Anne-Charlotte Eliasson, head of European fixed income listings at Nasdaq, said the launch of the Nasdaq Sustainable Bond Network should boost the growth of the green bonds market by increasing transparency.
Nasdaq Nordic launched the Sustainable Bonds Market in 2015 to make the segment more visible. The market had 222 listed instruments valued at €13.5bn ($15bn) at the end of last month and the number of issuers has doubled this year to 66. At the end of 2018 the Sustainable Bonds Market had 149 listed instruments valued at €8bn.
Despite the growth of the sustainable bonds market investors have been concerned about “greenwashing,” i.e. that issuers say they use proceeds for sustainability purely to boost their image.
Eliasson said: “Investors wanted to follow-up on the use of proceeds for sustainable bonds and climate impact reporting. In addition, reporting has not been standardised so it has been difficult for investors to make comparisons between issuers.”
As a result the exchange has launched the Nasdaq Sustainable Bond Network (NSBN).
“We will add the individual use of proceeds reports to an online database and allow for structured reporting to simplify comparability,” Eliasson added. “The scheme is voluntary as we expect investors to incentive issuers to participate.”
She continued that Nasdaq is using the environmental, social and governance knowledge built up in the Nordics to kickstart reporting in the US and other regions as this is a global initiative.
Bjørn Sibbern, executive vice president and head of European Markets at Nasdaq, said in a statement: “Built on the expertise we have gained building our European sustainable debt markets and our ESG Data Portal, this launch marks the next phase in our ambition to increase access and transparency around sustainable bonds to issuers and investors across the globe.”
Issuers can input their sustainable bonds and framework documents; allocation/impact reports; and impact metrics; and the data is disseminated through Nasdaq’s market data feeds.
“Greenwashing is easy when there is not enough transparency and reporting is in the form of unstructured data,” said Eliasson. “We hope to have cracked the code on how to increase transparency, which should boost the growth of the green bonds market.”
A global advisory board, which includes public and private investors, issuers and expert organizations will help Nasdaq continuously develop NSBN.
Bram Bos, lead portfolio manager green bonds at NN Investment Partners, said in an email that transparency is important as new sustainable labels such as “transition bonds” or “ESG-linked bonds” have started to emerge.
“However, due to their poor transparency, traceability and reporting on the use of proceeds, NN IP believes this new concept increases the potential for greenwashing,” he explained.
Bos continued that Dutch fund manager NN IP already regards green bonds as transition bonds and the new label could open the door to sectors, companies and activities that are brown, and likely to remain brown, to issue in the sustainable space.
“Overall NN IP has a strong preference for the use-of-proceeds concept as applied to green bonds,” he added.
Green bond volumes
Green bond volumes in the Nordics were 12% of total bond issuance this year, versus 5% globally, according to Eliasson. She said: “In the long run green bonds will become the new normal.”
For example, this month S&P Global Ratings expanded its Green Evaluation, which represents an external review and second opinion under the Green Bond Principles, to include agriculture, forestry, and waste in collaboration with sister company Trucost. The ratings agency launched the Green Evaluation in April 2017 and it has been applied to 47 green transactions in the public domain representing more than $37bn of evaluated debt.
Michael Wilkins, head of sustainable finance, analytics and research at S&P, said in a statement: “By expanding the scope of our Green Evaluation, we are offering the market a means to establish the environmental benefit of such investments, not only in their own right, but against others within the sustainable finance space.”
Green bonds issued for sustainable agriculture and forestry grew over thirtyfold to $7.4bn last year from $208m in 2013 according to S&P. However the ratings agency continued that issuance is still small relative to other sectors such as renewables, energy efficiency, and clean transport.
Beth Burks, associate director, sustainable finance at S&P, said in a statement: “In time, we hope this will help support issuers and investors to direct more capital to these increasingly important sectors.”
Bos said 2019 is going to be another record year for new issuance, as the global green bond market surpassed €500bn at the beginning of this month. He expects the market to continue to grow as investment increases in innovation, clean energy and smart cities.
“Corporates will lead this growth, but more sovereign issuers will also launch their green bond programs in 2020,” Bos added. “By the end of 2020, we project the global green bond market to have reached €800bn.”
NN IP said this is the second consecutive year that corporate issuers have dominated with more industrials, communications and technology issuers launching inaugural green bonds. “The first insurance companies also came to the market, while PepsiCo expanded the relatively small consumer non-cyclical green bond sector,” added the fund manager.
In addition cumulative certified green issuance under the Climate Bonds Standard reached $100bn this month. The Climate Bonds Initiative said was a significant market milestone for the international assurance scheme established by the non-profit organisation for investors in 2011.
“Certified green bonds and loans have been issued by over 100 organisations from over 30 nations across 21 currencies, shaping the direction of global green finance markets in both developed and emerging economies,” said the Climate Bonds Initiative.
Sean Kidney, chief executive of the Climate Bonds Initiative, said in a statement: “Through the Standard we have established robust approach to transparency, disclosure and assurance, anchored firmly to climate science as best practice for both green debt issuers and institutional investors. Our collective challenge is to now embed these foundations in every financial market and place them at the core of new climate change investment models which we require in facing the climate emergency.”
The Climate Bonds Initiative expects green bond issuance to reach $250bn this year, 47% higher than the $170.9bn issued in 2018.