HSBC Seeks Transparency for Destination of Green Bond Funds

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HSBC Holdings Plc said institutions issuing green bonds such as the World Bank should provide more transparency on which countries will benefit from money raised from sales of green bonds.

The lack of information from some banks hampers efforts of investors to select bonds offering the biggest greenhouse gas reductions, according to Michael Ridley, HSBC’s green bonds and corporate credit research analyst. In a report this week, he ranked which projects in what countries would deliver the biggest emissions savings.

Many of the big development banks like the World Bank, European Investment Bankand Germany’s KfW, “won’t tell you where the projects are, and I think they should be challenged a little bit to identify," he said in an interview in London.

Otto Weyhausen-Brinkmann, head of new issues at KfW Bankengruppe, said it would be impractical to detail each of the around 10,000 small loans provided for renewable energy projects from green bond proceeds each year.

Sean Kidney, chief executive of Climate Bonds Initiative, said Ridley’s argument is a "red herring" and a "waste of time" for the market that’s forecast to have record issuance this year after $41 billion was raised last year. Only a handful of investors are focused on the carbon impacts of their investments, and Kidney said it would be "virtually impossible" for banks to say at the moment the securities are issued where the proceeds of their green bonds will go.

Kidney agreed that greater transparency on where proceeds will go could encourage governments to step up their action on tackling climate change. "If you could influence investors in a way that will make a difference to governments then it would be worthwhile," he said.

“The World Bank is transparent about each project that green bond funds support, and we are considered a leader in green bond impact reporting,” the Washington-based institution said in a statement.

Many banks including the World Bank and KfW regularly report where proceeds from green bonds were invested, but only after the capital has been raised. 

"The more the market focuses on this two things will happen," Ridley said. "People will have a premium on bonds that are funding fuel switching in ’the right countries’ and also the banks themselves will focus attention on effective projects."

(Updates with World Bank comment in seventh paragraph.)
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