Green Bonds: Investment Trends and Best Practice Guidance for Issuance

July 15, 2019
Sanjay Ramdhonee


The ‘Green Bond’ or ‘Climate Bond’ sector of the energy market is accelerating rapidly and is on course to reach a new high this calendar year, with issuance of green bonds already passing the $100 billion milestone for the first half of 2019. Furthermore, with the Climate Bonds Initiative targeting green finance investments reach $1 trillion by the end of 2020, the growth curve looks set to continue on an exponential trajectory.

It may seem implausible to go from a few hundred billion dollars to a trillion dollars in the space of a year. However, when one considers that green bonds have snowballed from a $2 billion to a $200 billion plus-size market in under a decade, the figure seems much more attainable. On top of that, as a component of the overall bond market, which is valued at around $90 trillion, green bonds have exposure to an enormous amount of potential investment capital. Aiming to obtain a little more than 1% of the investment in that market, as it stands, is eminently achievable.

Regardless of the overall context of the market and whether the $1 trillion target is met, the figures alone are proof enough that green bonds can no longer be considered a niche area. Today, their rapid proliferation can be explained by the eclectic mix of entities issuing them – from educational powerhouses, such as MIT, to the Chinese government.


The rise in green bond issuance demonstrates that the increased interest in renewable energies and mitigating emissions is beginning to attract global attention. The key driver behind climate bond growth is, of course, the financial community recognising a change in the zeitgeist – a seismic shift impacting the political and public conscious, based on a tipping point in awareness and acceptance of the impacts of climate change having been reached.

Political examples include the creation and ratification of the Paris Agreement (2015/2016), and the Intergovernmental Panel on Climate Change (IPCC) ‘Special Report on Global Warming of 1.5 °C (SR15)’. The latter, published in late 2018, took a blunt stance on the requirement for radical change in the industry towards sustainability and decarbonization.

Examples in wider society are many: the impetus provided by teenage activist Greta Thunberg; and the UK’s schoolchildren taking to large scale street demonstrations being just two of a host that have received extensive publicity.

Combined, the financial community, international political agreements and public engagement are creating somewhat of a virtuous circle – feeding each other’s interests and making the investment landscape for green bonds a very attractive one.

Increased Issuance Not Restricted to Developed Markets

In its ‘Emerging Market Green Bonds Report’ (2018), the International Finance Corporation documented the growth of issuance in developing markets. In nations such as South Africa, Brazil, China and beyond, the value of green bonds issuance is anticipated to increase to between $210 billion and $250 billion by 2021.

Medium-sized investment opportunities are abundant. In March 2019, for example, Access Bank issued a $41.8 million bond in Nigeria to support the development of water infrastructure and solar power. Nedbank, meanwhile, issued bonds worth $116 million in South Africa for wind and solar projects.

*ADVICE FOR INVESTORS: Consider a broad range of geographies. A number of developing economies also present opportunity.



The pulls towards green bonds are leading to significant oversubscription when solid investment opportunities arise. Desire to invest currently outstrips the available high-yield opportunities in the market. In larger markets, the Russian Railways green bond was recently oversubscribed, with an order book of $1.8 billion, having sought to raise $500 million. At the end of June 2019, Hannon Armstrong, the American financer of sustainable projects announced it had received orders for $1.2 billion, when looking to raise $350 million in green bond sales.

Again, this extends beyond European and American markets into emerging markets, such as the Federal Government of Nigeria’ second sovereign Green Bond being oversubscribed by N17.93bn.

With the witnessed oversubscription, traditional methods of expecting to fund at 70% debt are highly achievable.

As one Expert told us,

“Average oversubscription is 2.9x for green bonds, and 3x for vanilla bonds, with final pricing average -11bps than IPT, compared to the market average of -13bps. For USD average oversubscription is 2.7x for green bonds, and 2.2x for vanilla bonds with Final pricing average -13bps than IPT for both green and vanilla bonds.
This highlights the significant investor interest.”
ESG Expert Expert Bio Expand

Expert Bio:
• Almost 20 years in sustainable finance, buy side and sell side research & products, and in academia.
• Teaches modules in sustainable / green finance at University of Zurich, Henley Business School.
• Co-published various green bond reports and papers, e.g. UK Green Finance Initiative’s Report on “Turning Green Momentum into Actions, and Sustainable Stock Exchanges “Green Dialogue”.
• Developed Green Bond assessments / verifications for ESG research and rating houses incl. MSCI, ISS-oekom.
• Supported Green Bond structuring of SPVs for infrastructure and real estate firms.
• Contributes to IIF / IMF’s, CEPS/ECMI’s sustainable finance working groups as an observer and contributor to intl. reports.
• Teaching the regulatory supervisory authority, FCA, in UK each year on Green Finance (Since 2016).

Simply provide your details, to get connected to this Expert.


From here, underwriters, or similar entities offering the security can adjust the price or offer more securities to reflect the higher-than-anticipated demand. The former though can risk investor relations if they feel taken advantage of, equally the latter has issues of its own since you have now issued more debt.

*ADVICE FOR ISSUERS: Review the market to ensure the returns you are offering are competitive, whilst remaining within deliverable limits.

*ADVICE FOR INVESTORS: Obtain Expert opinion to get the story behind the data and find the value in the market.



However, along with doubtless opportunities, this exponential growth curve is causing increasing investor pressure, as regulation and administration struggle to maintain pace with the market. The need for a new green bonds framework, improved regulation and securitization are all felt more strongly as the investment volumes multiply. Lack of authority and accountability on what is defined as a Green Bond has garnered critics.

Current Issuance Best Practice


“It should be noted that to attract investors the bond issue needs to be substantial. The larger the issue, the greater the likelihood of success. I would not recommend for less than £100 million issued.”
Corporate Development Strategist  Expert Bio Expand

Expert Bio:
• Launched bonds in the UK and in Europe.
• Currently working on two green bond issues one is to be listed on the Vienna exchange and the other on the LSE.
• Detailed knowledge and understanding of the renewable and sustainable energy market (numerous technologies experienced).
• Detailed knowledge of financial structuring (having been a director of a UK bank and CEO of one of the largest lenders in the UK) and corporate finance.
• Detailed knowledge of the bond market (emphasis on Green bonds) listed and unlisted.
• Detailed knowledge of the IT sector (currently a director of a major IT business communications IT company and having listed previous companies on the US markets).
• In depth knowledge in corporate finance.

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Another Expert of ours reaffirmed the implications of bond size, “small and nascent markets, with small bond sizes may suffer from illiquidity.”

*ADVICE FOR ISSUERS: Two Pangea SI Experts both pointed to the size of issue as crucial to a bond’s chances. Carefully compare your plan with success stories from the market. If you are not planning on issuing a large amount of bonds, find out from green bond Experts how to achieve an alternative competitive edge.



Since 2014, the Green Bond Principles (GBP) have been something of an arbiter of what makes a green bond worthy of the label ‘green’. These principles – Use of Proceeds; Process for Project Evaluation and Selection; Management of Proceeds; and Reporting – represent the key information that needs to be disclosed and should represent a template for action.

Still, while GBP define what a green bond should disclose, they are merely “voluntary process guidelines” at present. Such has the increasing demand for green bonds risen over the past decade, the temptation to bypass the Green Bond Principles is often overwhelming, due to the ease and speed advantage of doing so. Particularly when taking into consideration the more lenient Environmental, Social, and Governance (ESG) criteria – considered sufficient for many investors – projection, agenda and reality are often not aligned.

The Climate Bond Standard Board also operates a certification process – integrated with the Green Bond Principles – and is responsible for determining the validity and credibility of any bond. Like GBP, this is simply an option, not a requirement in the current environment.

As our ESG Expert told us: “The fact is, these are plain vanilla FI instruments, with an additional “green” assurance framework.”

Therefore, ‘best practice’ currently falls very much in line with traditional methods, though this is rapidly changing…


Retail bonds, often described as mini-bonds, can be sold in small units e.g. from say 5k and can be sold through the IFA network to “mom and pop” investors, as a result, they gain significantly more regulatory exposure. As a result of companies like London capital (closed by FCA) are very heavily scrutinised. As indicated not only are the listing particulars are harder to get through the UKLA, one also requires a simple corporate structure.

Wholesale bonds are offered only to “professional” investors and institutions, as such, tend to be more complex in their structure; however, with a lower bound investment of 100K, they are less stringently regulated – this makes them well suited to larger listings.

Both routes will cost similar to list on the LSE, though there are a range of other exchanges that can be chosen including Dublin, Vienna, Luxembourg and channel islands to name but a few. Each exchange has its idiosyncrasies and probably the most expensive, while potentially fruitful is LSE as it is seen as the Premier listing.

Navigating a Changing Regulatory Landscape

The regulatory landscape is moving towards catching up with capital flow – and with the likes of climate risk disclosure and EU taxonomy frameworks on the horizon, the grey areas are set to become greener.

“As the green bond market develops and regulations improve, highly specialised independents now have the contextual knowledge to challenge the expensive generalists and banks by providing flexible, customizable and expedient insight.”
Green Bonds Expert and Debt Market Specialist Expert Bio Expand

Expert Bio:
• Worked for over 25 years in the financial markets at C-Suite level and on the Corporate servicing side with powerhouses like BNY Mellon.
• Founder of consultancy in 2015 to provide support for green bond issuers coupled with financial agency services.
• Offers consultancy services for ESG review, Green Bond certification prerequisites, sustainable development goals alignment, independent sustainable directors.

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Other Benefits of Improved Regulation

Rating Agency Validation

Currently, an optional route to market confidence, rating agency validation has positives for issuers in the opinion of Experts we spoke to:
“In order to achieve success one should consider having the bond rated by a recognised rating agency, as many institutions will only purchase ‘investment grade’ bonds.”

There is a perception among some that this is an unfair reality. It is a criticism of a number of ESG related investment areas that rating agencies play it safe by favouring big businesses and countries with high regulatory barriers – reflecting an establishment bias – even if such indicators do not result in greater a level of compliance with the standards they lean on to garner market confidence.

*ADVICE FOR ISSUERS: Be pragmatic about your company size and local market – they may impact investment potential. Borrowed authority in the form of a rubber stamp from a rating agency could be the best way forward, despite certain structural biases in place.


Effective Dialogue Between Companies and Investors

In the near future, issuing green bonds should create more dialogue between borrowers and lenders than the normal process for issuing debt has traditionally done. The logic being that being if a green bond is issued, then a company will have to consistently prove that it is actually green over time. With vanilla bonds, all an issuer has to do is provide agreed returns – the only oversight is financial. With a green bond, there is an obligation to deliver the agreed returns and to communicate regularly that it delivers on its environmental promise, as the ethical element is a significant motivator for many of the investors.

Being prepared to accept oversight throughout the lifetime of a green bond is an important point, according to one of the Expert’s we spoke to for this article:

“Otherwise one opens themselves up to reputational risk if a bond’s green credential are challenged. The lack of standardisation can lead to complexities in research and a need for extra due diligence that may not always be fulfilled. This can cause upfront and ongoing transaction costs from labelling and associated administrative, certification, reporting, verification and monitoring requirements.”


*ADVICE FOR ISSUERS: Have a verification and communication strategy in place to demonstrate to your investors that your bond is meeting its ‘green’ credentials.


Choosing an Exchange

“There are a number of routes to consider and listing can be undertaken on a variety of exchanges. The most senior, therefore the hardest to qualify for – and likely the most expensive – is the London Stock Exchange (LSE). Equally, with that association comes a kudos that undoubtedly appeals to institutional investors. Another positive of the stringent requirements of the LSE is that if one meets its criteria then any exchange can be chosen,” as said by our Corporate Development Strategist Expert.

Furthermore, “The LSE, in common with all exchanges, has its own ‘green principals’, which require an outside (third party) report on the green aspects of the offering. This can be addressed by either using a recognised ‘green’ consultant to undertake the independent report or registering under the “Climate Bond Initiative.”

Summary: Requirements for Continued Proliferation

Green bond initiatives are already raising critical funds to pursue those projects that will make a major difference to the global environment, and the trend for investment in them is gathering momentum at an impressive pace. For green bonds to become a significant component of the overall bond market, appetite to issue and invest now needs to be met by a concerted effort to do the hard work in the background. Independent and self-regulation are crucial to ensuring that green bonds do more than pay lip service to the principles behind them, and continue to build investor confidence.

The Green Bond Principles provide a solid template from which to build effective regulation. In order to meet the $1 trillion target set by the Climate Bonds Initiative, standardisation of certification is of utmost importance. Cutting corners and questionable transparency need to be brought to an end, and that needs to be enforced by one or several independent authorities that follow the same blueprint.
An element of self-regulation is occurring naturally. ‘Green’ is a broad term and it is in the interest of issuing companies to provide clear and concise information relating to their projects. For example, if a project is likely to contribute to natural resource conservation, climate change mitigation, or renewable energies, clear and concise disclosure and demonstration of those credentials improves investment prospects and make the successful issuance of bonds more achievable. This is particularly true as the market anticipates regulation. Investors will not want to have to unpick their involvements in bonds that lose their ‘green’ status down the line.

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