UN Draws BNP Paribas for Green-Bond Push to Unlock Funding

Updated on
  • Bonds to help transfer clean-tech finance to poor nations: BNP
  • Securities using CDM criteria can reduce borrowing costs

The United Nations is on a mission to make green bonds even greener and has linked up with BNP Paribas SA to make it happen.

Securities based on the UN’s own carbon market criteria would boost the credibility of clean-technology finance and reduce borrowing costs, said Grant Kirkman, a team leader at the UN Framework Convention on Climate Change. BNP Paribas is working on a bond structure for the emission-reduction projects registered with the UN, according to Stephanie Sfakianos, head of sustainable capital markets at France’s biggest bank.

Green bonds are typically issued by development banks, such as the World Bank, municipalities, utilities and companies to raise money for projects from renewable energy power plants to electric cars and other technologies aimed at curtailing global warming.

Almost $56 billion of bonds used to finance projects that curb greenhouse gases may be issued in 2016, up from last year’s record $46 billion, Bloomberg New Energy Finance data show. The UNFCCC is promoting the standards of its carbon market, known as the Clean Development Mechanism, as investors including TIAA Global Asset Management in New York say there is still no industry standard for what makes a green security.

To see what TIAA says about the green bond market, click here

“There’s concern about the greenness of the green bond market,” Kirkman said in an interview at the Carbon Expo conference in Cologne, Germany. “The CDM process may make the climate benefits of a green security more watertight.”

At least $70 billion of debt held by carbon-cutting projects under the CDM could benefit from lower-cost bond financing, said Kirkman, who works in the sustainable development mechanisms unit of the Bonn-based UNFCCC.

BNP Paribas is examining how to package the 10,000 projects and programs registered with the CDM into securities, which may help transfer money from developed nations to poorer countries, said BNP Paribas’s Sfakianos in London.

“Slicing and dicing, arranging them in a way that optimizes the portfolio you might be looking to securitize is very, very time consuming and that’s the work that we’re doing right now,” she said.

Carbon Credits

In the UN market, developed countries pay for emission-reduction projects elsewhere, earning tradable credits called Certified Emission Reductions, or CERs, that they can use to offset carbon-dioxide output at home. Industrial gas cutting projects in India to wind farms in China must verify how much greenhouse gas they’ve reduced in the system regulated by the CDM.

A bond’s environmental credibility could be enhanced if the projects receiving the financing choose to cancel the CERs they generate, Kirkman said. This would mean the credits couldn’t be traded or used to offset emissions, helping curtail a glut that has driven their price down 98 percent since 1998.

Climate Mundial Ltd., a London-based company that advises on emissions trading, is working with renewable power plant owners to assemble a group of 10 to 12 CDM projects, Daniel Rossetto, managing director, said in an e-mailed reply to questions. Focused initially on plants in Africa and the Americas, financing may reach about $500 million, he said.

“There’s just no process that’s as rigorous as the CDM, so it does make them a very attractive investment” for those in the green-bond market, Christiana Figueres, executive secretary of the UNFCCC, said Wednesday. “It guarantees there are concrete emission reductions, there’s a quality seal on it.”