Covered Bonds Could Fund Renewables, Climate Bonds Group Says

Covered bonds, backed by borrowers’ assets and usually carrying lower costs than unsecured bank debt, could be used to help fund climate-protection projects including renewable energy, the Climate Bonds Initiative said.

“A renewable-energy covered-bond market could be kick- started with the use of guarantees by agencies such as the European Investment Bank” while legislation on climate covered bonds is being developed, Sean Kidney, London-based executive chairman of the initiative, said today in a statement on its website. His group in November set a quality standard for debt securities that may help expand the class of assets to be known as climate bonds.

Covered bonds usually receive higher credit ratings than unsecured debt issued by banks, the initiative said. That’s because bond investors have a claim over a dedicated “cover pool” of assets, as well as a general claim against the issuer itself.

Issuers are obliged by law to over-collateralize the cover pool and replace any impaired or matured assets, according to a report on the initiative’s website.

To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net