A Greener Future for Finance

Author:Afsaneh Beschloss - Mina Mashayekhi
Position:AFSANEH BESCHLOSS is founder and CEO of RockCreek, a global asset management firm. Previously, she was treasurer and chief investment officer of the World Bank. MINA MASHAYEKHI is senior advisor at RockCreek. Previously, she led high-level negotiations on trade and sustainability at the United Nations Conference on Trade and Development.
60 FINANCE & DEVELOPMENT | December 2019
A Greener Future for Finance
Green bonds offer lessons for sustainable finance
Afsaneh Beschloss and Mina Mashayekhi
GREEN BONDS, LAUNCHED by the World Bank and
the European Investment Ban k more than a decade
ago, blazed a tra il for investments that could eventu-
ally reach into tril lions of dollars in climate-related
projects, including renewable energy, energy
eciency, and ecosystem protection and restoration.
Their central, foundationa l role provides
lessons and warnings for the global community
as it expands susta inable nance with ever-greater
urgency into diverse area s such as complex collat-
eralized loan obli gations, loan and local currency
guarantees, and subordinated debt.
e initial chal lenge was far more daunting than
developing a bond prototype tied to environmental
impact. It was to create a new class of securities
that would be credible, replicable, and attra ctive
to institutional investors and envi ronmental orga-
nizations alike.
Along those dimensions, the founders of t he green
bond movement have undoubtedly succeeded. e
Climate Bonds Initiative (CBI) stated in its 2018
report that from 2008 to 2018, dozens of institutions
and governments issued more than $521 billion in
green bonds. In the rst ha lf of 2019 alone, new
certied green bond issue s topped $100 billion
globally, and forecasts for the fu ll year are as h igh
as $250 billion, according to Environment + Energ y
Leader. More than 5,000 green bond issues wil l have
come to market by the end of 2019, estimates CBI.
So there is no question that the market for green
bonds has proved to be robust, durable, and scal able
for a diverse array of market players worldwide.
Kenneth Lay, senior managing di rector at
RockCreek, who as trea surer of the World Bank
led the team that developed t he rst green bonds,
says that earma rking bond issue proceeds for spe-
cic climate and environment-related projects was
a major change “that carried t he potential to attract
new, impact-oriented investors and boost incentives
within the Ban k to focus on these key public goods.”
He adds: “at potential is being realized,
perhaps not as quickly as we a ll would like, but
the progress has been dra matic in the decade since.”
Another major challenge, wh ich will continue to
bedevil all form s of sustainable nance, has been
to ensure that the environmental i mpact of green
bond projects is transparent, veriable, mea surable,
and compliant with international standards.
From the start, the World Bank developed a rig-
orous and transparent model for verif ying its green
bond issues. Several robust and inuential frame-
works and protocols have emerged to guide investors
and issuers. CBI, launched in 2010, published its
Climate Bonds Standard a nd Certication Scheme
the same year. e Loan Ma rket Association notes
that the International Capita l Markets Association
(ICMA), founded in 1969 to help guide the emerg-
ing Eurobond market, gradua lly expanded its scope
to include a set of green loan principles in 2014.
Both voluntary fra meworks gain their authority
by assembling teams of top scientist s and leaders
to develop and promote rigorous standards and by
winning the endorsement of a critical ma ss of issuers
and investors. Despite competing national st andards
and the absence of strong compliance mech anisms
for bond issuance, ICMA and CBI have ta ilored
most green bond issues to clear metric s and ensured
that projects deliver relevant benets.
Of course, compliance with st andards such as
those of ICMA and CBI must be independently
veried. e internal incentives of asset owners are
insucient. Leading rms such as CICERO and
Sustainaly tics have conducted externa l reviews of
more than 88 percent of the 5,000 bonds labeled
as green by CBI. Such labeling mea ns that at least
95 percent of proceeds go to environmental uses
and that underresea rched and controversial areas are
excluded. ese reviews, a long with advance vetting
of environmentally focused is suers, have ensured that
the assets back ing bonds meeting ICMA a nd CBI
minimum requirements are indeed green—along
with the majority of funds inves ted in the bonds.
Dubious players
at hasn’t stopped dubious players from entering
the market. From “clean coal” projects i n China
to bonds sold by Spanish oil company Repsol,
issuers have blurred or obliterated the lines between
sustainable and nonsust ainable projects. e back-
lash again st such projects has sparked a more robust

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