‘awakening’ to the realities of green finance · ‘awakening’ to the realities of green...
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‘Awakening’ to the realities of greenfinanceThe impact of green elitism to efficiency andproductivity potential
David C. BroadstockPresented at: NUS November, 2019 – Singapore; SWUFE December, 2019 –China; UN-ESCAP workshop December, 2019 – Bhutan.Slides last updated: December 13, 2019
Outline for today’s talkIn today’s talk I hope to establish the foundations of a story that will help you position my thinking, and possibly provide anew trajectory to your own.
I. A snapshot reflection on energy finance literature (and gaps)Bibliometric reflection on growth in the literature, and are there gaps to address?
II. Some theoretical conceptualisation - ‘Doing well by doing good’What core ideas do we understand from prior literature?
III. A reflection on the market for green bondsWe can consider this more of a reflection on market interest in green finance
IV. Green-finance as an advanced factor of productionEmpirical focus on Green-finance as an advanced factor of production & the economic performance costs ofclean transport
IV. Wrap-upSome preliminary conclusions will be drawn up with policy implications summarized.
Before we get started... let’s review some big issues.
Before we get started... let’s review some big issues.
Green Finance
I Is something of a nebulous term thatcarries different meaning to differentpeople.
I I like to think of it as the area wherefinance meets with environmentalissues.
I These may be related to adaptation ormitigation, may be driven bygovernment, retail or ‘institutional’investors.
Why is it interesting? There is an intriguingsense in which the utility derived from greenfinance may counterbalance the need forsuperior financial returns.
Energy/green finance literatureSearch for production!
rene
wab
le e
nerg
yen
ergy
energy efficiencyfinancial development
sustainabilityenergy consumption
climate change
economic growthchina
sustainable developmentoil prices
oil price
electricityfinancial crisis
investment
risk management
innovation
forecasting volatility
stock market
environment
finan
ce
efficiency
electricity markets
energy markets
ener
gy p
olic
y
oil
regulation
co emissions 2
financial performance
inve
stm
ents
risk
corporate social responsibility
crude oil
energy sector
infrastructure
natural gas
carbon emissions
ener
gy c
onse
rvat
ion
global financial crisis
hedging
uncertainty
barriers
developing countries
financialization
foreign direct investment
granger causality
growth
india
environmental performance
finan
cing
profitability
russia solar energy
speculationbiof
uels
co emission 2
com
mod
ities
development
energy industry
energy prices
exchange rates
financial analysis
garch
malaysia
rene
wab
le e
nerg
ies
strategy causality
life cycle assessment
real options
south africa
turk
ey
africa
climate policy
energy management
ener
gy s
avin
g
global warming
trade
wind power
biogas
cointegration
commodity marketsdata envelopment analysis
electricity market
energy intensity
finan
cial
mar
kets
governance
greenhouse gas emissions
kyoto protocol
management
mar
ket p
ower
sustainable energy
var
busi
ness
mod
els
climate finance
corporate governance
electric utilities
energy economics
ener
gy fi
nanc
e
energy security
financial transmission rights
futures marketsglobalization
green energy
project financing
business model
carbon tax
com
mod
ity p
rices
economic development
econ
omic
s
electricity pricesenergy transition
environmental degradation
environmental policy
event study
ghg emissions
iran
mon
etar
y po
licy monte carlo simulation
stock markets
structural breaks
wind energy
aust
ralia
case study
clean development mechanism
clean energy
cleaner production
coal
competitive advantage
consumer behaviour
emerging markets
energy derivatives
energy market
germanyindonesia
nuclear power
performance
policy
privatization
project finance
public−private partnership
risk analysis
stock returns
system dynamics agriculture
ardl bioenergy
biomass
circ
ular
eco
nom
y
competition
electricity consumption
energy savings
entr
epre
neur
ship
environmental management
environmental sustainability
fdi
gas
gold
incentives
multivariate garch
natural resources
nigeria
oil market
oil price shocks
optimization
photovoltaic
plan
ning
real estate
regional development
regression
stakeholders
tech
nolo
gytrade openness
urbanization
was
te m
anag
emen
t
win
d
argentina
asset pricing
bank
s
benchmarking
biofuel
brazil
capital structure
capm
carbon pricing
cash flow
cdm
corr
elat
ioncrisis
demand response
economic analysis
economy
ener
gy fu
ture
s
energy performance contracting
eu
feed−in tariff
financial sector
fiscal policy
housing
industrial policy
nuclear energy
pakistan
panel data
photovoltaics
political economy
pove
rty
renewable energy sources
resource efficiency
resource management
saud
i ara
bia
sensitivity analysis
smart grid
subsidies
sustainability reporting
sustainable growth
technology diffusion
44,721 papers on the economics ofenergy, of which 2,973 related toenergy finance (finance in title, abstractor keywords)
I The literature is quite heavilyfocused on renewables - drivenby more recent work.
I I like to think of it as the areawhere finance meets withenvironmental issues.
A lack of focus on productivity Yetthere is a genuine lack of work on‘cleaner production’.
There is a strong and stable growth in research in this area
1959 1975 1980 1985 1990 1995 2000 2005 2010 2015
050
100
150
200
250
300
350
Papers in energy finance
Var1
Fre
q
Prior to 2006
I Research was pacingalong smoothly -primarily focused onclimate finance fordevelopment needs.
I More recently there isa sustained upwardgrowth in relatedliterature.
Financialization orsomething else? The uptickcoincides with oil marketspeculation, and is dampenedby the global financial crisis.
And a surprisingly wide co-authorship networkBut maybe this is due to development economics rather than ‘modern’ notions of energy finance
A global topic
I Authorship networksare expansive.
I Europe and the USappear to be thegeographic centers.
Is China stronglyrepresented? There areexciting developments inChina, yet cross-bordercollaborations are seeminglyless ‘popular’.
US and UK based scholars dominate publication numbersChina also has a strong presence, yet room for more work
United StatesUnited Kingdom
NAChina
Germany
Aus
tral
iaItaly
Russian Federation
FranceIndia
CanadaSpain
Brazil
Malaysia
Netherlands
Turk
ey
Indonesia
Norway
Taiwan
Japan
Greece
Iran
South AfricaSwitzerlandUkraine
Finland
Portugal
Nigeria
Sw
eden
Pakistan
Romania
Tunisia
Hong Kong
Bel
gium
Austria
Lithuania
Saudi Arabia Ireland
PolandDenmark
MexicoSouth Korea
New Zealand
Hungary
Slovenia
Tha
iland
Colombia
Czech Republic
Uni
ted
Ara
b E
mira
tes
Singapore
Vie
t Nam
Slovakia
Chile
Kazakhstan
Qatar
Serbia
Israel
Kenya
Latvia
Ecuador
Cyprus
JordanLebanon
MoroccoEstonia
Tajikistan
Kuwait
Argentina
Cro
atia
Ghana
Bangladesh
Cos
ta R
ica
Egypt
Oman
Palestine
Philippines
Bah
rain
Jam
aica
Bel
arus
Bosnia and Herzegovina
Botswana
Bulgaria
Ethiopia
Iceland
Luxembourg
Senegal
Uganda
Cub
a
Gua
tem
ala
Mac
ao
Macedonia
Mon
tene
gro
Namibia
Russia
Sri Lanka
Albania
Brunei Darussalam
Cameroon
Dominican Republic
Eritrea
Iraq
Libyan Arab Jamahiriya
Malta
Mauritius
Nepal
Peru
Rwanda
Tanzania
Venezuela
Author-paper counts:
I In terms numbers of authorsfrom given countries, the USdominates amont more than 100countries
I The UK takes an interestinglydominant role - consistent withlocal efforts to supportGRI/PRI/SRI through the likesof CBI
Citation adjustments matter though:I will at some point re-build this withcitation-adjusted country weights.
A bigram from abstracts in energy finance
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carbon
clean
climate
crude
developing
econjournals
economic
electricity
emerald
empirical
energy
environmental
financial
fossil
gas
global
granger
green
greenhouse
life
limited
natural
oil
paper
policy
power
practical
private
publishing
purpose
renewable
reserved
results
rights
risk
south
stock
supply
sustainable
taylor
time
dioxide
emissions
change
countriesdevelopment
growth
prices
consumption
efficiencymanagement
markets
resources
saving
sector
sources
performance
crisis
incentives
market
fuel
fuels
causality
cycle
price
aims
examines
investigates
makers
generation
plants
implications
suggest
africa
chain
francis
series
Orientation
I Arrows show direction ofconnection.
I Darkness of arrows showstrength (frequency) ofconnection.
I At this level of focus, wesee only two core topics.
I Many journals do notrequire keywords in thepast
Zoom in and search me! This isan interactive tool, look all otherparts of these slides - to allowyou to move around and learn thetopic.
Turning to (S)RI - we have only 5 papers
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asset
classical
climate
corporate
disagreement
energy
environmental
financial
firm
futures
global
green
investor
islamic
mutual
oil
refined
responsible
retail
socially
stock
structural
testing
theoretical
pricing
changeprotection
social
payoffs
tastes
firms
measures
sustainability
performance
prices
influence
demand
equity
funds
investing
investment
investments
investors
market
breaks
approach
underpinnings
Responsible investment isunder-researched
I Given the globalimportance of responsibleinvestment to investors,there is a distinct lack ofresearch on the topic
I in fact only 5 papers referto ‘responsibleinvestment’ of any type
Corporate finance or energyfinance? The literature here alsoseems to focus onfirm-performance rahter thanfinancial outcomes - so room forgrowth it would seem
So a simpler wordcloud holds more value...
financialperformance
green
envi
ronm
enta
l
responsibleenergy
oilfirms
funds
investmentsinvestorsmarket
paper
disa
gree
men
t
global
investment
modelsprices
rese
arch
well
analysis
can
climateinvesting
islamic
longrun
mar
kets
measuresmutual
socially
sri
tastesasset
breaks
change
corp
orat
e
findings
firm
framework
germany
indicators
influence
investor
nongreen
offer
payo
ffs
preferencesrelationship
social
stock
stro
ng
structural
sustainability
theoretical
value
accounting
along
approach
behavior
causality
classical
conditional
consideredconsumption
crude
dea
demand
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empirical
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evaluating
find
futures
germ
an
give
high
inde
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literature
lm
long
may
measure
model
moderate
order
overall
positive
pricing
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propose
proposed
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purpose
refined
rela
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return
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shortrun
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testing
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vola
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addr
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agents
aimed
aims
alpha
alternativeamong
answ
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areas
aspects
asse
ts
associate
association
asymmetry
availabilitybalanced
banks
based
bearingbenefit
betterbidirectional
bio
boom
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bound
bounds
carried
caus
al
causalities
choice
class
co
coherent
comparable
compared
conclude
conduct
confirm
consequently
consider
considers
consists
consumer
cooperative
correction
cost
costs
crisis
curr
ent
data
debate
demonstrates
deriv
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n
describe
desc
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designing
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developed
different
djim
dow
drawback
ease
economic
edge
effect
effects
eg
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elasticityemerald
emer
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emissions
enta
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envelopment
envi
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error
establish
european
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give
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granger
gree
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high
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how
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identifiedillustrate
impact
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implicit
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rtan
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include
indexes
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integrate
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main
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ymak
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produced
proenvironmental
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pronounced
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recentregarding
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relaunch
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An ‘un-trimmed’ wordcloud
I After careful scanning twotopics manifest more obviouslythan others
I Conceptual theories of the roleof green finance are unclear
I The growth of green finance +responsible investment is beingseen as a structural break, notjust a progressive change.
Emerging ideas include thatinvestors/markets now reward ‘socialvalue’ (utility?) yet social value 6=monetary value presenting somethingof a problem to asset managers.
Doing well by doing good: Green finance as an advanced factor ofproduction
Generally speaking, goodESG (CSR)performance reflects ingood corporateperformance, and it doesnot really matter how youmeasure performance
Doing well by doing good: Green finance as an advanced factor ofproduction
But there are limits tohow good one can be,and still create value∗
For firms this gives rise toagency problems whileaggregate economies andcentral planners may havemore freedom toaccommodate this as a‘long run insurancepremium’.
Doing well by doing good: Green finance as an advanced factor ofproduction
There are knowledge spillovers -steps taken in achieving superiorESG performance creates roomfor enhanced exploitative andexplorative innovation to occur
The birth of a financial instrumenthttps://www.environmental-finance.com/content/the-green-bond-hub/green-bond-reporting.html
I In March 2007, the European Union’s Energy Action Plan set ambitious targets in the areas ofrenewable energy and energy efficiency, urging the European Investment Bank to engage in these areas.
I EIB chose to emphasize its commitment via a climate-related capital market product, fostering publicawareness and reaching new investors by issuing the world’s first green bond – a 600 million Euro-dollartransaction labeled a ‘Climate Awareness Bond’ – in June 2007.
I EIB’s Climate Awareness Bond proceeds are earmarked for disbursement to renewable energy andenergy efficiency projects. This aligns with EU policy goals of increasing the share of renewableenergy, enhancing energy efficiency, and achieving greenhouse gas emission savings of at least 40% by2030.
Green Bonds in the news - and the nature of sentimentMonthly aggregates from (unique) 5300 news articles
Positive (blue) and negative (red) sentiment for Green Bonds
Time
Bag
(s)
of w
ords
− fr
eque
ncy
coun
ts
2008 2010 2012 2014 2016 2018
020
0040
0060
0080
00
An exciting market trendHas socially responsible investment finally hit the mainstream?
What is a green bond?The ‘green bond principles’ outlined–initiated in January 2014 by ICMA
Determined by a voluntary coalition of equal numbers of underwriters, issuers & investors (24 in total) ofGreen Bonds, providing ‘best-practice’ guide. Europe & US well represented, less prominence for Asia.
I Principle 1: Use of proceeds Description of use of proceeds should be included in the legaldocumentation
I Principle 2: Project evaluation and selection Issuers should outline the process used in determiningproject eligibility, including the process, criteria, and environmental sustainability objectives
I Principle 3: Management of proceeds Recommends the segregation of funds in a separate portfolio(ring fencing of proceeds) and disclosure of intended investments for unallocated proceeds
I Principle 4: Reporting The reporting should cover use of proceeds reporting and impact reporting
I Principle 5: External review is recommended
The perspective of a ratings agencyWhat are the typical eligibility factors
Let us borrow the S&P view of the world here:
I Disclosure: The issuer must themselves clearly demarcate a bond as being green - which can be donethrough a number of channels
I Country/currency: Any country/currency is viable
I Green Flag: Bonds must be certified green by the Climate Bonds Initiative (CBI).
I Maturity: Maturity must be greater than one month within the rebalancing period - no bond expireswithin the index.
I Coupon type: Various types are permissible including fixed, xero-coupon, step-up, floaters andfixed-to-float.
I Pricing: Bid Price – Thomson Reuters and Securities Evaluations | ICE Data Services are thedesignated pricing sources. Bonds not priced by Thomson Reuters or Securities Evaluations | ICE DataServices are not eligible for index inclusion.
How the definition was refined in Feb. 2017 (regulation related insight)Some additional hurdles
I Currency and Market of Issue: Bonds issued in non-G10 currencies in the native market of thatcurrency are not eligible. Bonds issued in non-G10 currencies issued in global markets (Foreign, Global,Eurobond) are eligible without any specific restrictions.
I Maturity: Each bond must have at least 24 months to final maturity at the time of issuance, in additionto one month to expiry to remain on the index
I Credit rating quality:I New issues: must be rated by rating agency (S&P, Moody’s or Fitch)I Non-rated and Defaulted Bonds: Are removedI Investment grade: Minimum credit rating is BBB-/Baa3/BBB-.I High-yield: Maximum credit rating BB+/Ba1/BB+.
These changes are symbolic of the growing need for global regulations for green finance
Corporate & non-corporate bond issues over time
Table: Coupon rates for green bonds issued by for-profit and non-profit organizations.All bonds For-profit (corporate) Non-profit (non-corporate)N Coupon N Coupon N Coupon
As of November 20192013 9 3.02 3 2.65 6 3.202014 56 2.49 30 2.90 26 2.032015 188 3.39 118 3.95 70 2.452016 175 2.59 102 2.95 73 2.102017 333 3.41 241 3.56 92 3.012018 366 2.73 272 3.04 94 1.812019 404 2.15 309 2.43 95 1.25Sum 1,531 1075 456Mean 218.71 2.83 153.57 3.07 65.14 2.264Energy related2013 8 3.21 3 2.65 5 3.552014 27 2.33 17 2.41 10 2.202015 74 4.13 63 4.33 11 3.012016 66 2.49 41 2.85 25 1.892017 110 3.41 72 2.99 38 4.202018 61 2.68 45 2.93 16 1.942019 48 2.75 34 3.33 14 1.34Sum 394 275 119Mean 56.29 3.00 39.29 3.07 17.00 2.59
Cor
pora
te&
non-
corp
orat
ebo
ndis
sues
over
time
Tabl
e:C
oupo
nra
tes
forg
reen
bond
sis
sued
byfo
r-pr
ofita
ndno
n-pr
ofito
rgan
izat
ions
.A
llbo
nds
For-
profi
t(co
rpor
ate)
Non
-pro
fit(n
on-c
orpo
rate
)N
Cou
pon
NC
oupo
nN
Cou
pon
Aso
fNov
embe
r201
920
139
3.02
32.
656
3.20
2014
562.
4930
2.90
262.
0320
1518
83.
3911
83.
9570
2.45
2016
175
2.59
102
2.95
732.
1020
1733
33.
4124
13.
5692
3.01
2018
366
2.73
272
3.04
941.
8120
1940
42.
1530
92.
4395
1.25
Sum
1,53
110
7545
6M
ean
218.
712.
8315
3.57
3.07
65.1
42.
264
Ene
rgy
rela
ted
2013
83.
213
2.65
53.
5520
1427
2.33
172.
4110
2.20
2015
744.
1363
4.33
113.
0120
1666
2.49
412.
8525
1.89
2017
110
3.41
722.
9938
4.20
2018
612.
6845
2.93
161.
9420
1948
2.75
343.
3314
1.34
Sum
394
275
119
Mea
n56
.29
3.00
39.2
93.
0717
.00
2.59
IU
ntil
now
the
over
allm
arke
thas
mor
eth
an1,
500
bond
sis
sued
,with
cons
iste
ntye
ar-o
n-ye
argr
owth
inth
enu
mbe
rofb
onds
issu
es
IA
roun
dtw
o-th
irds
are
from
corp
orat
eis
suer
s,w
ithco
rpor
ate
bond
sdo
min
atin
gth
enu
mbe
rofi
ssua
nces
sinc
e20
15
IE
nerg
yre
late
dpr
ojec
ts(a
ltern
ativ
een
ergy
+en
ergy
effic
ienc
y)ar
eam
ongs
tthe
mos
tdom
inan
cepu
rpos
efo
rcap
italr
aise
d,th
ough
issd
uanc
esap
pear
toha
vepe
aked
in20
17
Further unpacking issuer type - focus on coupon rates
Table: Summary statistics for bond coupon rates by type of green bonds issuerN (%) Mean Sd Median Min Max Se
Until November 2018Agency 143 (9.97%) 2.46 1.95 2 0 8.12 0.16Corporate 885 (61.67%) 3.3 2.41 3.15 0 11.8 0.08Govt/Treasury/Central Bank 7 (0.49%) 2.95 4.66 1.25 0.5 13.48 1.76Non-US Municipals 38 (2.65%) 1.85 2.56 0.85 0 10.18 0.42Other Gov/Supra 348 (24.25%) 3.09 2.74 2.25 0 11.75 0.15Until November 2019Agency 185 (11.94%) 2.16 1.78 1.88 0.00 8.12 0.13Corporate 1077 (69.53%) 3.07 2.35 2.90 -0.43 15.50 0.07Govt/Treasury/Central Bank 13 (0.84%) 2.31 3.48 1.25 0.00 13.48 0.97Non-US Municipals (2.91%) 45 1.80 2.35 0.97 0.00 10.18 0.35Other Gov/Supra 229 (14.78%) 2.17 2.18 1.60 0.00 11.75 0.14Energy relatedAgency 66 (16.46%) 2.82 2.15 2.26 0.00 8.12 0.27Corporate 275 (68.58%) 3.27 2.30 3.15 0.00 11.84 0.14Govt/Treasury/Central Bank 4 (1.00%) 4.20 6.22 1.42 0.50 13.48 3.11Non-US Municipals 6 (1.500%) 1.38 0.77 0.98 0.68 2.41 0.31Other Gov/Supra 50 (12.47%) 2.73 2.57 2.19 0.00 11.75 0.36
Note: N refer to the number of green bonds issuedThe data in brackets ‘(. . . )’ represent the share of each ofthe different types of bonds relative to the total
Further unpacking issuer type - focus on coupon rates
Table: Summary statistics for bond coupon rates by type of green bonds issuerN (%) Mean Sd Median Min Max Se
Until November 2018Agency 143 (9.97%) 2.46 1.95 2 0 8.12 0.16Corporate 885 (61.67%) 3.3 2.41 3.15 0 11.8 0.08Govt/Treasury/Central Bank 7 (0.49%) 2.95 4.66 1.25 0.5 13.48 1.76Non-US Municipals 38 (2.65%) 1.85 2.56 0.85 0 10.18 0.42Other Gov/Supra 348 (24.25%) 3.09 2.74 2.25 0 11.75 0.15Until November 2019Agency 185 (11.94%) 2.16 1.78 1.88 0.00 8.12 0.13Corporate 1077 (69.53%) 3.07 2.35 2.90 -0.43 15.50 0.07Govt/Treasury/Central Bank 13 (0.84%) 2.31 3.48 1.25 0.00 13.48 0.97Non-US Municipals (2.91%) 45 1.80 2.35 0.97 0.00 10.18 0.35Other Gov/Supra 229 (14.78%) 2.17 2.18 1.60 0.00 11.75 0.14Energy relatedAgency 66 (16.46%) 2.82 2.15 2.26 0.00 8.12 0.27Corporate 275 (68.58%) 3.27 2.30 3.15 0.00 11.84 0.14Govt/Treasury/Central Bank 4 (1.00%) 4.20 6.22 1.42 0.50 13.48 3.11Non-US Municipals 6 (1.500%) 1.38 0.77 0.98 0.68 2.41 0.31Other Gov/Supra 50 (12.47%) 2.73 2.57 2.19 0.00 11.75 0.36
Note: N refer to the number of green bonds issuedThe data in brackets ‘(. . . )’ represent the share of each ofthe different types of bonds relative to the total
I 60-70% of green bonds are issued by corporate bond issuers, and12-25% by other government and supra-national agency
I Between 2018 and 2019, the share of corporate issuers has raiseddramatically
I Fr energy related bonds, there is a higher number of issuances byAgency issuers
Green bonds market structure by major geographic (market) region
Table: Green bonds issued in the Eurobond market, United States and Mainland China (since 2009)Global Eurobond Markets United States Mainland China
Year N Value N Value MarketShare
N Value MarketShare
N Value MarketShare
2009 4 0.76 2 0.32 42.27% 2 0.43 56.79% 0 0 02010 53 2.95 52 2.75 93.23% 1 0.2 6.77% 0 0 02011 28 0.82 25 0.41 50.31% 3 0.41 49.69% 0 0 02012 19 2.17 12 0.96 43.99% 4 0.57 26.02% 0 0 02013 42 11.94 29 3.26 27.34% 8 4.8 40.21% 0 0 02014 133 30.44 72 16.23 53.31% 24 6.67 21.93% 2 0.22 0.71%2015 289 45.48 90 23.53 51.73% 163 15.79 34.72% 0 0 02016 223 77.98 94 31.22 40.04% 43 20.02 25.68% 34 18.04 23.13%2017 357 121.24 128 52.18 43.04% 39 22.23 18.33% 41 12.69 10.47%2018 283 93.14 94 39.05 41.92% 18 9.53 10.23% 31 9.29 9.97%Sum (mean for Mkt. share) 1,435 388.3 601 171.1 44.05% 305 80.64 20.77% 108 40.24 10.36%
Note N refers to the number of green bonds issuedValue refer to the value of green bonds issued in US$billionThe number and value of green bonds in 2018 include only green bonds issued from January to November2018.
Green bonds market structure by major geographic (market) region
Table: Green bonds issued in the Eurobond market, United States and Mainland China (since 2009)Global Eurobond Markets United States Mainland China
Year N Value N Value MarketShare
N Value MarketShare
N Value MarketShare
2009 4 0.76 2 0.32 42.27% 2 0.43 56.79% 0 0 02010 53 2.95 52 2.75 93.23% 1 0.2 6.77% 0 0 02011 28 0.82 25 0.41 50.31% 3 0.41 49.69% 0 0 02012 19 2.17 12 0.96 43.99% 4 0.57 26.02% 0 0 02013 42 11.94 29 3.26 27.34% 8 4.8 40.21% 0 0 02014 133 30.44 72 16.23 53.31% 24 6.67 21.93% 2 0.22 0.71%2015 289 45.48 90 23.53 51.73% 163 15.79 34.72% 0 0 02016 223 77.98 94 31.22 40.04% 43 20.02 25.68% 34 18.04 23.13%2017 357 121.24 128 52.18 43.04% 39 22.23 18.33% 41 12.69 10.47%2018 283 93.14 94 39.05 41.92% 18 9.53 10.23% 31 9.29 9.97%Sum (mean for Mkt. share) 1,435 388.3 601 171.1 44.05% 305 80.64 20.77% 108 40.24 10.36%
Note N refers to the number of green bonds issuedValue refer to the value of green bonds issued in US$billionThe number and value of green bonds in 2018 include only green bonds issued from January to November2018.
I Until Nov 2018, the value of the market was approaching US$400billion, with more than an extra US$100 billion in 2019 pushing thevalue in excess of half a trillion US$.
I The early market structure was dominated by Europe and the US,while in recent years Chinese issuers have taken a stronghold on themarket
I At the same time, these three regions are taking less of the globalmarket in total, meaning that other markets are growing
Bond maturity by issuer type
Table: Characteristics of different types of bonds, Summary statistics according to bond tenor (Years tomaturity)
Mean Sd Median Min Max SeUntil November 2018Agency 16.79 9.73 19 2 28 0.81Corporate 18.63 8.88 21.5 1 30 0.30Govt/Treasury/Central Bank 15.71 10.89 16 2 29 4.12Non-US Municipals 22.58 6.47 25 2 29 1.05Other Gov/Supra 19.39 8.73 24 2 29 0.47Until November 2019Agency 10.91 11.08 10 2 100 0.81Corporate 8.34 30.92 5 2 1000 0.95Govt/Treasury/Central Bank 15.69 9.50 12 5 31 2.63Non-US Municipals 9.13 8.10 6 4 30 1.21Other Gov/Supra 8.02 5.05 6 2 30 0.33Energy relatedAgency 9.76 5.83 10 2 30 0.72Corporate 12.41 60.76 7 2 1000 3.70Govt/Treasury/Central Bank 13.00 11.80 8 5 30 5.90Non-US Municipals 5.50 0.84 5 5 7 0.341Other Gov/Supra 8.70 5.75 7 2 30 0.812
Bond maturity by issuer type
Table: Characteristics of different types of bonds, Summary statistics according to bond tenor (Years tomaturity)
Mean Sd Median Min Max SeUntil November 2018Agency 16.79 9.73 19 2 28 0.81Corporate 18.63 8.88 21.5 1 30 0.30Govt/Treasury/Central Bank 15.71 10.89 16 2 29 4.12Non-US Municipals 22.58 6.47 25 2 29 1.05Other Gov/Supra 19.39 8.73 24 2 29 0.47Until November 2019Agency 10.91 11.08 10 2 100 0.81Corporate 8.34 30.92 5 2 1000 0.95Govt/Treasury/Central Bank 15.69 9.50 12 5 31 2.63Non-US Municipals 9.13 8.10 6 4 30 1.21Other Gov/Supra 8.02 5.05 6 2 30 0.33Energy relatedAgency 9.76 5.83 10 2 30 0.72Corporate 12.41 60.76 7 2 1000 3.70Govt/Treasury/Central Bank 13.00 11.80 8 5 30 5.90Non-US Municipals 5.50 0.84 5 5 7 0.341Other Gov/Supra 8.70 5.75 7 2 30 0.812
I Between 2018 and 2019 data vintages there are some noteworthychanges with an across the board reduction in bond tenor
I What this means is the growth in corporate bond issuances is alsocoming with short project durations
I Energy projects are typically longer duration for corporate issuerswhile shorter duration for other issuer types
Green bonds issued by Hydro power∗ companies
Issuer Name Maturity Principal Currency IssuerType
Issue Date Use of Proceeds Amount Issued(USD)
1 Korea Hydro & NuclearPower Co Ltd
45132 US Dollar Corporate 43306 Acquisition 600,000,000
2 Korea Hydro & NuclearPower Co Ltd
45132 US Dollar Corporate 43306 Acquisition 600,000,000
3 Telekosang Hydro One SdnBhd
45142 Malaysian Ringgit Corporate 43683 2,389,771
4 Scottish Hydro ElectricTransmission PLC
49579 British Pound Corporate 43735 Energy Efficiency 448,735,207
5 Telekosang Hydro One SdnBhd
50623 Malaysian Ringgit Corporate 43683 14,338,630
Without delving more deeply into specific use ofproceeds, it is still clear that green bonds areactively been used to finance renewable energydeployment in the form of hydropower
Empirical benchmarking: Green-finance as an advanced factor ofproduction
I next wish to explore some empirical dimensions of ‘awakened’ economies - are they exploring advanced factors ofproduction and/or
I. Introduction to the meta-frontier conceptExploring productivity in the presence of heterogeneity
II. The productive efficiency of ‘awakened’ economiesAre green financial systems aligned with higher efficiency
III. The marginal product of capital (and labor) in ‘awakened’ versus ‘pre-aware’ economiesDoes resource utilization differ across groups
IV. Evaluating the technology gapMight there be hints of a social cost (possibly even a latent value)
Data used for today’s talkWorking within the following empirical paradigm:
DEA: Y = f (K, L)
‘Error components’ SFA: Y = TRANSLOG(K, L)
I. Thomson Reiters Eikon - Bond data & Climate Bonds Initiative data Global green finance market from 2004∗
II. PENN World tables 9.1 144 countries (unbalanced) data ranging from 2007-2017.
III. MSCI Global ESG data 15,000 global equities approx. covered.
IV. UN Principles of Responsible Investment policy map Global coverage.
‘Awakened’ economies (i) issue green bonds (ii) have MSCI ESG reporting coverage and (iii) have PRI policies in place.
‘Pre-aware’ economies have non of the above.
‘Others’ lie in between.
I. Introduction to the meta-frontier concept
The meta−frontier concept illustrated
Factor inputs
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Metafrontier
Group specific frontiers
Metafrontier
Group specific frontiers
Metafrontier
Group specific frontiers
Metafrontier
Group specific frontiers
Metafrontier
Group specific frontiers
Metafrontier frameworksover an alternative way toexplore systematixhetrogeneity one mayessentially think of it asa clustering tool.
In this case we have threetypes (lower case andupper case letters, andnumbers).
Where would toxic orgreen economies be?
The ‘unconstrained’ frontier model output looks satisfactory
Efficiency across all DMU's
Efficiency level (input oriented)
Fre
quen
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0.0 0.2 0.4 0.6 0.8 1.0
050
100
150
200The first step in working
with (meta-)frontiermodels is of course tocheck the overall groupefficiency scores areplausible.
Working with global data,it makes a degree of sensethat a number ofunique/star exonomiesdefine the frontier, andothers work hard to‘catch-up’.
II. The productive efficiency of ‘awakened’ economies
Efficiency across all DMU's
Efficiency level (input oriented)
Fre
quen
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0.0 0.2 0.4 0.6 0.8 1.0
050
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The toxic of ‘pre-aware’economies have variableefficiency but are morecentrally clusteredbetween 0.4-0.6.
Conversely green or‘awakened’ economiesare more visiblyclustered closer to 0.8-1,and with noobservations in thelower efficiency ranges.
Being ‘green’ enhancescore efficiency.
SFA results qualitatively similar to DEA
Efficiency across all DMU's
Efficiency level (input oriented)
Fre
quen
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0.0 0.2 0.4 0.6 0.8 1.0
050
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200Briefly: The core
structure of the SFAefficiency results areconsistent with the DEAfindings.
This talks towards therobustness of thefindings and the potentialreliability of the marginalproducts of capitaldiscussed in the previousslide.
IV. Evaluating the technology gapThe metafrontiers reveal that ‘awakened’ economies are unable to reach the ‘best’ technology set. Though this patternis not matched in the SFA, which includes time-effects - possibly implying some non-trivial dynamics to further explore.
TEk MTE TGAvg. Max Avg. Max Avg. Max
Bootstrap DEA metafrontier (DCB ‘hybrid’)Green 0.90 1 0.61 1 0.62 0.76Toxic 0.57 1 0.56 1 0.99 1Other 0.62 1 0.59 1 0.91 1Stochastic meta-frontierGreen 0.76 0.99 0.76 0.99 0.77 1*Toxic 0.49 0.97 0.47 0.94 0.51 1*Other 0.54 0.99 0.53 0.99 0.56 1*
So why the increase in demand for SRI even if there is a productivity gap? Perhaps there is an evolving role for thesocial value?
Conclusions I: Opportunities
The evidence, both anecdotal and statistical, points towards a market in transition - yet there are many things we canunderstand
I. A material amount of investment is still neededIt is expected that more than US$1 trillion of investment needed in very narrow time frames (and maybeconsiderably more)
II. Massive inertiaThe global demand for green bonds and socially responsible finance is higher than ever before
III. Proven expertise and interest in green finance in ChinaSince the the latest US administration formed, Asia has a taken more of a leadership role in sociallyresponsible finance - but lacks knowledge/sophistication in knowledge (capacity gap)
Conclusions II: Challenges
I. Lack of single global (legal) regulatory framework is both a risk and an opportunityHarder to know how to begin, yet an opportunity to be the thought-leader.
II. Cross-border governance managementOBOR projects exemplify complex cross-border investments that require careful structuring and createexternal risks
III. Global financial markets remain fairly volatileAre markets on the verge of a crisis, or maybe a bullish period emerging? What are the implications of this tothe demand for bonds? Given the elasticity of demand for transport, would the same ‘risks’ apply here?
IV. Environmental audit becoming an accounting function?Due diligence against the use-of-proceeds requires knowledge and skills not yet in place among businessprofessionals - there is a demonstrable capacity gap, but maybe less so in transport
Conclusions III: Policy priorities
I. Promote liquidity (financial market considerations) - including through product innovationInertia is required, and a proven effective way to achieve this is to created liquidity, especially by openingmechanisms to permit faster turnover of cash investments.
II. Incentivize uptake - highlight infrastructure development opportunitiesTransport falls into two type, local and strategic. Justifying bonds for projects with localized benefits ischallenging, but strategic investments are more viable. The government could consider a white-paper on thetypes of transport projects eligible for alternative investment structures
III. Educate potential users - ‘soft infrastructure’ to be enhancedThere are knowledge gaps about options, but most importantly, appraisal. Skill development must be targetedat existing professionals
IV. Identify, target and eliminate (or maybe utilize) ‘greenwash’Awareness needs to be raised over the risks of greenwashing to both issuers and investors are voluntarilyadhering to responsible investment practices.
