuance, carried out in two series (500 and 300 million pesos, respectively), is backed by IFC with a stock market guarantee for 50 percent of the amount issued.
Green bonds continued to drive market interest globally, as US battery firm Northvolt raised a $1.2 billion convertible note from BlackRock. Singapore has raised $2.1 billion in green finance through the reopening of its inaugural offering (a 50 year sovereign bond at 3.04%)
There was also a swathe of further announcements on the corporate front. E.On raised €1.5 billion for its 2024 financing needs, for the financing and/or refinancing of ‘energy transition’ projects. Two tranches were issues, both at 750 million. each worth €750 million. The first one matures in March 2029 and has a coupon of 3.75%, while the second one matures in August 2033 and bears coupon of 4.00%. The company’s 2023 transition needs are being financed through a €1.8 billion bond issued in January 2023.
Mexican real estate investment trust Fibra Danhos issued MXN 2.5 billion in Sustainability-Linked Bonds, with demand reaching MNX6.88 billion, showing the intensity of market demand. Underwriter BBVA said that the MXN 2.5 billion bond was issued at a term of 7 years and a fixed nominal rate based on the Interpolated 2029-2031 MBono pus a spread of 145 basis points (fixed coupon of 10.67%). The target on which the terms of these SLBs are based is to obtain sustainable certification of a percentage of Fibra Danhos’ property portfolio, through operating certifications like LEED Gold and/or Platinum.
Meanwhile Norwegian industrial silicon manufacturer Elkem placed NOK 1 billion of new senior green bonds, while Sweden’s infrastructure technology group Sdiptech raised SEK 600 million in sustainability linked bonds within an over SEK 1 billion issue. My Lundberg, Head of Sustainability & IR of Sdiptech said: “The Sustainability-Linked Bond Issue further reaffirms our commitment to achieving our sustainability goals and reducing all our business unit’s carbon dioxide emissions.”
However concern remains about the use of the term ‘green finance’ when its used to justify certain types of financing without concern about repercussions. BankTrack reported an analysis of NordGold’s $200 million ESG-related credit facilities (linked to ratings by EcoVadis), which showed that six European and Japanese banks have helped to finance the company’s gold mine near Lefa in Guinea, while the company has failed to address local demands for support in relocation away from the toxic tailings associated with the mine. The banks were Dutch ING, Germany’s Deutsche Bank, Austria’s Raiffeisen Bank International (RBI), following by a further facility led by RBI and including Italy’s Intesa Sanpaolo, France’s Société Générale and Japan’s Mizuho Bank.
US disconnect between rhetoric and lobbying action
A benchmark analysis from Ceres shows significant inconsistencies between the banks’ public climate commitments and their direct and indirect climate lobbying practices. The Responsible Policy Engagement Benchmarking for Banks shows that despite banks’ public endorsement of the Paris Agreement’s goals and pledges to align their lending and investments with net zero emissions by 2050 or even earlier, the banks’ lobbying practices do not match their stated support for Paris-aligned policies and regulations.
In effect 92% of banks assessed have been advocating against or pushing back on Paris-aligned climate policies in the last three years. In addition, an astounding 75% of the banks analysed lobbied both for and against Paris-aligned policies, highlighting the banks’ conflicting approach to climate policy engagement.
Climate risk continues to be underestimated even as stress tests grow
The latest annual report from the Central Bank of Trinidad and Tobago has recognised the importance of climate risk, while New Zealand’s central bank has announced plans to stress test leading domestic banks on their exposure to extreme weather events.
New Zealand is committing strongly to action on climate change, and Sustainable Fitch recently released a report on the launch of BlackRock’s NZD2 billion fund, targeting investment in New Zealand’s climate infrastructure. The public-private investment strategy was created by the global investment company on behalf of the country’s institutional investors, as well as the New Zealand government.
The report, New Zealand Net-Zero Fund Offers ‘Last-Mile’ Model for Decarbonization says that it views BlackRock’s New Zealand-focused climate infrastructure fund as a funding model that can be replicated in other developed economies to supplement areas of their decarbonisation plans. It also offers a roadmap for collaboration between the public and private sectors to navigate the energy transition.
GEF launches global biodiversity fund but UN says more funds are needed
Representatives of 185 countries agreed a new Global Biodiversity Framework Fund (GBFF) has been designed to mobilize and accelerate investment in the conservation and sustainability of wild species and ecosystems, whose health is under threat from wildfires, flooding, extreme weather, and human activity including urban sprawl.
The new fund is expected to mobilise and disburse new and additional resources from public, private, and philanthropic sources, with a focus on the sustainability of biodiversity and ecosystems. As much as 20% of its resources will support Indigenous-led initiatives to protect and conserve biodiversity. It will also prioritise support for Small Island Developing States and Least Developed Countries, which will receive more than a third of the fund’s resources.
The new fund was ratified and launched at the GEF Assembly in Vancouver in August 2023, where two countries announced initial contributions to start its capitalisation – including CND 200 million from Canada and £10 million from the UK. As yet however, it has not yet reached the $200 million required for the World Bank to operationalise the fund. Given that its part of the GBF and is expected to play a significant role in accelerating the mobilisation of $200 billion a year to conservation by 2030, this is a concern.
Australia warns of economic pain of climate change
Australia’s 2023 Intergenerational Report projects the outlook for the economy based on analysis and projections of economic change. This year it looked at five key trends: population ageing; technological and digital transformation; climate change and the net zero transformation; rising demand for care and support services; and geopolitical risk and fragmentation.
The report warned that climate change could wipe between $135 billion and $423 billion from labour productivity over the next 40 years. The projections for productivity is about the loss of daily work capacity, and doesn’t include the economic responses necessary to extreme weather in terms of disaster management, food supply or wider infrastructure resilience.
It’s findings are particularly interesting in light of research from earlier in 2023, highlighting the potential for Australian’s to pass on home insurance as premiums in high risk areas jump by up to 50%.
Given the existing impact of extreme weather on individuals, business operations and supply chains it seems unlikely that the transition is going to be pain free. It’s about time that politicians and industry had serious conversations about how to manage the economic pain set to come.
