Climate bond to lift investor confidence

EUROPE: Investor confidence should be boosted as a draft compliance standard for bonds linked to wind energy was launched in Brussels in March in the run-up to the world's first issue of a climate bond.

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The bond, worth $250 million and linked to wind farms across the globe, will be issued by a "large, multi-country bank" in May, according to Sean Kidney, chair of the Climate Bonds Initiative. The initiative brings together the climate-change and clean-technology sectors with experts from some of the world's largest financial institutions to stimulate the emergence of climate bonds.

Climate bonds are an extension of the green bond concept. Green bonds are issued by governments or corporate entities to finance low-carbon infrastructure projects.

Finance experts believe that institutional investors are the only source of capital large enough to finance the scale of low-carbon infrastructure required in an era of constrained bank and utility balance sheets.

Institutional investors, such as pension funds, manage some $70 trillion of the world's wealth, and yet renewable energy industries have mostly been unable to access this finance due to their small scale and lack of institutions to accredit projects.

Finance raised by the bonds could be used for either onshore or offshore projects, Kidney believes.

"I suspect offshore wind will have trouble getting institutional money in the short term unless it's fully guaranteed by the utilities, and also it's not that mature," he says. "The easiest thing for banks to do is to securitise or otherwise raise money against onshore wind. The cash flows are much more proven than for offshore wind."

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