Photographer: Christophe Morin/Bloomberg

The City of Lights Takes Up the Mantle of Green Bonds

  • Sovereigns are still just 21% of market launched a decade ago
  • ‘Green wash’ could stymie growth poised for 44% in 2018: HSBC

Paris, where 195 countries reached an international climate accord, is lending its name to a bond market that touts sustainable development, cleaner air and even affordable housing.

The City of Lights is the latest entrant to a market HSBC Bank Plc forecasts will expand by $180 billion in 2018, representing a 44 percent increase over this year’s sales and bringing the amount outstanding to $463 billion.

France’s capital wants to use the debt to fund clean transport and social projects such as housing for the disabled, homeless and elderly, or a mixture of both, according to an Oct. 30 sustainability bond framework. Thursday’s deal will raise 320 million euros ($372 million) in a 17-year issue that will pay 20 basis points more than government benchmarks.

New interest in green bonds comes after a slow start. Governments only began adopting them in earnest in the past year, with Poland and France among the first, according to the HSBC report. Cities such as Gothenburg in Sweden, Canada’s capital Ottawa, and Cape Town, South Africa, have also sold them, according to data compiled by Bloomberg.

A decade since the bonds were conceived, sovereigns still account for just 21 percent, while corporate issuers dominate with 30 percent and financials 25 percent, according to HSBC analysts led by Michael Ridley in London. Green bonds are similar to traditional debt, except that proceeds are used exclusively to finance environmental projects.

One risk is that an over-liberal application of the green label creates “green wash,” according to the HSBC report.

“The market is widening as well as deepening,” Ridley wrote. “Supply could be stymied if poor-quality green bonds are issued. But work on standards by the European Investment Bank and Climate Bonds Initiative should limit green wash.”

— With assistance by Leo Laikola

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