Word on the web: Green finance investment boost

The ‘green’ finance sector has received a major boost after two of the biggest names in UK banking announced major initiatives in the area
by Eila Madden

HSBC has committed $100bn to financing low-carbon projects, while Barclays announced that it has successfully issued a £500m green bond to refinance mortgages on low-carbon residential properties in England and Wales.

The United Nation’s (UN) Climate Action Programme reports that the bond, which matures in 2023, was oversubscribed and that the final order book reached close to €2bn. 

Barclays has tapped into a growing investor appetite for green bonds. The market has so far reached $93.7bn and is set to break the $100bn barrier by the end of 2017, according to the Climate Bond Initiative. 

The top 15% of the lowest carbon intensive buildings in England and Wales will benefit from the Barclays bond, which comes on the heels of the UK government’s launch of its Clean Growth Strategy to expand the market for green mortgages. 

Barclays’ group finance director, Tushar Morzaria, says the new bond will help the bank to diversify its investor base, attracting interest from a growing group of environmental, social and governance investors. 

“[The] announcement also reflects the efforts of our Green Banking Council, which is committed to the development of innovative products and services that support our clients and customers in their transition towards a low carbon and sustainable future,” Morzaria adds. 

UN Climate Action Programme article
HSBC’s green commitmentsDigital Journal’s Karen Graham reports that HSBC plans to channel $100bn into clean energy and low-carbon technologies, and into projects that support the implementation of the UN’s Sustainable Development Goals. 

“The $100bn commitment that we are announcing acknowledges the scale of the challenge in making a transition to a low-carbon future,” Stuart Gulliver, HSBC’s group chief executive, says. “We are committed to being a leading global partner to the public and private sectors as they make that transition.”

The fund, which the bank plans to invest by 2025, is one of five new pledges, all of which are designed to tackle climate change and support sustainable growth in the communities that it serves.

The bank’s other initiatives include: sourcing 100% of its electricity from renewable sources by 2030; adopting the recommendations of the Task Force on climate-related financial disclosures; reducing its exposure to thermal coal; and leading and shaping the debate about sustainable finance and investment.

However, Graham reports that HSBC has not gone as far as some of its competitors, including JPMorgan Chase, ING and Deutsche Bank, in making a worldwide commitment to green investments. 

The bank, which generates significant revenue from Asia, says it cannot turn its back on fossil fuel-related investments completely. 

“For now, coal is such a fundamental part of power generation in many developing countries where we operate that we do not think it is the right thing, from a social or economic perspective, to withdraw,” says Daniel Klier, HSBC’s head of strategy.

Instead, the bank wants to work with Asian clients to ensure that new-build power generation plants are the cleanest possible, and to work with investors in those markets to development renewable energy resources. 

Digital Journal article
Green finance risksHowever, Ivan Draganov, a commentator on The Market Mogul, warns financial services firms against the practice of ‘greenwashing’, which he describes as “allocating resources to small green projects, while continuing to increase investments in large fossil fuel projects”. This can, he says, lead to reputational damage. 
The value of the green bond market, according to the Climate Bond Initiative

He cites the example of a European oil company, whose green bond was excluded from listings by major bond index providers because it was issued to finance energy efficiency upgrades to its refineries. 

Draganov advises investors to check the green label – for example, Climate Bond Initiative certification – and seek second party opinion before investing in green assets to avoid inadvertently being associated with greenwashing. 

In a broader comment piece on the overall risks associated with green finance, Draganov also warns of the creation of a bubble as high demand for green assets leads to products being overvalued. As with previous finance bubbles, such as the dotcom crash, a bursting of the green finance bubble could trigger another crisis, he explains.

Despite the risks, Draganov suggests that green investments – particularly green bonds – are a powerful tool for investors to help mitigate the negative effects of climate change.

The Market Mogul article

Seen a blog, news story or discussion online that you think might interest CISI members? Email jake.matthews@wardour.co.uk.
Published: 10 Nov 2017
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