The Day After Tomorrow

Issuers wishing to win over investors with SRI mandates not only need to deliver green and social bonds, but must demonstrate how these fit into a broader sustainability strategy for the future — that was the key takeaway from a Sustainabonds roundtable hosted by SFIL in Paris on 24 May, where the market’s growth, EU initiatives, and pricing were debated.

Roundtable participants (left to right above):

Bodo Winkler, Head of Funding & Investor Relations, Berlin Hyp
Marie-Anne Allier, Head of Euro Fixed Income, Amundi
Eivind Hegelstad, CFO & Head of IR, SpareBank 1 Boligkreditt
Grégory Schneider-Maunoury, Head of SRI, Humanis
Neil Day, Managing Editor, Sustainabonds
Joop Hessels, Head of Green, Social & Sustainability bonds, ABN AMRO
Muriel Caton, Managing Director, Sustainable Finance Strategy, Vigeo Eiris
Patrick Seifert, Managing Director, Head of Primary Markets, LBBW
Sami Gotrane, Head of Treasury & Financial Markets, SFIL

The roundtable first appeared in print in the summer edition of Sustainabonds, which you can download as a pdf to read here.

Neil Day, Sustainabonds: There were quite strong forecasts at the beginning of the year for the amount of green bonds that people were expecting and hoping to see this year after very strong growth last year. But looking at where we are now in late May, we are less than a third of the way towards the kind of numbers that people were forecasting for full year. Is it something to be concerned about?

Grégory Schneider-Maunoury, Humanis: Well, there is a need for a minimum EUR1,000bn per year of investment to achieve the energy transition, according to IEA estimates in 2015. Last year we were at EUR160bn, so there is room for improvement. It’s true that so far we haven’t seen the huge arrival in the market of non-financial corporates — we are still expecting this move.

But we have already had some excellent green bonds coming to market this year and It’s always better to have good quality bonds, and better to have fewer good quality bonds than many low quality ones.

Marie-Anne Allier, Amundi: We are still lacking supply, for sure — just look at the bid-to-cover ratios on the primary market.

Having said that, I tend to agree that quality, size and diversification matter more than just quantity. We also don’t want to lose focus and have a lot of different kinds of green, sustainable, social or whatever bonds that end up making the market fragmented rather than being one big market, which is what our investors are looking for.

I won’t say we are concerned, but we are vigilant, and we are pushing issuers to issue green bonds.

Muriel Caton, Vigeo Eiris: So far this year we have done almost as many second party opinions (SPOs) as we did in the whole of last year — 23 compared to 30 in 2017 — if we include projects that have not yet been announced but will be coming to market — we are working on 12 of those right now. But it is true that the volume of green bonds is small compared to the total volume of bonds issued globally.

The lack of green bonds may be because bond market conditions have been very, very good for issuers. It was better to be an issuer than an investor. Conditions are changing a little bit, but until now conditions have been very good and a lot of corporates have asked me, why should I do a green bond when I can click my fingers and raise EUR1bn?

At the end of the day it is the investor who has the last word when it comes to asking for green bond issuance. With these green or sustainable bonds there is unprecedented communication between issuers and investors, because there is almost always a roadshow to explain the project, which normally never happens on a vanilla bond for general corporate purposes.

In the last five years we have done 110 transactions, which is a 26% of market share, so we have seen how the market is evolving — but it is not mature. As Grégory said, it is a very small part when compared to the total amount of bonds issued globally — less than 5% of euro issuance and less than 1% of total issuance in all currencies. So a lot of progress should be made.

Joop Hessels, ABN AMRO (pictured below): The pipeline is still there. There are many potential issuers looking but, especially for your first transaction, it takes some time to get everything in place — your framework, your asset selection, second opinions and everything — and only then will you look at the market. So there are still a significant number of new issuers coming.

And there aren’t any issuers I’ve spoken to who have said, well, we did it once, we’re probably not going to issue green bonds anymore — so there will be repeat issuance from existing issuers as well. Meanwhile, everybody started with assets that they could find relatively easily, and then if you are looking for a wider range of potential projects you will have to dig more deeply inside the organisation.

The big predictions for this year were also partly related to potential sovereign issuance, and although we saw Belgium at the beginning of the year, since then it has been relatively quiet, so there needs to be some more activity there. Also on the Asian side we haven’t seen as much as in previous years, especially from China.

What has been said in relation to the corporate side in particular is correct — they have significant alternatives to get funding. We’ve also seen a sustainable loan market develop that might take away some corporates who could otherwise have stepped into the green bond market. Some corporates also point out that going to the bond market in the first place is a source of diversification and that to justify a green bond they need something extra like a pricing difference. That’s different to financial institutions who are typically more frequent issuers and focus more on the potential for investor diversification.

All in all there is still potential to get to a very decent number by year-end — we’ll see.

Patrick Seifert, LBBW: I would agree that there is increased awareness, which means increased potential. Maybe it’s also fair to realise that we are in a young market, and young markets don’t just develop in a straight line — there are ups and downs. We have perhaps so far benefited from reaping some of the low-hanging fruit because, as Joop said, you have to dig very deep to get these green assets out there. Meanwhile, things are happening beneath the surface that we don’t always see in real time, so I wouldn’t be too concerned on that front — but it will require ongoing dedication.

It’s important to bear in mind how significant a step it is for an institution to enter the green bond market. You basically step out on the stage and say, I hereby commit to this market — it’s kind of an irreversible step. And there may be institutions both in the banking world and maybe among corporates, too, that simply have other priorities. So we will probably see that market developing at two speeds: as long as you still have institutions in Europe who are struggling with other topics and sit in front of investors arguing about why their CET1 ratio is so low, green bonds won’t be the answer for them; but best in class and good quality institutions, whether financials or non-financials, will take on the challenge.

It typically takes some kind of a facilitator to take the first step. Speaking from our own experience at LBBW, that was management — and also learning from institutions that we had worked with. Once you have that commitment, things can come together nicely — you have that reinforcing effect internally and the whole institution generally becomes more committed to the cause.

The question is how can we bring this about faster while maintaining the quality? Looking at issuance numbers, it also depends how strict or not you are in defining the criteria, because there has been “green” issuance that, for example, is not fully in line with the Climate Bonds Initiative (CBI) criteria. That’s also a part of this being a young, developing market. There is a debate about whether or not there is a need for regulation, and we should probably not regulate too fast, but let investors regulate by making their choices.

Bodo Winker, Berlin Hyp: First of all, I would like to see a little bit more of a longer term perspective, not only just looking at this year. Maybe the one or the other is disappointed so far, and maybe somebody will even be disappointed at the end of this year. But if you look like five or 10 years ahead from now, if you are a frequent issuer but not an issuer of green bonds, for at least part of your funding, you will have to justify yourself — that’s my conviction. I think there will be a lot of issuers coming to the market in the medium term and really looking at what they can do.

On the one hand, this will be driven by investor demand, because what we already see is this massive growth in green mandates that the likes of Amundi or other asset managers have, so there is much more dedication to this market already on the investor side.

The other thing could be regulation, of course, and I would not only speak of the restrictions that regulation can represent. Indeed, having a clearer view from, let’s say, the European regulator about what is green and what is not green could enable issuers to assess more easily what they could do and how they could contribute. I’m quite sure we will touch on this in more detail later, but there is huge potential in this EU Action Plan on Sustainable Finance if it is done correctly and is not strangulating what is already there. So let’s see how it goes, but I am very positive for the green bond market overall.

I would also say that while Berlin Hyp is now an established issuer in this market, it took us some time to arrive at this point, and that process is something that new entrants will have to go through, so give them some time.

Initially we had to fight quite a lot of internal barriers to be enabled to issue our first green bond. Then came a period of working out where we would fit in this market, with lots of discussions with investors during which we learned a lot about their needs. I remember my first meeting on my first green bond roadshow was here in Paris with Grégory, and he was already a very educated investor then. Before we finished he asked me, can you tell me yet how your impact reporting will look? I had no clue. It was another new thing to consider.

So it’s a long journey to get to a position where you really can say, OK, now I can come frequently to the market. We at Berlin Hyp had the very good fortune that we got the full commitment of the bank’s top management and that they really wanted to make amendments to the overall strategy of the bank, saying, OK, by 2020 20% should be green — and that’s only the first step. We will even give you instruments to achieve that: you can offer green loans at a discount to your customers. So in that respect I’m in something of a luxury position, and I wish the same for many other issuers, too.

Eivind Hegelstad, SpareBank 1 Boligkreditt: We were inspired by the German issuers who started out on this. And to latch on to what Bodo said there about being educated on the roadshow — we had the benefit of there being a much more developed market to step into. Even if it’s still a young market and is still developing, several aspects were already common knowledge — for example, we had already prepared an impact report with our technical consultants for the roadshow, so we could go straight into that and talk to green investors about CO2 savings and energy savings.

There were many reasons why we embarked upon the green bond project, but when I think back, there was probably one real trigger: we had started to be contacted by these ESG rating agencies around Europe, particularly the German ones, and they rated our banks very poorly on an ESG scale, and we were shocked by that. We thought, wow, is it really that bad? It quickly became clear that what was bad was the communication about what we were doing, because there is nothing out there about how our banks put policies in place for customer suppliers or outlawed anything that has to do with coal, for example. We’d never thought about actually explaining how their activities might be aligned with the 17 UN Sustainable Development Goals. So it kind of started there, and then we quickly realised that a green bond could also invigorate the organisation to improve its ESG standing.

Of course, there’s also the impact on the investor demand side — I don’t want to leave that out of the argument here. Being able to diversify the investor base was certainly another key factor for us as.

What I have been a little bit surprised by this year is that we haven’t seen other Norwegians and also Scandinavians following our framework, which is relatively straightforward. There’s been a fair amount of debate between our technical consultants and the CBI about the exact criteria required for certification, but that will be finalised in the coming days, and once this verification is given that could maybe trigger others to issue from Scandinavia.*

Day, Sustainabonds: Sami, you’re part of the future growth in social and green bonds. Why are you planning on doing it?

Sami Gotrane, SFIL: First of all, I would like to remind you that we are a very young institution. We were created only five years ago, and last year we were the largest issuer among the French agencies, growing from EUR3bn of bonds priced in the market in 2013 to EUR8bn last year, and possibly this year something around EUR9.5bn. The second thing that I would like to note is that we are a covered bond issuer through Caffil, our covered bond vehicle, and we are issuing unsecured bonds at the level of the parent company SFIL — that’s something a bit different from our peers.

As a new institution, we went about things in the correct manner: we began by establishing our signature in the covered bond market and Caffil is now recognised probably as a reference covered bond issuer; then we started issuing unsecured bonds; and last year was dedicated to making our debut on the US dollar market.

The French government has meanwhile led the way in sustainability with legislation such as Grenelle II, while on the asset management side the French industry is probably the largest when it comes to SRI and very well recognised. And on the issuer side we had the green OAT last year and overall French issuers made up roughly a quarter of the green bond market in 2017.

Last year was too early for us, but I would say that the timing is now rather good and we are ready to make our debut after the summer. We have announced that this year we will price a healthcare covered bond, in benchmark size, and we will go beyond that next year by issuing a green bond, too. As Patrick said, it is very important to be a repeat issuer and we will be one.

With the green bond we would like to finance green loans to local authorities in France, to clearly encourage them to invest in green projects, which is very important. Generating these loans is a bit more ambitious than what we plan to do with the healthcare covered bond.

Day, Sustainabonds: Coming back to the regulatory aspect, there is the EU Sustainable Finance Action Plan, as Bodo mentioned. Is green bonds an area where regulation can play an encouraging role?

Allier, Amundi: We need a common taxonomy. We probably need that political step in the market because green is a concept, but then green in Europe may be not green in Asia, may be not green in Africa. At a certain point this is a political issue — it is not for a private investor to say what future we need to develop in terms of the energy transition. In that sense a taxonomy is something that we really need. It will also help us to develop the market for people who do not have the resources to dig deep into green bonds to know if projects are really green. So it will help the market develop.

But I tend to agree that too much standardisation too early in a young market is something that we need to be very careful about, because it could just kill innovation. Nobody knows exactly what will be considered green two or three years from now, and if we put up too many regulatory hurdles for new issuers it will probably result in the market shrinking.

Beyond that, some financial institutions and regulators seem to think that climate change and the energy transition is a risk for financial stability. If we are to see that reflected in practice — meaning perhaps that a green loan does not have the same capital charge as a non-green bond, or that the ECB or whoever requires a lower haircut for liquidity purposes — it’s impossible without having a legal, official taxonomy. But I think that’s the future of the market. If we think that it is a good thing for financial stability, then making a green loan shouldn’t have exactly the same impact for banks as making a loan to a coal company, for example.

Hessels, ABN AMRO: If you Google “green bonds” there’s always this discussion about what is green and who defines what is green. Now of course we have this EU initiative coming with a definition and on the one hand you need to be strict and ensure a certain quality. On the other hand, you want to make it as inviting as possible for issuers to step in and grow this market. For example, I believe Eivind had a challenge with the data that was available and we faced the same issue, and sometimes you have to be flexible and creative to identify exactly what is green. So there is a big risk if it’s getting too narrowly defined that you will hinder the market in a way or shrink it — but on the other hand you do need to retain the good quality.

Schneider-Maunoury, Humanis: Maybe the solution is smart regulation, which is found in Scandinavian countries and Germany, but not everywhere in Europe or globally — regulation as an incentive to innovate, an incentive to invest is what we are looking for. Some of the experts are fully aware that this regulation, classification, taxonomy should be a way to open new fields to green bonds, not a way to close it.

Hegelstad, SpareBank 1: Those are very good points, but my impression is that what comes out of this regulation might not be super-specific. I haven’t heard anything really negative about the development of the regulation and I see that they reference the CBI standards and the Green Bond Principles (GBP), and I would interpret that to mean that they are going to be guided by what has already been established. We’ve seen from our work with the CBI that they have very specific standards and I think that the EU may reference their standards in their regulation.

Winkler, Berlin Hyp: I would favour existing criteria like those of the CBI as a foundation for the upcoming taxonomy. But the EU will have to express their own political will and should work on their criteria by themselves. This will be even more necessary as there aren’t existing standards for all green finance categories.

Schneider-Maunoury, Humanis: What is fascinating with green bonds is that it’s a market being built in the here and now. And it is not just people trying to make more money — a market is a social dynamic. People discussing and saying, OK, what can we do?

The global angle can certainly cause difficulties in this respect. When I meet people in Singapore, for example, if I talk about SRI they can be kind of reluctant to engage. But if I talk about green bonds I can point out a quantifiable environmental impact — we are happy to say that for every EUR1m invested in our fund, 1,700 tonnes of CO2 are avoided per year — that’s clear enough and they say, OK. This is something that can be quantified in the same way in Europe, Asia or wherever. This is why it is important to quantify impact.

Beyond this, companies need to set up and implement a green strategy not just for tomorrow, but for the day after tomorrow and into the future — sorry to be so flattering, but Berlin Hyp and ABN are good examples of this. Once they have this green strategy, they can ask the market to finance it. And it’s not only to appear more beautiful — the assets should have more value in the future.

The problem with the green bond market right now is that the discounts that we are anticipating on traditional bonds have not yet arrived. So we don’t see the advantage of green bonds now, but we will see it in the future.

Seifert, LBBW: It’s very interesting that you highlighted the social dynamic — well, one dimension that has been virtually absent from this discussion so far is the end client, the borrower, whether that be an institutional one or a retail customer. Bodo hinted at it and others might have similar experiences, that when you do your first green bond you try to pass on any benefit to the end client.

Well, is it the case that these clients are queueing in front of the bank seeking more green loans? It can be a hard sell, I can tell you. And then you face the commercial dilemma: do I do traditional conventional business or only green business? If regulators were smart, they would try to tackle it from both sides. I mean, I used four coffee cups this afternoon that were thrown away, and I can get away with it! Obviously this wouldn’t answer the whole question as to how to develop the green bond market. But targeting the end client at the same time is where regulation could achieve something without harming the autonomy of issuers to move at their own pace or of investors to be strict with their mandates.

Hegelstad, SpareBank 1: We cannot create green finance on our own. We need the end clients, and we need them to be incentivised. Yes, you can incentivise them by investors receiving a lower spread…

Allier, Amundi: No!

Hegelstad, SpareBank 1: …but you don’t want that, so at this stage we are strong believers in taxation — tax the bad, and reward the good. That is the only way going forward to create more green assets for us to finance. The best example is one near and dear to my heart — because I drive one — namely electric cars in Norway. Two-thirds of all new cars that are being put on the roads in Norway today are electric cars. We have the world’s highest density in electric cars because they are massively subsidised. And the other side is that conventional cars are extremely highly taxed. The benefits are enormous, so people are shifting. And that’s what you should also see in housing, for example. You give subsidies and you give tax breaks.

Hessels, ABN AMRO: That’s the big challenge when it comes to mortgages, especially with existing buildings: how can you urge people to make their houses more energy efficient? We don’t yet have any tax breaks in the Netherlands, so as a bank we gave a discount ourselves, and we see that it’s working, that’s it’s a trigger. It’s a very price sensitive market, so if you give a little discount you already see people moving.

ABN AMRO has been involved from the start in the EeMAP initiative to define energy efficient mortgages in Europe. Banks can help to bridge the renovation gap required to reach EU targets. Beneficial capital requirements could be passed on to bank customers, urging them to buy an energy efficient house or even better: make an existing house more energy efficient before moving in.

Allier, Amundi: A word about price: I totally disagree. I’m not waiting for green bonds to be more expensive for me than a non-green bond. As an investor my risk is ultimately on the issuer and, green or non-green — as long as the green is not ring-fenced or you don’t have specific covenants on the green bonds — I expect the green and the non-green bonds of the same issuer to be exactly the same price.

Where I tend to agree with Bodo is that maybe tomorrow in one year we will ask companies to explain why they didn’t yet issue green bonds. If they are not thinking about the climate transition and how to tackle this issue, they are probably an issuer who has no idea of what the future holds and deserve a higher spread just because they are not a well-managed company. So the question is not, should green bonds be more expensive for an investor? The issue is more that if you don’t look at this issue, you are simply managing your company badly, so probably deserve a lower rating and a higher spread.

Winkler, Berlin Hyp: Of course bodies like tax authorities and others could be beneficial in creating additional momentum, but in the end the best way still is if the initiative comes from the issuer itself. The fact that somebody is offering you subsidies should not be the only reason you step into the market. I have my doubts whether you can contribute usefully if the main driver is receiving preferential treatment.

Caton, Vigeo Eiris: I fully agree with Mari-Anne that what we need is a common language everybody can understand because, as I said, today you cannot find a definition of what is green on the market. Nobody knows. So we need a common language — but not too much standardisation that would kill potential innovation in a market that is quite young and needs to evolve.

The funding gap to support a low carbon economy is wide — we need to invest almost EUR200bn a year each year until 2030 — so we need the financial sector and we need everybody. For example, we have worked on a green bond of Repsol and the issue there was, what is green? I can see from the look on Grégory’s face that perhaps they should not have said that it is green. But the Repsol bond was to finance existing equipment that is to save two million tonnes of CO2 emissions per year — that is to say, if you do nothing, it is worse. CBI said, well, this is very good in terms of disclosure and in terms of transparency, but this cannot be said to be a green or a climate bond because it is not ambitious enough for the two degrees trajectory of the Paris Agreement.

Meanwhile, as Mari-Anne said, at the end of the day the risk is on the issuer, and that can include potential ESG risks. If you are going to finance a windfarm without, for example, respecting human rights, you will have a big reputational problem and the value to the investor will decrease. What we do in our opinion is not to say this is bad, this is good; we see if the green bond complies with, for example, the Green Bond Principles, but also evaluate the issuer. Eivind referred to how the low score from the rating agency prompted you to do more on the ESG front, and I think it is very important to see the coherence of the green bond projects within the overall strategy of the issuer.

Gotrane, SFIL: For our part, we are not a commercial bank; we are an agency — a public development bank, if you use the EU term — so it’s easier for us. And as with other members of the European Association of Public Banks — such as MuniFin in Finland — if you have a government that is a sponsor of green initiatives, which is the case in France, it is very supportive for initiatives such as green bonds — look at what CDC or AFD have done.

In our DNA at SFIL we have only loans that ultimately finance schools, energy, waste treatment, swimming pools — it’s important for people, too! — and so on. We do not have a business — only missions. And alongside what I would call the aforementioned historic activity of SFIL, we now have the refinancing of export loans. And our status as a public development bank in France is reflected in the culture of SFIL, too. Ralf Berninger, our head of investor relations, came to me a few months ago explaining that we had very high ratings from the ESG rating agencies, which was a pleasant surprise. I had a look into the details and we had a very high rating on the social pillar. Why? Because notably around 40% of the managing directors are women. So the high ratings are the result of what we were doing naturally but which we were not conscious counted as sustainable activity. Of course we have to follow various policies in this field, but rather than wait until such things become mandatory we feel we have to introduce them as quickly as possible — it’s our mission.

We have been very thorough in our preparations for our first social bond and will have a very strong framework. I can tell you that the reporting will provide all the different ratios that you need to follow the health sector — we have information that not even the French national statistics office INSEE provides — because we have a track record of more than 30 years of financing hospitals in France. This will be of interest to investors because at the end of the day it will give them a better understanding of the fundamentals driving the sector and allow them to make a better assessment.

We will be a repeat issuer and would really like to be able to fuel both the public and private placement markets. Our internal assessment is that almost all our loan portfolio is eligible for the different social or green issuances.

Seifert, LBBW: Sami, you are in an extremely privileged situation: you are social or sustainable, but you haven’t issued yet. In most cases it is the other way around — an issuer looks at the idea of a green or social bond, talks to investors, comes up with an idea, and then says, well what do I have to do to get there? And it’s only then when all the work starts, and we’ve heard about how it can take 12 to 18 months to get there — even if this lead time is falling with best practice standards that can be referred to emerging. But clearly you are already at a stage where you have probably done most of the job when it comes to issuing in sustainable formats.

Gotrane, SFIL: In the process of getting the rating from the ESG agencies we have involved various departments, such as the risk department and the human resources department. They were very happy and really motivated, excited at participating in a bond issue, because previously it was just the bizarre guys in the trading room. Now they are involved, they are aware, we have done internal meetings to explain just what a sustainable bond is and what their input is. We can tell someone in the human resources department that it is because of something they have done that we have got such a good rating. It’s important internally.

Caton, Vigeo Eiris: This is indeed what we have seen so far, this good example of teams working together, the sustainability team and the finance team. Usually they did not even know each before, but when there is the sustainable bond project, everybody is very happy to work together, to promote what is done internally, and this is a very good exercise, I would say.

Day, Sustainabonds: We’ve heard some positive things so far. Have the investors seen any particular examples of issuers doing or planning to do bad things, and not bought bonds because of that?

Allier, Amundi: Firstly, for us green, sustainable, social, whatever is a real way of engaging in a dialogue with a company. Usually investor relations are speaking to and roadshowing for the equity guys. It is only when you have a debt crisis that they discover they have bondholders. The rest of the time we are told to just look at the rating, etc. A green bond really is a time for us to engage in discussions with them.

Have I seen bad things? Never, but we have discussions about what can be improved, especially on impact reporting — are we satisfied with the report or not? We have more challenging discussions with some issuers than others — probably because investors want different things and at a certain point the company thinks, OK, so she wants black, he wants white, well I will do grey. But I wouldn’t say that we have seen bad practices. If it may be the case, it would be on a company where it’s obvious that on the ESG side in general we are not comfortable. For example, if on the “G” we are not comfortable with the company, we probably won’t discuss green with them. It’s a question of governance.

Schneider-Maunoury, Humanis: I would fully agree with Mari-Anne. It’s a real way to engage with companies. I have been in SRI for more than 15 years and nowhere other than in green bonds can we really discuss with companies what we expect of them and where exactly they want to go.

Coming back to the question, what is green? It’s not obvious. OK, we know CO2 emissions are a crucial measure. Great. But the world is in a bad shape and it’s not only about CO2.

To give an example: I have been discussing with NRW Bank their renaturisation project of the Emscher river for some years now. The Emscher had basically become a waste water pipe for the Ruhr region and they want to renaturise it. When they first came to me I said, wow, that’s a nice project, obviously green, and they said they could tell me how many kilometres of river would be renaturised. But while that’s a good indicator of the degree of achievement of the project, I asked them, what is the target, what is the objective? The objective in terms of quantifiable impact is square metres of wetland restored — that’s what the “green” actually is. So I discussed with them the fact that kilometres of river was not exactly sufficient to quantify the impact. Then one year later they said, hey, square kilometres of wetlands could be interesting. And after I reminded them once and then again, last week they sent to me a first estimate of this.

So we can’t say with certainty right now or in a room in Brussels or anywhere, this is green. Green is something where we have global targets, like the Paris Agreement, which is all well and good, but we have other issues. In Asia they seem to be keener on investing in waste issues, because when you go to Asia CO2 is an issue, but you can see that waste is an issue, too. We have to make sure that companies can identify their own key issues regarding green and that this market can grow. So we have stay very relative. Staying relative doesn’t mean that we are open to everything, but as investors we are going to engage with companies, that’s our job. How you are going to invest in this theme? What exactly are you doing? How are we sure that it’s going to improve?

So, green can’t be defined at one time in one place, and the same for social. It’s relative, and it’s down to engagement, dialogue between issuers and investors.

Hessels, ABN AMRO: Based on the experience of myself and my colleagues of dealing with external clients and also within ABN AMRO, the good thing about a green bond is that everybody gets really excited about it and the senior management supports it.

It also triggers a lot of questions, like, we have these kinds of projects, are they green? Can you make a green bond for this client? And sometimes you have to think twice: is this really such a green project, or is it just extending the fossil fuel lifecycle? And that’s something I would like to see from the EU — I don’t need a very detailed definition of exactly what building is green and what is not green, but it would be good to say, OK, well, let’s come up with a definition of what is a 1.5 or 2 degrees scenario, and what does it entail? We can then ask: is this project part of it is this trajectory to a more sustainable market, or is it just an expansion of the lifecycle?

And what about areas like mining? Of course everybody wants to have solar panels on their roof, but this requires materials that come from mining. You can reuse parts, which is probably a good thing, but how are we treating these kinds of sectors? Is it green because it supports certain elements of the transition even if there are negatives? We have a lot of these kinds of discussions and sometimes we will take a view and sometimes we will ask a couple of investors what they think, or talk with CBI, SPO providers or other parties. But it would be good to have more clarity on where to draw the line in the sand and be transparent about which activities support the 1.5 or 2 degrees scenarios and how significant they need to be to do so.

Caton, Vigeo Eiris: Do you invest in green or social bonds that don’t have an external review? Because in fact about one-third of the so-called green bonds in the market lack an external review, with a strong risk of greenwashing.

Allier, Amundi: It has been the case. We have a team of SRI analysts, so we think that we are able to do a bit of the work ourselves. But we tend to push issuers to for a second opinion because, again, it’s a question of having a common language. I need liquidity and if tomorrow I want to sell a bond because, for example, the maturity doesn’t match what my view on the market or whatever, selling the bond will be easier if it has a second party opinion so every investor understands it. So it’s not just because we want to avoid greenwashing — at Amundi we have analysts who are able to do this job — it’s also a question of making the market more efficient.

Day, Sustainabonds: Could the issuers sum up their plans?

Hessels, ABN AMRO: One of the elements which was not mentioned in the first question is about funding needs, and we have more green assets than we have funding needs. That’s why we were not in the market last year, but we have now issued again and we want to be a regular issuer…

Day, Sustainabonds: Will we see a green covered bond from you?

Hessels, ABN AMRO: As long as we only use our covered bond programme for long-dated funding, like 15 years and longer, we don’t expect to use our covered bond programme for green covered bonds.

Winkler, Berlin Hyp: We have done at least one green bond in every year since 2015. We have already done one in 2018. Maybe there will be a second this year — it is too early to say. Our framework requires that the assets be there already before we can issue, so that’s a natural limit.

What will be interesting for us in Germany is that we will very soon have two different asset classes in senior unsecured bonds — senior preferred and senior non-preferred — and one of the next exercises will probably be to reflect this in our green bond framework.

Hegelstad, SpareBank 1: It’s very simple for us: just covered bonds. We are very keen on doing another green covered bond. The issue is asset eligibility. Just like Berlin Hyp, we have to have the assets first originated by the various owner banks and transferred to the cover pool, and then issue the green bonds.

We had to make a bit of a change to our framework after the discussion with CBI, and we lost about 5% of the volume, just a slight haircut on a few things. So we need to grow it. I doubt that we will manage another green bond this year. But our banks are really focused on being leaders in green mortgages in Norway now, so the second green covered bond is due to come sooner or later.

Seifert, LBBW: As I said before, the moment you step out, you have to stick with it. You asked about any negative behaviour — well, if I were an investor, I would be very concerned by someone coming out with sustainable issuance and then not doing any further sustainable issuance, because at the end of the day this is to me a total breach in logic. You can of course optimise your issuance with different formats and so on — that’s a different idea — but when you enter the market you expect investors to do a lot of work — and it’s a hell of a lot of work because, as discussed, we lack standards — so I think there should be an understanding that in this market you have to deliver on an ongoing basis.

At LBBW, our intention is to issue at least one more transaction in green format this year. We will have to see whether it is going to be a covered bond or a senior. At the same time, we are also looking into what we can do in social format. So it’s definitely something that we will try to broaden further.

The fact that we know the ECB is going to walk away is extremely important and probably one of the reasons why we speeded up our efforts last year. We have been sitting at roundtables for a few years now with Bodo saying how important green bonds could be in attracting investors once the ECB-inspired market distortions went away and that green bonds would be more clearly rewarded — previously, that all sounded quite theoretical and there was no hurry. But I think that the moment of truth is potentially not far away now. In that respect, it’s therefore an integral part of good governance to have this tool available.