Setting the standard for green bonds
15.04.2016 | CSR
On the fringe of COP21, 27 global investors, including BNP Paribas Investment Partners, cosigned the “Paris Declaration”. With this declaration, these major financial institutions have recognized the role they can play in financing the energy transition by investing in green bonds. They have also called for the creation of standards to ensure that these bonds can effectively finance the fight against climate change.
Bonds declared “green” by the issuer
Green bonds are assets that serve to finance environment-friendly projects. Representing nearly $37 billion worldwide in 2014, the market is still growing today.
To put that in perspective, 27 global investors, including BNP Paribas Investment Partners, together representing some $11.2 trillion of managed assets, cosigned the “Paris Declaration on green bonds ” in December 2015.
Mindful of the major role the financial sector can play in the fight against climate change, these large investors are now calling for a global standard to govern green bonds. As it stands, no process yet exists to prove to investors that a green bond actually contributes to fighting climate change, since it is still up to the issuer to qualify their bond as “green”. In this context, BNP Paribas Investment Partners has developed its own strict methodology to identify bonds that have a strong potential to curb global warming.
A single standard to bring clarity to the market
Of course, several standards already exist or are now in development. Organizations like the Climate Bond Initiative (CBI) and the Global Real Estate Benchmark (GRESB) have also proposed sector-based directives to identify projects eligible to receive green bonds.
But today, each standard applies its own criteria. Far from reassuring investors, that lack of consistency has made the market a murky place, slowing, instead of promoting, growth.
Adopting a single standard would make it possible to:
- Compare projects supported by green bonds
- Set clear and ambitious objectives
- Ensure that bonds achieve their expected benefits, by setting up an independent audit of sums dedicated to financing projects and their actual results
In December 2015, a work group composed of 11 international development agencies including the World Bank, the French Development Agency and the European Investment Bank worked together to establish a consistent framework for measuring the impact of funds dedicated to energy efficiency and renewable energy projects. This framework represents the first step towards harmonizing standards and protecting the integrity of green bonds.
BNP Paribas Investment Partners reaffirms “green” commitment time and again
By signing the Paris declaration, BNP Paribas Investment Partners recognizes the importance of green bonds as a crucial tool for allocating assets in a way that is more in tune with the risks and opportunities tied to climate change. The asset management company is taking steps in this direction through its “2°C” strategy.
In this way BNP Paribas Investment Partners, already committed to promoting a low-carbon economy through its membership in the Portfolio Decarbonization Coalition, became the first major asset manager to sign the Montreal Carbon Pledge in May 2015. It later published carbon footprints for its different equity funds through its “Parvest” line.
BNP Paribas Investment Partners also reinforced its commitment policy by joining forces with other investors as part of the Institutional Investors Group for Climate Change (IIGCC), MIC and PDC, in order to encourage businesses to fully and transparently divulge their carbon footprints, and eventually their strategies for shifting to an economic model in line with the 2°C limit. The primary objective here is to start a dialogue.
At the start of 2016, BNP Paribas Investment Partners released FOOD, a publication produced in partnership with Yann Arthus-Bertrand’s foundation GoodPlanet and focused on the critical challenge of feeding the world. The company previously published AQUA (on the challenges of access to water), CLIMAT[e] (climate change) and VILLAGE (focused on housing).