HSBC Holdings PLC, the fourth largest bank by assets in the world, has issued its first green bonds this month. HSBC France raised $500M, offering instruments at an annual coupon rate of 0.625% for a period of five years. Proceeds of the green bond issue will be used to finance renewable energy, energy efficiency, energy conservation, and climate adaptation projects, among others. Green bonds and the financing of climate-related improvement projects have been a key topic during the ongoing COP21 discussions.
HSBC announced its own internal guidelines for green bonds earlier this year. Eligible projects also may include renewables, sustainable waste and water management, sustainable land use and clean buildings and transportation. The issue will prioritize activities in the Middle East and Africa as well as Europe, particularly France. The bank also has announced plans to invest $1B in a green bond portfolio and already has allocated $350M purchasing climate bonds from development banks.
Earlier this year, the World Bank sold $91 million in green bonds tied to an index of “ethical” companies—its largest offering of green bonds linked to an equity index and the first offered to individual investors. See Corporate Environmental Lawyer blog post dated January 16, 2015, "World Bank Sells Record $91M of Green Bonds Tied to 'Ethical' Companies."
The Climate Bonds Initiative (CBI) recently issued its report, Bonds and Climate Change: The State of the Market in 2015. According to CBI, the total climate-aligned bonds universe stands at $597.7B—a 20% increase over 2014. Almost one-third of this year’s increase is due to the rapid growth of the green bond market.
While the market has grown rapidly as confirmed by CBI, many agree that the industry remains relatively unregulated with no formal definition about what qualifies as green other than voluntary frameworks. Development banks dominate in this space but other commercial banks have issued green bonds, including DNB ASA, National Australia Bank Ltd., and Credit Agricole Corporate and Investment Bank SA.
CBI sponsors the Climate Bonds Blog, which provides regular insight, news, and developments about not only the green bond market but reports on related discussions ongoing at COP21.
The green bond market increases funding available for climate-related projects by accessing the $80T bond market and expanding the investor base for climate friendly projects worldwide. These green bonds provide an attractive investment proposition as well as an opportunity to support environmentally sound projects, including funding required to address climate change related impacts, primarily by governmental entities.