Bonds & Climate Change The State of the Market 2015 Sean Kidney, CEO Tess Olsen-Rong, Market Analyst Frankfurt 8 July

© Climate Bonds Initiative July 2015 SRI = $13 tn global $88 tn institutional $30 tn Insurance $27 tn Pension $6 tn Sovereign wealth $25 tn Fund managers, mutuals, foundations EMs = $5 tn $43 tn represented at UN Climate Summit Context: investor interest $45 trillion

© Climate Bonds Initiative July 2015 Climate-aligned universe split across 6 themes Energy Renewable energy, nuclear, biomass for heat & electricity Buildings & Industry Technology & projects to improve energy efficiency of buildings & industry Transport CO2 efficient transport, rail, electric vehicles, biofuels Multi- Sector Labelled green bonds from DFIs, munis, banks, financing mixed projects Water Sustainable water mgmt, technology, infrastructure Waste & Pollution Control Recycling services/ products, emissions reduction equip Agri & Forestry Paper & wood, forest mgmt, organic seeds & fertilizers

© Climate Bonds Initiative July 2015 Climate-aligned Bond Universe $597.7bn Climate-aligned Increase of $95bn since 2014 Includes: Labelled green bond – proceeds earmarked for green Unlabelled climate-aligned bonds – +95% revenues from climate assets

© Climate Bonds Initiative July 2015 Transport largest theme Energy $118.4bn Multi-Sector $28.2bn Buildings & Industry 19.6bn Agriculture & Forestry $2.3bn Water $3.2bn Waste & Pollution control $7.1bn Transport $418.8bn

© Climate Bonds Initiative July 2015 Range of tenors and ratings Large proportion of bonds have tenors over 10 years. This reflects the length of climate projects – in particular long dated rail bonds.

© Climate Bonds Initiative July 2015 Project Bonds & Asset Backed Securities $13.9bn Labelled Green Bond Market $65.9bn Mainstream index filtered $266.3bn Opportunities for Investors

© Climate Bonds Initiative July 2015 Filters: Investment grade (>BBB-) Minimum size $200m Mainstream currencies Diversity in theme & credit rating within filter $231.4bn meet mainstream index filters

© Climate Bonds Initiative July 2015 Project Bonds & Asset Backed Securities $13.9bn E.g. wind energy project bonds S&P Dow Jones Indices launched green project bond index in 2014 (Ticker: SPUSGRPT)

© Climate Bonds Initiative July 2015 Labelled green bond market grows to $65.9bn Growth is coming from corporates, banks and US municipals Development Banks diversifying by currency, size and customizing for investors Total 2015 issuance projected to reach $70bn. $100bn stretch goal

© Climate Bonds Initiative July 2015 The green bond basics Vanilla Comparable pricing Refi as well as project 90% investment grade Proceeds to green Governments & DFIs Corporates Asset owners: PPPs, banks, utilities, etc Municipalities Any entity Transparency to green asset or project Independent review Reporting on use of proceeds Reporting Benefits Investor diversification Stickiness Longer tenors Multi-asset for scale

© Climate Bonds Initiative July 2015 Labelled Green Bond Investor Demand Oversubscription For example: ABN AMRO bond received €1bn orders for an €350m issue Investor Commitments In 2015, Zurich Insurance, Deutsche Bank treasury, KfW, Barclays treasury, and ACTIAM pledge to build €1bn green bond portfolios Specialist Green Bond Funds SEB Asset Management, Nikko Asset Management, BlackRock, Calvert, Shelton Capital Management, and State Street all manage green bond funds

© Climate Bonds Initiative July 2015 Green proceeds: Renewable energy is largest Energy: Vestas, KfW, Terraform Buildings & Industry: DBJ, Regency, Vasakronan Transport: Full universe shows potential to grow much larger. TfL Water: DC Water, US munis Waste: Paprec Climate Adaptation: Commonwealth of Mass, World Bank, IFC Agriculture & Forestry: SCA

© Climate Bonds Initiative July 2015 Developments with products & services Products Green pfandbriefe – BerlinHyp ESG or ‘sustainability’ bonds; financing mix of green and non-green (e.g. NRW) ‘Social’ – largely SME financing Climate certified bonds: NAB, ANZ, ABN Amro Services Green bond indices from Solactive, S&P DJI, Barclays/MSCI, BoAML Evolution of Green Bond Principles Climate Bonds Advisory services

© Climate Bonds Initiative July % of green bonds use some sort of 2 nd review Most of remaining 40% have a proxy for second review: EIB has assurance from KPMG on reports Other benchmark measures (e.g. LEED) Climate Bonds Certification supports scalability with a Standards-based approach Green credentials: independent review

© Climate Bonds Initiative July 2015 Climate Bonds Certification is Simple….

© Climate Bonds Initiative July 2015 Climate Bonds Standards Available

© Climate Bonds Initiative July 2015 Emerging Market kickstart Emerging market issuance of climate-aligned bonds shows potential for green market growth India is leading the way: Yes Bank, Export-Import Bank of India China: policymakers are aiming to grow a large green bond market Brazil has established a green bond market development committee

© Climate Bonds Initiative July point agenda for Public Sector Issuer Base 1.Demonstration issuance from public entities 2.Strengthening planning and pipeline transparency of green projects Issuer Base 1.Demonstration issuance from public entities 2.Strengthening planning and pipeline transparency of green projects 3.Improving risk-return profiles: credit enhancement 4.Tax incentives 5.Domestic fund mandates 6.Central banks: boosting demand and convening power 3.Improving risk-return profiles: credit enhancement 4.Tax incentives 5.Domestic fund mandates 6.Central banks: boosting demand and convening power Market Structure Issuer Base Investor Base 7.Market integrity: supporting standards development 8.Market creation & development: aggregation of small-scale 9.Financial regulatory measures are important 10.International financial cooperation 7.Market integrity: supporting standards development 8.Market creation & development: aggregation of small-scale 9.Financial regulatory measures are important 10.International financial cooperation

© Climate Bonds Initiative July 2015 Subscribe to market updates