Financing the global green revolution

Barclays Bank is the first UK bank to issue a green bond
Barclays Bank is the first UK bank to issue a green bond
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​​As 2017 draws to a close it is worth recognising the shift in gear in implementing commitments to​ ​transition to a low carbon or ‘green’ economy and the UK’s leading role in this transformation.

To mark two years since the landmark Paris climate accord, world leaders and philanthropists​ ​gathered again last week to attend the One Planet summit. They were focused on practical ways to​ ​continue the fight against climate change. And what was evident is the critical role of private​ ​financing in supporting this change.

As a UN Sustainable Stock Exchange, with more international companies on our markets, more​ ​internationally focused assets under management and a thriving international investor community,​ ​London Stock Exchange is in the leading position to support the global low carbon transition.

We were the first global exchange to launch a bond market dedicated to green bonds and our​ ​markets have become home to world first green bond listings, from Finland to China, India, Japan​ ​and the Middle East. The proceeds of these bonds are used to finance ‘green projects’ such as wind,​ ​hydro-electric and solar power and electric vehicles​.​

Indeed, 2017 has been a stellar year for green bond listings on London Stock Exchange. Up to the​ ​beginning of December 2017, there had been a 64 per cent growth in the number of green bonds​ ​compared with 2016 and a 65 per cent increase in money raised. And November in itself was a​ ​record month, with seven green bonds raising over $3.2​bn​.

What we’re seeing is that some of the fastest growing economies of the world especially India and​ ​China have a vital need to finance sustainable economic growth and investment in infrastructure and​ ​they are working with partners in the UK to fund this growth.

Rule changes are allowing emerging market governments and corporates to raise finance offshore​ ​and denominated in their own currency to eliminate currency exposure. London Stock Exchange has​ ​become the leading international market for offshore rupee-denominated debt, masala bonds and​ ​offshore renminbi-denominated debt, dim sum bonds.

Only last week, Indian Railway Finance Corporation issued a $500​m green bond on our​ ​markets, becoming the sixth green bond by an Indian issuer in London. It joined days after inaugural​ ​green bond listings from Australian bank, Westpac, Japanese giant, Toyota and Finnish electricity​ ​grid operator, Fingrid.

And awareness and appetite is increasing across the developed markets too. In August 2017, UK​ ​energy company SSE issued the largest ever green bond by a UK company, to finance renewable​ ​energy on the North coast of Scotland.

And last month, Barclays Bank became the first UK bank to issue a green bond. It was a pioneering​ ​transaction, with the proceeds being used to back green mortgages. An Energy Performance​ ​Certificate is required when a house is bought or rented in the UK to show how environmentally​ ​friendly the property is. Barclays used this data to identify green mortgages and raised a bond​ ​against this publicly available information.

But green investment isn’t limited to green bonds. There are 37 green companies listed on our​ ​markets, a combination of renewable funds, alternative fuel companies and alternative electricity​ ​companies that in total have raised $7.3​bn.

With the development of the green equity and bond markets comes the need to further increase​ ​transparency. Through FTSE Russell, the LSE Group’s index, analytics and data provider, we are​ ​providing issuers with more efficient tools to report their sustainable initiatives, and investors with a​ ​comprehensive product to assess a wide range of financial instruments.

We are working with some of the world’s largest asset managers to create bespoke indices.

A pioneering launch this year was the new FTSE Blossom Japan Index, constructed using FTSE​ ​Russell’s Environmental Social and Governance (ESG) Ratings & data model. It’s an innovative tool​ ​that allows investors to understand a company’s exposure to, and management of, ESG issues. The​ ​index was selected by the Government Pension Investment Fund of Japan, the largest pension fund​ ​in the world with over $1.3 trillion in assets.

To end, this year also saw the Group launch guidance setting out recommendations for good​ ​practice in ESG reporting for companies. It was a response to demand from investors for a more​ ​consistent approach to ESG reporting, which is now a core part of the investment decision process.

This new and significant business could go anywhere around the world but the UK is leading the way.​ ​This is not just good for the country in terms of more business but also in terms of improving links​ ​with the world’s fastest growing economies. To those who think Brexit would put all this at risk,​ ​2017’s green activity across LSEG speaks for itself.

More still needs to be done to accelerate growth and push more private finance into green​ ​investment initiatives but London Stock Exchange Group, together with the support of UK​ ​Government and business, is in prime position to take the same lead we have done for hundreds of​ ​years: enabling finance for companies around the world as they approach the next great​ ​generational industrial shift – the transition to the low carbon economy.