Mark Burrows is the Executive Vice Chairman & Managing Director, Asia Pacific, Credit Suisse Investment Bank. He’s also passionate about protecting forests and about climate change. On Monday, in a speech to the Forests Asia Summit in Jakarta, he talked at length about green bonds, and we loved every word of it!
I want to talk to you about bonds, and specifically about green bonds.
Bonds are attractive for many reasons; they are a familiar product to the investment community and they represent the single largest pool of capital in the world. The key question today is how would these benefit our forests?
You may have noticed that I have spoken of green, and not forest, bonds. To take the pressure off the forests we need a holistic approach to green growth, not a siloed approach. We need to deal with the agricultural, infrastructure, urban and transport requirements that are essential to create a Green Economy. This is vital to create the jobs and green growth that will in turn create the social and political space for our forests to thrive.
To do this we need a green growth blueprint. Once we have a blueprint, we can use green bonds as a mechanism for preferencing sustainable investments over alternative growth strategies in forest economies.
Green Bonds capitalise on a growing appetite for ‘purpose-driven’ finance and can help reduce the risk and complexity of greener investing, They make product selection simple and standardised for investors and they outsource the social and environmental due diligence to credible third parties. They have the potential to create a virtuous cycle. Uncovering the large-scale investor appetite we are seeing in the market will help to drive governments to develop green growth frameworks in the knowledge that cheap private sector capital is eager and available.
The key question is how do we scale up this opportunity? To do so, there are several key requirements:
- Investors demand large-scale investment opportunities. We need to be thinking of investment grade bonds of half a billion dollars and upwards. This will make it easier for money managers to increase green capital allocations within existing liquidity and creditworthiness constraints of investors. Let’s think big.
- Green bonds are a relatively new concept. We need to use public funds strategically to improve the attractiveness of the products and develop an investment track record. We need to bring in the balance sheets of rich nations to buy down the cost of capital. However, at the other extreme, we must avoid Development Banks providing 100% of project financing and crowding out private finance. We need to be strategic.
- We need to be clear and rigorous about what green growth is, especially in complicated areas such as forestry and agriculture. For that we need standards, and then third party verification of those standards. There is huge demand from the finance community for this. They want help to screen and preference green investment. We need to simplify and standardise.
- We need to use incentives for Green Bonds. This isn’t rocket science. Tax incentives have driven expansion in the US oil and gas industry for many years. It is just a matter of defining your qualifying universe and implementing it. Very little treasury loss can be a very big boost to investment. We need carrots.
- Build a green growth narrative in a language that resonates with our target audience. Once again, we need close the perception gap. Let’s reposition the narrative in both politics and financial markets towards financing productive investments that will provide a long-term economic stimulus. We need a compelling story.
Watch the video here.
Source: Climate Bonds Initiative. Reproduced with permission.
Editors note: Burrows was formerly Executive Chairman of the iconic investment advisory bank Baring Brothers Burrows in Sydney in 1999 and then Managing Director and Executive Deputy Chairman on ING Barings to 2004 before returning to Australia to start Lazard’s advisory business. He is also a former deputy chairman of Fairfax, Telstra and Brambles.