Firms must seize green bonds opportunity

Wind companies may be canny, but they are also missing out on opportunities worth $13.5bn.

The Global Wind Energy Council last week published its ‘Global Wind 2014 Report’, which includes commentary by Sean Kidney, chief executive of the Climate Bonds Initiative. This organisation is seeking to mobilise debt capital for investment in climate change. In this article he looks at bonds issued last year by wind firms.

Specifically, he argues that most wind companies are missing out by not labelling their bonds as ‘green bonds’. This is narrowing their appeal to investors and is, he says, the reason that $13.5bn of bonds from wind firms were outstanding globally in 2014. They should have been labelled ‘green’.

In theory, there should be no reason why it makes a difference if a pure wind company calls its bond a ‘bond’ or a ‘green bond’. They would be secured against the same projects and used for the same corporate purposes. So why is the distinction important?

The reason is that the green bonds market is expanding to meet the increased demand for these types of bonds from institutional investors. Ratings firm Standard & Poor’s forecast that $100bn of green bonds could be issued this year, including $30bn by companies. This is up from $19bn of green bonds issued by companies in 2014 in a total market of $37bn.

If wind companies label their bonds as ‘green’ then they can access this growing market, broaden their investor base, and lower their cost of capital as a result. The ‘green’ label may also help ethically-minded investors to find the bond in the first place.

Now, we’re not so naive to think the ‘green’ label alone is enough to convince institutions to invest in any bond. They're smarter than that. These investors want to know they are going to get the returns they want over the period they want, and for a level of risk they find acceptable. But, if all other things are equal, we would expect an investor to go for something eco-friendly over something not. After all, it helps them to meet corporate 'green' goals at no extra cost.

The benefit for wind companies is that green bonds enable them to attract investors they may not have been able to previously. Many institutions have been reticent about investing in wind because they do not want their money tied up in illiquid wind farms, but green bonds give them a more liquid option to get into wind.

Wind companies may have been slow to get on board with green bonds, but we expect that to change this year.

Indeed, we are already seeing evidence. Last month, Vestas became the first pure wind company to issue corporate green bonds, worth €500m. It said somewhat vaguely that it plans to use the proceeds to support its corporate purposes, but investors can still invest confident they are putting money in wind.

The green bonds market is developing. Tougher standards are needed on what is meant by ‘green’, and these will come. But wind companies should get involved now or miss out.