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The World's First Green Bond - YouTube
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climate change poses the greatest threat
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to humanity the effects of climate
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change can set back decades of progress
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in the developing world just the scale
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of the issues unsettling environmental
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shocks will become more extreme and more
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frequent no single government or
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institution can solve this problem alone
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we are the last generation that can out
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of the course of climate change and we
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require investment on a scale we have
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never seen before
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at that time to make a sustainable
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portfolio was to exclude companies not
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to invest in green projects and that
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strategy we didn't believe in that
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strategy we wanted to have inclusion of
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good companies and also investment in
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green projects there were growing
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discussion about climate change and
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global warming and things like that but
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it was very difficult for us really to
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find something to invest in that had to
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do with that at that time we had mostly
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Swedish government bonds and mortgage
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bonds and we were looking for other
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alternatives for the supply of
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interesting investment opportunities in
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the sustainable area was very limited so
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we were looking for something more
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liquid something easy to understand
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something credible coming into 2006 2007
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we had a situation where one a lot of
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people were talking about global warming
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we also had a situation where
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governments didn't need to borrow money
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so the combination of investors being
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willing to contribute to a better
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society together with the lack of
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government supply base the made me sit
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down and draft an idea about what could
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be done to engage institutional
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investors in at that time global warming
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I went out to a number of investors
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first and those who missed the soil was
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a great idea and with certainty that I
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had their support I then went to the
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World Bank and said this is something we
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have checked with time they interested
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what happened was a combination of us
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coming up with our environmental
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strategy the Intergovernmental Panel on
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Climate Change with very strong warning
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that we have to change the way we live
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and Mother Nature through catastrophic
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disasters telling us it is time to act
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that mobilize the bank to provide to the
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investor community a product they can
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use to vote green so we were approached
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by Scandinavian investors who came to us
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through their bank sed they were looking
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for products in all asset classes but
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somehow addressed the challenges of
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climate change and they had products and
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many of the other asset classes but not
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for fixed income SCB knew that the World
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Bank finances climate change mitigation
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and climate change adaptation projects
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but we financed that through fixed
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income products so for the Scandinavian
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investors it was it was perfect because
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they were looking for a product that
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supported these types of projects but
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that I didn't have a project risk or
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specific country risk and that had the
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same financial characteristics as other
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products they were familiar with we had
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a very constructive dialogue and I think
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within a month the World Bank came back
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and said and I think especially because
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investors had agreed to that this was a
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great idea agreed to go ahead and
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develop a product which enabled
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investors not only to invest but to
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invest inside their traditional normal
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mainstream benchmarked portfolios which
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was as I see it the big change to
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everything that came before that they
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didn't have to have a special view with
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this kind of investment
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the labeling and the process around this
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and the interaction with investors and
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the design which was very very simple
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enabled and allowed institutional
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investors to engage in a way they're not
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engaged before we had never launched a
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product with dedicated funding so this
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was new for finance and at the same time
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we had this climate strategy so it was
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it was like perfect timing the financial
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community and the scientific community
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tend to operate in two different spheres
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and this was from my understanding the
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first connection between these two
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worlds and so we had to learn how to
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communicate with each other using two
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different languages in a financial
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vocabulary and research oriented
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vocabulary and try to understand what
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the other party needed and my colleague
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Knut Alison took the took the chance to
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write that first second opinion and it
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was the first time that we at Cicero had
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ever done anything like that I think at
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that point we had no idea where it was
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going so to be involved in the first
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green bond was a bit of a surprise of
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course and we thought well maybe this is
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a one-off activity so that it's an
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interesting project we're connecting
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with investors for the first time and
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with banks and we're learning what they
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are interested in and we're learning
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what we can communicate to them but I
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think what we didn't know is how many
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times we would replicate this and grow
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and evolve our methodology as the market
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evolved when the World Bank issued the
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first green bond they set up a model for
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how green bonds should be done in terms
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of best practice and that was a
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foundation for establishing the green
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bond principles and several banks were
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involved in establishing these voluntary
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guidelines for the market that later
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came to recommend independent reviews as
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well as set up some guidance on
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transparency
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climate risk is now a financial risk
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transparency is important for investors
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in order for them to better understand
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the climate risk exposure to their
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investments and that was the second
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opinion
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gives them more transparency on this
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risk impact reporting has been very very
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important since the very beginning of
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the green bonds but it's been an
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iterative process the World Bank is very
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fortunate because they already collected
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and still collect a tremendous amount of
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data on all of their projects and as
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projects are measured through their
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implementation the performance against
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those performance indicators is updated
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now through that learning process I
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believe that the World Bank has
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definitely shaped impact reporting
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throughout the financial community and
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that impact reporting is a real value
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added a form of accountability that
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issuers give to their investors and that
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investors can then give to their clients
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to show that this is where your money
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has gone this is what it's doing this is
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the progress we're making you had this
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positive investment in projects that
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really did something meaningful against
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climate change and you had an
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independent second opinion on the
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climate criteria also an impact
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reporting afterwards so really couldn't
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be quite safe that was our money that we
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invested in is born who do something
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meaningful in the battle against climate
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change
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before that we all worked in silos and
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the environmental officers knew
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everything about the environment the
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financial officers knew everything about
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finance but the interaction which
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allowed the financial officers to give
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the input to how our environments should
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be done and the the environmental
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officers they understood the financial
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crisis probably is the big achievement
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of this interaction with with this with
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this product what we see has happened in
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the market is that green bonds have
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catalyzed a change in investor behaviors
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they want to know where their money's
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going but not only for labelled bonds
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that they're buying so not only from
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green bonds or for social bonds or
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sustainable bonds but they're asking
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questions about everything they
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investing and I think that's going to be
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the capital markets of the future I
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believe that the types of lessons that
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have been learned from the green bonds
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in terms of transparency and
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accountability knowing where your money
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is going are lessons that are now being
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transferred to social bonds and now
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being transferred to wider thematic
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bonds I truly hope that this expands but
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I hope that in the world economy in fact
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grows beyond the question of thematic
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bonds and that fact all fixed income
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investments are measured in these ways
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my utopian future from a climate change
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research perspective is that all
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financial decisions are taking into
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account climate risk right now green
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bonds are less than 1% of the total bond
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transactions and we can see a lot of
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growth there in terms of different types
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of sectors different issuer types and
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different regions so I hope in the next
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few years that the bond market continues
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to scale up and that we can continue to
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provide increased transparency and a
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connection between the climate science
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and financial decisions
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you
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