GREEN BONDS -MATERIAL PELATIHAN GREEN FINANCE.pdf

Green Bonds

1. Green Bonds and ESG
GREEN INVESTMENT FOR SUSTAINABILITY
Optimal Financial Terms for Green Bonds
Louis Cheng (Nov 24, 2020)

2. 01
Special Features
01
02
03
Introduction of Green Finance
Understand Green Bond and its development
Linkage between Green Bonds and ESG

3. 02
YoumayhaveheardofGreenFinancethesedays.Butdoyouknowwhatdoesitmean?Actually,“Greenfinance”canbeunderstoodasfinancingof
investmentsthatprovideenvironmentalbenefitsundertheideaofsustainabledevelopment.Thesebenefitsincludereductioninairpollution
reduction,waterpollutionandlandpollution,energyefficiencyimprovementandclimatechangemitigation.Greenfinanceisaboutinternalizingthese
externalbenefits.Itenhancesenvironmentally-friendlyinvestmentsandreducesharmfulones.
1.Introduction of Green Finance
1.1 Green Finance DefinitionGREEN
FINANCE
Sustainable
Development
Air pollution
Waterpollution
Landpollution
Energy efficiency
Climate change

4. Tosatisfygrowingdemand,newfinancialinstrumentsforclimateandenvironmentalprojectsarebeinglaunched.Forexample,greenbondsareissued
aslong-termproductsforraisingmoneyundertheGreenBondPrinciples.Second,banksalsoprovidegreenloansforshort-terminvestmentsunder
theGreenLoanPrinciples.Third,greeninsuranceisalsoattractivebecausetherewillbeacheaperpremiumfortheinsuredwhichisrelatedto
environmentalprojects.Last,GreenInvestmentFundisalsoapopularproductinfinancialworld.TheselectionisbasedontheESGperformanceand
othergreenfactors.
1.Introduction of Green Finance
1.2 Main Products in Green Finance
03

5. 04
In the previous section, we have learned that green bond is one of the main products of Green Finance. But do you know what is it? When a fixed
income instrument is labelled to raise interests for environmental related projects, it is known as green bond. They are usuallyfor the purpose at
energy efficiency, pollution prevention, sustainable agriculture, water management and ecosystems protection. Green bonds areasset-linked and
backed by the balance sheet of issuing entity.
2. Understand Green Bond and its Development
2.1 Definition of Green Bonds
GREEN
BOND
Environmental-related
Projects
Energy Efficiency
Pollution Prevention
Sustainable Agriculture
Water Management
Ecosystems Protection

6. 05
In2007,TheWorldBankcoordinatedwithICMA(InternationalCapitalMarketAssociation)toformthebasisfortheGreenBondPrinciplesandissued
thefirstgreenbondintheworld.TheproceedsofGreenBondswillbeappliedtofinanceorre-financeunderthefourcoreprinciplesofGBP(Green
BondPrinciples).Let’slearnmoreaboutthem.Thefirstoneisabouttheuseofproceeds.Issuersarerequiredtofullydescribetheusageofproceeds
inthelegaldocuments,suchasthesolicitationinstructionstoguaranteethegreenprojectsinvestedwillhaveenvironmentalbenefitscreated.
2. Understand Green Bond and its Development
2.2 Four Principles of Green Bonds
Principle2isprojectevaluationandselection.Issuersshouldoutlinetheelementsforevaluatingtheeligibilityoftheprojects,includingtheprocess,
criteria,andenvironmentalsustainabilityobjectives.Principle3ismanagementofproceeds.Theallocatedproceedsshouldbemanagedinasub-
accountorasub-portfoliowithaformalinternalprocesswhiletheunallocatedproceedsshouldhavetheinvestmentsdisclosure.Principle4refersto
reporting.Itmeansthatbothuseofproceedsandimpactshouldbecoveredinthereport.
1
Use of Proceeds
-describe the usage of proceeds in legal documents
2
3
4
Project Evaluation and Selection
Management of Proceeds
Reporting
-outline the elements for evaluating the eligibility
-manage proceeds in a sub-account/sub-portfolio
-disclose investments for unallocated proceeds
-report the use of proceeds and impact
2007

7. 06
Inrecentyears,thegreenbondmarkethasbeendevelopedrapidly.Anewrecordwasmadein2019forglobalgreenbondissuancewhichachieved
USD257.7billion.Theamountincreasesbyahalfonthefinal2018figure(USD170.6billion).Thevolumein2019wasdrivenbytheEuropeanmarket,
accountingfor45%ofglobalissuance,whichisfollowedby25%inAsia-Pacificand23%inNorthAmericanmarkets.Thetotalamountofgreenbonds
issuedinEuropein2019wasincreasedbyalmostthreequarters(orUSD49.5billion)year-on-year.Moreover,theUSA,ChinaandFrancetoppedthe
countryrankings.Togethertheyaccountedfor44%ofglobalissuancein2019.USissuerscontributedUSD51.3bntothetotal,whereastheirChinese
andFrenchcounterpartsbroughtUSD31.3bnandUSD30.1bntomarket.
2. Understand Green Bond and its Development
2.3 The Development of Green Bond Market
Others
7%
Green Bond Issuance Distribution by Continents
2018 2019
RAISED
2018 2019RAISED
Asia-Pacific
25%
European
45%
North
American
23%
Data Source: Climate Bonds Initiative. (2019). Green Bonds Global State of the Market 2019.Accessed on,8(14), 2020.

8. 07
ThelinkagebetweengreenbondsandESGcanbesimplyillustratedbytheGreenBond-ESGInvestmentLoop.Afirmwhoissuesgreenbondwould
enhanceitsESGratingthroughtheimprovementoftheEsub-score.InvestorsandanalystswhobelieveinapositiverelationshipbetweentheESG
ratingandstockpricevaluationwillinvestmoreinthisfirm.WhenESGinvestorsincreasedemandforthefirm,financialmeasuresofthefirmsuchas
liquidityandshareholder-basediversification,willbeimproved.Suchfinancialbenefitswouldleadtostrongermotivationtoissuemoregreenbonds.
Inshort,suchagreenbond-ESGinvestmentloopprovidesvaluableinsightforseniormanagementofcompaniestoengageingreenbondissuance.
3. Linkage between Green Bonds and ESG
3.1 Green Bond-ESG Investment LoopGreen Bond Issuer
Improvement in
ESG*performance
ESG Investor
Issues a green bond (green effort)
→ A?racts new fixed income investors
with climate focused preferences
Positive signal to
existing ESG investors
Stimulates new equity demand
→ Mo?vates firm to issue
more green bonds
*ESGstands for:
Environmental, Social
and Governance

9. 08
Intherecentyears,theAsianInfrastructureInvestmentBank(AIIB)andAsianDevelopmentBank(ADB)haveissuedgreenbondsandalsosocialbonds
whichrespondtotheCOVID-19.ThesebondsaimatprovidingfinancialneedsfordevelopingcountriestofighttheeconomicimpactofCOVID-19.This
exampleimpliesthatGreenbondsarenotonlyforenvironmentalprojects,butalsohelpwithsustainablelong-termprojectsunderthesocialaspectof
ESG.
3. Linkage between Green Bonds and ESG
3.2 Green Bond Benefits to ESG
COVID-19 Social
Response Bond
ENVIRONMENTAL
SOCIAL

10. Review of key points
09
Credits:
This presentation is authored by Louis Cheng, PolyU
produced & designed by CHAU KaMing
Green Bond and ESG
ThankYou!
GreenFinance concepts
Current development of Green Bond market
Relationship between Green Bonds and ESG