LEDS GLOBAL PARTNERSHIP Annual Event Climate Bonds Deep-Dive Session 29 August 2014 Bethany Speer

Trends In 2014…  $USD 16.6 billion of climate bonds issued as of June; Market expected to surpass $40 billion by year end.  This is three times the volume in Bonds are increasingly being issued in local currencies (Peru, Rwanda) or other foreign currencies (Japan, Australia). “Bond markets…generally start with high grade issuance from public sector bodies, then move on to corporates, municipals and asset-backed…Potential local issuers then become aware of the opportunities, investors slowly develop appetite, and bingo (assuming no disasters) we're away.” - Climate Bonds Initiative Sources: BNEF,

Bond Types 1. Organizational Guaranteed – coupon (interest rate) based on issuer’s credit rating 1.1. Supranational/International ->another key contributor to bond market growth in Corporate self-labeled -> $USD 9 billion in Municipal 2. Asset-Backed Securities and Project Bonds– coupon based on performance of underlying project -> new for climate technologies 3. Dual Recourse Bonds – dependent on issuer’s and underlying project’s performance Sources: BNEF, CBI,

International/Supranational Examples Trends  2013: issuances amounted to $7.1 billion, a 70% increase over  Jan to June 2014, $6.1 billion has been issued will likely see the highest volume yet.  The average size increased by 370%, from $86 million in 2012 to $375 million in Agriculture – Argentina: $40 million facility  Banco Galica will on-lend to agricultural sector players in Argentina to increase their access to finance. Avoided Deforestation – Indonesia/Various: $25 million  Biocarbon (Singapore) has been established to invest in AD projects in emerging markets. Objective is to conserve forests from being converted into other forms of land-use and generate carbon credits (the main source of income) Sources: IFC, 13.pdf?MOD=AJPERES

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Municipal Bond Examples Energy and Transport – Johannesburg SA: $139 million  Johannesburg as a BBB credit rating; 10-year bond priced at 185 bps over 2023 government bond, 1.5x oversubscribed  Will include solar-panel power generation, water heaters, waste- water plants modified to generate electricity, landfill methane gas capture and energy generation, and152 hybrid-fuel buses Green Bond - Ile de France (Paris): $829 million  Multiple projects including typical renewable energy and energy efficiency developments plus innovative initiatives like ecological corridor development.  Also issued the first green muni bond in 2012 Sources: BNEF; CBI, johannesburg-green-bond-approx-r15bn

Project Bonds In 2013, $3.1 billion clean energy project bonds issued; 53% increase over Project bonds  Can support an individual project or a portfolio. Portfolio project bonds may be a growing mechanism to support groups of small projects as large onshore wind and PV projects slow  U.S – Solar PV: Individual Project a $1 billion  Largest issuance was by US-based Berkshire Hathaway Energy backed by the 580 MW Solar Star PV Project  U.S. – Wind: Portfolio Exelon to back 13 wind farms  Swedish – Wind: Portfolio Swedish based Arise to back 10 wind farms Sources: BNEF,

Asset-Backed Securities Sources: BNEF, Clean energy – U.S: $USD 100 million  Issued by Hannon Armstrong Sustainable Infrastructure’s’ backed by the cashflows of over 100 wind, solar and energy efficiency projects at 20 properties across the US. Solar City – U.S.: $54.4 million + $70.2 million  Over-collateralization, a risk enhancement for investors, was 61%, a huge figure versus other niche ABS types (where 10% is typically high)  Residential systems = 90% of the ABS by value; 71% by number of systems; The delinquency rate of payments 120 days or more past due is 0.31%; FICO scores: , average of 762  Priced at 300 basis point. The securities are priced at around a 300 basis point (3.0%) premium above auto loan ABSs of comparable maturity

Example of Emerging Perspectives  ‘"to distinguish green bonds from other bonds … they should have lower financing costs and greater support from the government, such as tax exemptions”.  Green banks, with a special mention of the useful example of the UK’s Green Investment bank.  Green insurance.  Green education of financial product consumers.  Environmental risk disclosure.  Quasi-public environment cost analysis that people can interrogate.  Green Investors Network (perhaps modelled on the Investor Groups on Climate Change that are board members of the Climate Bonds Standard?)’ Sources: finance-and-green-bonds- Ma Jun, new chief economist at the People’s Bank of China: