Skandinaviska Enskilda Banken AB and Daiwa Securities Group Inc. have underwritten the most green bonds since the securities were first issued in 2007, indicating the dominance of Swedish and Japanese banks in the market.
Five of the 10 top underwriters on about $7 billion of the bonds issued by international finance institutions were drawn from the two countries, according to a ranking by Bloomberg New Energy Finance released today. London-based HSBC Bank Plc and JPMorgan Chase & Co. of New York took third and fourth place.
The findings reflect government incentives pushing investment for environmental projects in Scandinavia and Japan and the credit crunch across the U.S. and Europe that restrained banks’ appetite there for taking on additional risk.
“Sweden’s prominence in green bonds is not surprising as the nation has always encouraged environmental investments,” Sweden’s minister for information technology and energy Anna-Karin Hatt said today in an e-mail. “This is a good example of markets taking responsibility and responding on current issues.”
Scandinavian countries “have always been very tuned into environmental themes,” James Cameron, executive vice chairman of the U.K. investment manager Climate Change Capital Ltd., said in an interview. “There’s something about the culture that recognizes the value of conservation in economic terms.”
Japan “historically has been more culturally aware about socially responsible investment products,” said Chris Jones, global head of medium-term notes and local currency syndicate at HSBC Holdings Plc.
The bonds are generally issued by the leading development banks to fund clean air, water and energy projects that help fight climate change and people affected by it. The World Bank has issued $3.3 billion of the green bonds followed by $1.8 billion from the European Investment Bank after the two institutions developed green bonds. The Asian Development Bank was third with $897 million.
Green bonds are attractive to investors because their yields are roughly double the rate that U.S. Treasury notes pay and have the same top-notch credit rating, California State Treasurer Bill Lockyer said.
“It’s very safe,” said Lockyer, who bought $400 million of World Bank green bonds in December, a deal that SEB managed. “It accelerates the conversion to a non-carbon economy and it makes money.”
Demand for green bonds may rise in the coming years provided rules helping define the “green” theme for investors are established, according to Joseph Salvatore, the analyst at New Energy Finance who compiled the data. The Climate Bond Standard from the Climate Bond Initiative is one response to the need for unified definitions, he said today by e-mail.
SEB, based in Stockholm, underwrote $1.9 billion of bonds and Daiwa of Tokyo about $1.2 billion, according to New Energy Finance. Swedbank AB was sixth with $327.5 million of deals. Mizuho International Plc and Nomura International Plc, both wings of Tokyo-based institutions, ranked seventh and eighth respectively.
The Swedish and Japanese banks combined accounted for $4.03 billion of green bond offerings, almost twice the $2.6 billion underwritten by the British, American banks and TD Securities, a unit of the Toronto-Dominion Bank rounding out the top 10, New Energy Finance said.
Sweden and Japan both were among the first to design securities tailored to suit projects related to the environment and renewable energy.
Sweden has a long-established Green Party and political consensus on clean energy as well as the need to promote new technologies. The Green Party, founded in 1981, is Sweden’s third-largest parliamentary party and the second-biggest party in opposition.
“The government policies are a framework,” Borg said by phone. “There is no direct involvement in the green bond market. It is market- and demand-driven.”
SEB and the World Bank crafted the idea for a World Bank green bond in 2007, said Christopher Flensborg, head of sustainable products and product development at the Swedish bank. The first “green” bond was announced in May 2007 by the European Investment Bank. The World Bank followed in September.
“We had Swedish clients who wanted to integrate climate awareness into mainstream products and we had a lack of government supply,” Flensborg said. The first World Bank green bonds were issued in November 2008 for 2.33 billion kroner ($332 million).
In Japan, regulators in 1994 approved a category of bonds known as uridashi, which group the debts of overseas entities into securities to be sold to retail investors. That established a way for banks to channel green bonds into the hands of interested investors, Flensborg said.
“Uridashi bonds are issued in local currencies and so there is a yield-play to Japanese bonds,” said Chris McKnett, head of environment, social and governance investing at State Street Global Advisors, the asset management business of State Street Corp. “Given the low-rate environment in Japan, there’s a hunger for yield and that plays into that objective.”
Those structures emboldened Nikko, Nomura and Daiwa to line up green bond sales in Japan.
Nikko Asset Management Europe Ltd. invests in World Bank green bonds. “We have about $800 million in the two funds we currently manage,” said Stuart Kinnersley, chief investment officer.
‘Social Impact’ Bonds
Daiwa Securities, Japan’s second-largest securities firm, has arranged $4 billion in bonds with “social impact” including vaccines and poverty reduction as well as climate change in the last three years, according to Satoru Yamamoto, a director and head of planning in the product planning department at Daiwa Securities Co. Ltd.
“Our rational for concentrating on this product is the differentiation strategy,” Yamamoto said. “It’s a way to reach a new customer base.”
Depositors showed willingness to contribute to society through investments and since then Daiwa arranged a series of fixed income products, according to Yamamoto.
Nomura distributed green bonds from the International Finance Corp., in the form of uridashi bonds targeting Japanese retail clients, with proceeds going to renewable energy, efficiency and climate projects in developing countries, said Akihiro Igarashi, a syndicate official at Nomura Holdings Inc.
JPMorgan and Bank of America Merrill Lynch are the only U.S. banks in the top 10, ranking fourth and ninth, reflecting a lack of new government initiatives supporting renewable energy.
Governments in Britain, France, Germany and Spain have scaled back incentives for the solar power industry. In the U.S., one incentive for wind developers expired last month and another is due to finish at the end of 2012.
The following is a table showing the top institutions issuing green bonds and the top banks underwriting those bonds, according to Bloomberg New Energy Finance data.
=================================================== Top Issuers of Green Bonds in ($ millions) =================================================== 1. World Bank Group 3,300 2. European Investment Bank 1,849.8 3. Asian Development Bank 897.2 4. African Development Bank 426.3 5. Kommunalbanken AS 400.3 6. Nordic Investment Bank 208.7 7. European Bank for Reconstruction 63.4 and Development ==================================================== Top Underwriters of Green Bonds ($ millions) ==================================================== 1. Skandinaviska Enskilda Banken AB 1,909 2. Daiwa Securities Group Inc. 1,183.5 3. HSBC Bank Plc 966.5 4. JPMorgan Chase & Co. 549.3 5. TD Securities, Inc. 543.4 6. Swedbank AB 327.5 7. Mizuho International Plc 309.2 8. Nomura International Plc 301.0 9. Bank of America Merrill Lynch 271.1 10. Dresdner Kleinwort Ltd. 269.0