Inside the Climate Bonds Initiative with Sean Kidney

This post is part of an EDF+Business ongoing series on sustainable finance, highlighting market mechanisms and strategies that drive environmental performance by engaging private capital. EDF is actively engaging leaders with the capital and expertise needed to catalyze sector-wide changes—from accelerating investment in energy efficiency and clean energy, to protecting tropical forests, restoring depleted fisheries and saving habitats of endangered species.

2014 has seen exciting growth in the maturing green bonds market, with clear investor demand and issuance tripling compared to 2013. However, for the market to grow to scale, this sector needs the kinds of systems and accepted standards in place that sustain the $80 trillion global debt capital markets.

Climate Bonds InitiativeI recently caught up with a key figure in the green bond movement – Sean Kidney, chief executive and co-founder of the Climate Bonds Initiative (CBI) – to discuss the current state of green debt and what it will take to scale up investments. Kidney launched CBI as a project of the Network for Sustainable Financial Markets, after a career in social marketing and strategy consulting, including working at some of the largest Australian pension funds. Here are some highlights from our conversation:

I understand that policy will play a key role in scaling the green bond marketplace. What role is CBI playing in the policy arena?

A price on carbon is critical to creating a scale, but that has proved challenging to secure in the near-term. Instead, we are largely focusing on what we call financial system policy.

First and foremost, we are advancing international standards, working to establish clear, green and robust definitions. We have a huge number of organizations involved in this, representing $34 trillion of investors, and sizeable grants from Bloomberg and the Swiss government. The type of certification system we are working to establish is critical to building and maintaining reasonable confidence in green bond “credentials”.

Our second focus is what we call policy formulation, helping governments see that ‘There’s a pot of gold over there,’ and showing them how to harvest it. Examples of this effort include a couple of papers we published in the spring. One is about what China can do to grow its green bond market and the macroeconomic reasons to do it. We also published a report for the European Commission on Financing the Future, where we articulated the role of green bonds in designing stable financial markets.

Our third effort is what we call market education; here our focus is to increase issuance. We’ve established there is investor demand, and now we need to feed it with bonds, so we travel the world working with the issuer community. We brief banks and cities on this new market, hoping to motivate them to enter it and thereby build supply.

There’s a lot of issuance coming through the system. I think we’ll see double the market this year than we saw last year without too much difficulty, but I want it to triple again because triple gets us to a magical $100 billion issuance, which has political resonance. Read more