Green Finance Isn’t Going Where It’s Needed

Poor countries pay a higher price to raise money for green investments. Green Finance Isn’t Going Where It’s Needed

We’ll all pay the price if they don’t get the support they need.

Some of the finance world’s biggest climate champions may be undone by a relatively small part of their portfolios: emerging market debt.

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While many of the world’s poorest countries struggle with the economic devastation from Covid-19 and limited access to vaccines, some of the biggest asset managers and their clients continue to earn high returns on emerging market bonds. Those profits are partly why it’s so hard for developing nations to make fast progress on cutting emissions.

A new paper by researchers at University College London showed that Africa and other developing regions tend to pay a much higher cost of financing for green energy relative to fossil fuels. This creates a “climate investment trap”: Countries that must pay a higher price to green their economies might forego such investments, even if they’re the ones that will suffer the most as the planet warms.

Yet, as lead author Nadia Ameli notes, few of the sustainable finance measures in practice today, even in progressive places like the European Union, address how to get capital to poor countries. She argues that “radical changes” are needed to address this disparity.

The pandemic has made the problem more urgent as the high cost of borrowing for developing nations coincides with a plunge in state revenues. Last year, 62 countries spent more on debt servicing than healthcare, and at least 36 spent more on bond payments than education, according to Eurodad, a network of civil-society organizations that advocates for financial reforms.

The great irony is that the investment world is bursting with ESG and climate-oriented products and services hunting for assets.

There is so much money chasing “green” assets, and so few opportunities, that many ESG funds are loaded with tech stocks rather than companies dedicated to the energy transition or climate adaptation.

A planetary problem surely requires a portfolio to match, but developing countries are considered a risky bet by Western investors. Hence “emerging market” assets tend to make up a very small slice of the investment universe.

This aversion can be compounded by the burgeoning practice of climate financial risk analysis, Ameli notes. The fact that developing countries will be hit the hardest by global warming may mean investors actually penalize them the most.

Meanwhile, wealthier countries suffering from the same pandemic were able to provide emergency relief, and even stimulus, to their economies by issuing bonds at low or even negative rates — regardless of whether they are labelled “green” or not. The European Union’s latest NextGenerationEU issue could have been sold many times over.

The U.S., Japan and others could fund a high-tech, green industrial revolution at rock-bottom rates, should they find the political will to do so. The International Monetary Fund, historically disposed to fret about debt-to-GDP ratios, laid out a scenario last year showing how effective such a path would be for jobs and growth through 2100.

This tension is set to come to a head at global climate talks to be held in Glasgow, Scotland in November. Rich nations haven’t delivered on the $100 billion a year in climate finance for developing countries they promised to raise by 2020. That’s led to calls by some to boycott the summit altogether.

An allocation later this year of Special Drawing Rights, the IMF currency, could give poor nations some breathing room. Yet this one-off arrangement won’t even cover the total damage done by Covid-19; the Organisation for Economic Co-operation and Development estimates developing countries lost $700 billion in external private financing last year.

What can be done about this? Ameli and her co-authors suggest several possible levers, including that the sustainable finance frameworks being implemented in Europe, China and elsewhere could better address the location of investments to provide some incentive for greening developing economies.

“These frameworks would need to evolve, to explicitly target developing economies in how they guide capital flows, if they are to play a significant global role,” she said, adding that the IMF and development banks could also use their financing capacity to reduce the cost of capital, such as underwriting perceived risks where necessary.

Avinash Persaud, an advisor to the Barbadian government, recently proposed that “hurricane clauses” be widely adopted in sovereign bonds, automatically suspending payments when disaster strikes.

Calls for systemic reforms to the global finance architecture — such as a global debt-restructuring mechanism, state-contingent clauses, transparency on sovereign debt, and improvements to IMF and World Bank analysis — date back years, if not decades.

Most have been vetoed by a few G-7 governments, or struggled to gain traction among the board politics and bureaucracy of the Bretton Woods institutions.

Perhaps some change could also be effected by the big financial institutions themselves, which often help develop these sustainable finance regimes. Ownership of emerging market sovereign bonds is more concentrated than you would think.

Lazard Ltd. executives wrote last year that “a more institutionalized group of the largest fund managers could be a decisive stakeholder in the near future — if fund managers wish to collectively engage in such a way.”

A review of available data by Eurodad showed that BlackRock Inc. is the single biggest holder of emerging market debt. The research also suggests that big investment banks potentially have vast influence: Citigroup, Deutsche Bank and JPMorgan were responsible for underwriting half of the sovereign debt from emerging countries for which contracts could be identified.

All these institutions, plus the IMF and the World Bank, loudly support the Paris Agreement goals, as do key governments such as the U.S., U.K., and Germany. They need to direct this enthusiasm to the places that need it most.

Brexit-Battered London Spars With Paris For Green Finance Crown

The home of JPMorgan’s new European trading hub has emerged as a surprising contender to lead the green finance industry that could reach $53 trillion by 2025.

As JPMorgan Chase & Co. chief Jamie Dimon made clear this week, Paris keeps chipping away at London’s financial dominance. The next prize at stake: becoming the global capital of green banking, and the trillions of dollars of deal flow that will bring.

Paris and London are competing to dominate this burgeoning world of investment products tailored for environmental, social and governance factors, which Bloomberg Intelligence estimates could grow to more than $53 trillion of assets by 2025 — a sum that’s greater than the global market for corporate bonds.

For the City of London, this battle is “key to its future,” says Ben Caldecott, director of the Oxford Sustainable Finance Programme at the University of Oxford. Just as New York dominates equities trading and Chicago is the home of options, the city that establishes itself as the world’s green finance hub is set to benefit from a surge in sustainable trading and investing.

The stakes have been heightened by Brexit, which has sent international banks away from London. JPMorgan added to London’s woes Tuesday when Dimon, the bank’s chief executive officer, announced that Paris will be the firm’s post-Brexit “trading hub” in the European Union and confirmed a plan to move several hundred traders to the French capital.

A number of JPMorgan’s biggest U.S. rivals, including Bank of America Corp. and Goldman Sachs Group Inc., also have thrown their weight behind Paris.

On most measures of financial clout, the French city is no match for London. The U.K. capital employs more than twice as many people in financial services, its asset managers oversee more money than their peers in France, Germany and Switzerland combined, and the City is the leading global center for trading currencies and eurobonds.

Still, France was home to sustainable funds worth more than 140 billion euros ($167 billion) at the end of March, almost 40% more than was based in the U.K., according to data compiled by Morningstar Inc.

France also has sold the most green bonds in the world, with the U.K. yet to issue its inaugural deal. In a survey of more than 6,000 CFA Institute members published in May, 75% of respondents from France agreed that ESG-compliant products “will dominate the financial landscape within the next 10 years,” the highest of any country.

Green finance isn’t an exclusively European affair, though major hubs like New York and Hong Kong currently lag far behind.

While Western European cities accounted for eight of the top 10 green finance centers in an April ranking by Z/Yen, the consultancy said a number of them may be displaced over the next two years by centers in North America and Asia.

The biggest change is happening in the U.S., where the Biden administration is pushing the finance sector to rapidly improve climate disclosures and better support the energy transition.

Rhian-Mari Thomas, head of the U.K. government-funded Green Finance Institute set up to promote sustainable investing, says Paris is often seen as her city’s biggest competitor. “Just because London has some of the deepest pools of capital and enviable pedigree doesn’t mean by osmosis it will turn green,” she says.

Winning the race to dominate the world of green finance is both a matter of pride and a core pillar of Britain’s mission to remain a leading world financial center. For more than three decades after Margaret Thatcher liberalized finance in the “Big Bang” overhaul of 1986, London was the unrivaled financial hub of Europe.

The City provided Wall Street and Asian financial firms with a gateway into European markets and, in return, it powered the U.K. economy, with the financial sector paying 10% of taxes in 2020.

“Many people have said that we can be nimble post-Brexit and this is the first real opportunity to put that into practice,” says Nicky Morgan, a Tory peer and former chair of parliament’s Treasury Committee overseeing financial services. “If London were not to build a leading position in green finance, we’d have to look around for what’s the next thing, which may not be immediately obvious.”

One deficit the U.K. is trying to remedy is its lack of a sovereign green bond, which Thomas calls “the fly in the ointment” for London’s green credentials.

The nation’s plan to sell at least 15 billion pounds ($21 billion) of green bonds starting in September is “probably the most ambitious green sovereign gilt issue of any major country in the world,” Chancellor of the Exchequer Rishi Sunak said in a Bloomberg TV interview on Thursday, after he delivered a speech promising to bolster the U.K. finance industry’s competitive edge.

For France, it was the 2015 UN talks that were the turning point. Policy makers passed a law that year forcing the country’s fund managers to disclose how they incorporate ESG issues into their investment decisions, along with the climate impact of those trades.

French insurers, asset managers and lenders were the first to start restricting some services, including lending and underwriting to coal companies. Today, the nation’s financial sector leads on climate analysis, such as portfolio warming metrics, and efforts to mobilize financial markets to protect biodiversity.

Meanwhile, companies listed on the U.K.’s FTSE 100 have fallen far behind their French peers in setting climate goals that pass muster with the Science-Based Targets initiative, a group of experts that sets widely respected standards on what it takes for a company to reach net zero.

The emissions-reduction targets set by Britain’s benchmark companies are in line with global warming of 3.1 degrees Celsius from pre-industrial levels — a scenario where large parts of the planet will be uninhabitable due to extreme heat.

“This is no longer a niche,” says Anne-Claire Roux, who set up Finance For Tomorrow to champion the French capital as a sustainability hub. The initiative, which officially launched in 2017, pushes French firms to embrace ESG while promoting their expertise, including through the One Planet Summit backed by President Emmanuel Macron. “Green finance is seen in London as a key business issue, but there is a level of competition between financial centers and Paris is above its peers.”

As competition heats up to dominate green finance flows, setting the rules is becoming a battleground. One major advantage Paris has is the EU’s development of a taxonomy that will define what counts as a green investment, starting with bonds.

The detailed rules will make it easier to issue sustainable debt, especially if the taxonomy becomes a global standard, putting French banks even further ahead of their peers. (The U.S. also is attempting to develop a benchmark for Wall Street.)

While the EU has a clear lead over rival jurisdictions such as the U.K., the real test will be which standard is most widely adopted. The U.K. has said it will take metrics from the EU’s taxonomy as the basis for its own, but aims to align its rules with more ambitious targets to cut emissions. Striking the right balance between financial interests and climate goals could determine which taxonomy is seen as more credible.

Thomas, whose Green Finance Institute is helping advise the British government on how to implement a taxonomy, says the U.K. could set itself apart by developing a classification of transition activities.

The goal would be to help clarify when activities in the most-polluting sectors make a significant contribution to environmental objectives. It’s fraught territory: climate experts have warned the EU against including some natural gas projects in its taxonomy, while some finance executives argue that fossil fuel financing will be needed before there are zero-emission alternatives.

That U.K. banks continue to fund some of the most carbon-intensive activities is another mark against its green aspirations.

While the biggest French and British banks favor fossil fuels over green projects, U.K. banks finance more coal than their French counterparts, according to data compiled by environmental nonprofits Reclaim Finance and Urgewald.

Their figures showed U.K.-based banks provided $131 billion to coal-linked companies between January 2016 and October 2020, compared with the $87 billion of financing from French lenders.

The upcoming COP26 talks hosted by the U.K. in Glasgow, Scotland, will be an opportunity for the nation to bolster its green image and highlight the good its bankers can do. Selling British know-how to the world will be a driving part of the U.K.’s strategy, including talking up London as the preeminent city for green finance.

If the Parisian experience is anything to go by, the conference could give London a boost. “It helped us in Paris to be the host country in 2015 and it will help the U.K. to host COP26,” says Roux. “London is aware it is a very important opportunity to showcase what it is doing and to accelerate that.”

But French officials aren’t easing up on their charm offensive, either. “I love the idea that you love France,” Macron joked with Dimon at the bank’s event in Paris this week. “You put your money and your people here. This is the best evidence of love.”

The U.K. Belatedly Escalates Its Green Gilt Ambitions

Britain has missed out on the cheaper funding available to issuers of environmentally friendly debt.

By the end of this quarter, the U.K. will finally have gilts on the global menu of green sovereign bonds. But unless it ramps up the scale and speed of its planned sales of the debt, the nation will lose out on both cheaper funding and a good opportunity to address the climate emergency.

The government on Wednesday published its Green Financing Framework, detailing the kinds of projects it intends to fund, including introducing more zero-emission public transport, installing renewable heat technologies and enhancing biodiversity.

To meet its goals of reducing carbon emissions by at least 68% in 2030 and 78% by 2035, both compared to 1990 levels, the U.K. plans a mix of government bond sales and retail-targeted savings bonds to finance more initiatives.

But it’s already taken far too long for Britain to join the list of green debt issuers.

More than two years ago, asset management firm Columbia Threadneedle wrote to U.K. government officials asking them to tap the market to help fund environmentally friendly projects. They dithered. Meanwhile, issuance from companies and governments around the world exploded.

Robert Stheeman, who’s been in charge of U.K. borrowing since 2003, has slowly come round to the idea. In January 2020, he told the Financial Times that selling green gilts would be “symbolic” unless there was a cost advantage for the government. Six months later, he told my Bloomberg News colleague John Ainger, “I would definitely not rule anything out.”

By March the argument was becoming more compelling. “The chances of us also doing something which could be extremely attractive from a cost perspective are certainly rising,” Stheeman said.

But the delay means the U.K. has already probably paid more than it needed to on at least part of the almost 200 billion pounds ($276 billion) of gilts sold this year.

That’s because the numbers suggest investors are indeed willing to pay more for green debt. Germany, for example, has two bonds repayable in 2030 that are identical, except one is designated as climate-friendly. Since its September sale, the yield on the green security has dropped further and further below that of its twin — evidence that the so-called greenium is growing.

A resurgent economy means gilt sales in the fiscal year that ends in March 2022 are likely to be lower than the 295.9 billion pounds envisaged by the Debt Management Office earlier this year. But the initial target of raising at least 15 billion pounds from just two sales of green gilts looks woefully unambitious, particularly given the likely demand for the securities from domestic investors alone.

New laws that come into force in October oblige big U.K. pension managers to report on how climate change affects the retirement savings they oversee. Those requirements, coupled with a structural shift that’s prompting so-called defined benefit schemes to increase their fixed-income holdings, will drive “strong demand for green gilts,” according to RBC Europe insurance analyst Gordon Aitken.

The U.K. program will “probably be the most ambitious green sovereign gilt issuance of any major country in the world and will certainly be the largest,” Chancellor of the Exchequer Rishi Sunak told Bloomberg Television on Thursday.

That smacks of hyperbole, given the European Union’s intention to use green debt for as much as a third of its planned 800 billion-euro ($944 billion) fundraising for the bloc’s NextGeneration pandemic recovery program in the next five years. The biggest outstanding sovereign green bond currently in the market comes courtesy of the French government and has a size of almost 29 billion euros.

But at least Sunak seems to recognize the scale of the opportunity in climate-friendly financing, not least as the City of London needs to capture as big a slice as possible of any new capital markets initiatives if it’s to shake off post-Brexit malaise.

Next month, the DMO will meet with investors and market makers to work out the tenor of the first green gilt, planned for September. A 10-year issue is seen as the most likely maturity. I’m willing to bet that investors will be queuing around the block to buy — and at a discount to the prevailing yield on the benchmark gilt, which is currently about 0.75%. Better late than never, I guess.

Updated: 7-7-2021

Investors With $4 Trillion Ask Banks To Raise Climate Ambitions

Aviva, Fidelity International and M&G Investments are among the firms increasing pressure on the world’s biggest lenders.

A coalition of investors overseeing a combined $4.2 trillion of assets are asking the world’s biggest banks to take more aggressive action in addressing climate change and biodiversity decline.

Aviva Investors, Fidelity International and M&G Investments were among 115 investors that wrote to 63 banks, including JPMorgan Chase & Co., Deutsche Bank AG and Standard Chartered Plc, to take several steps beyond what they’ve already committed to doing, including a complete exit from all coal finance by 2040 at the latest. The investors also requested that banks publish short-term climate targets before their annual shareholder meetings next year, and identify and disclose their impacts and dependencies on biodiversity.

The fund managers said banks can play a key role in enabling the low-carbon transition and helping avert the worst consequences of climate change and biodiversity loss. It’s also in their own self interest to throw their weight behind efforts to limit global warming since banks are exposed to the potentially significant effect on companies’ profits and the value of their assets stemming from the transition away from fossil fuels and the physical impacts of climate change and nature loss.

“The message from investors is clear: Distant net zero targets and warm words about the importance of biodiversity are not enough,” said Jeanne Martin, senior campaign manager at ShareAction, the U.K. nonprofit that coordinated the letters. “Investors want concrete action now, and those banks which fail to respond can expect serious challenges at their next AGMs.”

The investor group, which also includes Man Group Plc and Federated Hermes Inc.’s EOS division, said they were calling on the banks to strengthen their strategies ahead of the United Nations’ conventions on biodiversity and climate change that will be held in October and November respectively.

They want the banks to go beyond the pledges they have already made through voluntary initiatives such as the Net-Zero Banking Alliance. Signatories to that initiative have pledged to set their first round of climate targets by the end of next year, whereas the investor letters call on banks to publish comprehensive short-term climate targets, defined as five to 10 years, and covering all relevant financial services, ahead of banks’ mid-year annual meetings.

The investor coalition also asked the banks to align their climate plans with the International Energy Agency’s net-zero scenario that calls for an end to fossil fuel exploration and development, or another 1.5 degrees Celsius scenario that doesn’t rely on so-called negative emission technologies. In addition, they called for banks to publish a biodiversity strategy before the October summit that covers their impacts and dependencies on the natural world, as well as a commitment to engage in the development of the Taskforce on Nature-Related Financial Disclosures.

The investors have asked the banks to respond to their letters by Aug. 15, and warned lenders’ progress on these issues “may be taken into consideration within investors’ 2022 AGM voting action and engagement activities.”

Updated: 7-21-2021

Greening Energy To Fight Climate Threat May Cost $92 Trillion

Annual investment in energy transition needs to speed up now, BNEF says

Governments and companies will need to invest at least $92 trillion by 2050 in order to cut emissions fast enough to prevent the worst effects of climate change.

That’s the latest forecast from analysts at BloombergNEF, who see that scale of spending as necessary to drive a rapid electrification of the global economy and slash reliance on fossil fuels.

Thirty years is a short timeframe to achieve the scale of transformation that is needed to limit further dangerous increases in global temperatures. Investment in infrastructure to accommodate energy transition will need to rise to between $3.1 trillion and $5.8 trillion annually on average until 2050, up from about $1.7 trillion in 2020, BNEF found. That means the final bill could be as much as $173 trillion, about eight times U.S. gross domestic product in 2019.

That level of spending would help limit the increase of average global temperatures to 1.75° Celsius from pre-industrial levels, compared with about 1.2°C of warming already present. Without further action, events such as the heatwaves, floods and wildfires experienced around the world in the last few weeks will likely get more frequent, dangerous and costly.

Scaling up the role of electric power underpins all hopes for a drastic cut to greenhouse gas emissions. More than three quarters of the potential decline in emissions this decade will likely need to come from electricity supply and the increasing use of wind and solar power, according to BNEF. Another 14% of the drop in emissions in that period can be achieved from vehicles, homes and industries switching to electric power from burning fossil fuels. Hydrogen will also have a significant role to play, with demand set to soar.

Hydrogen Boom

Hydrogen demand would surge in a low-carbon world powered by renewables.

Overall, electricity generation will need to at least double by 2050 to almost 62,200 terawatt-hours, making up almost 50% of final energy consumption, compared with about 19% now. A scenario where renewables are the dominant energy source would require even more electricity production. All of that power production will take time to plan, finance and build.

“There is no time to waste,” said Seb Henbest, BNEF’s chief economist. “If the world is to achieve or get close to meeting net zero by mid-century, then we need to accelerate deployment of the low-carbon solutions we have this decade — that means even more wind, solar, batteries, and electric vehicles, as well as heat pumps for buildings, recycling and greater electricity use in industry, and redirecting biofuels to shipping and aviation.”

So far, global leaders haven’t got the message. Less than 15% of the $2.4 trillion that governments spent to support the post-pandemic economic recovery went to investments in clean energy, an inadequate amount to get the world on a path to reach net zero emissions by 2050, according to a report this week from the International Energy Agency. Executives from some of the world’s biggest renewable energy companies called on leaders of the Group of 20 nations to set more ambitious renewable energy targets to have a chance to meet global climate goals.

There are many low-carbon technologies that will form a part of the energy transition. BNEF describes three different scenarios, one where renewables supply the bulk of energy, one where nuclear power grows significantly and one where fossil fuel plants equipped with technology to capture emissions play a dominant role.

These modeling exercises are a staple of the energy industry. That’s because many of the assets built to extract, transport and use energy require huge investments for infrastructure that lasts decades. Looking at how different sources of clean energy can help meet the same climate goal provides policymakers and energy companies with tools needed to make those investments.

In all of BNEF’s scenarios, hydrogen will need to be a bigger source of energy for applications like heavy industry and chemicals production. That could lead to demand of as much as 1,318 million metric tons of hydrogen in 2050, making up about 22% of total final energy consumption, compared with less than 0.002% today.

Updated: 8-20-2021

Bain To Start Long-Short Hedge Fund Focused On Green Investing

Bain Capital is starting a hedge fund to bet on and against companies based on sustainable-investing criteria as part of the alternative asset manager’s roughly $3 billion public-equities business.

The firm, which already has a private strategy that makes impact investments, expects to launch the fund by October, according to an investor document viewed by Bloomberg. It will focus on consumer, financial, technology and health-care stocks and invest globally in companies with market values exceeding $1 billion.

The fund will avoid investing in energy-intensive industries, aiming to run a low-carbon portfolio, according to a person familiar with the matter. It will have a daily redemption period and initially charge a management fee of 0.9% and a performance fee of 12.5% — less than the traditional 2-and-20 hedge fund model.

The public-equities team, led by Chief Investment Officer Joshua Ross, started implementing a sustainable framework into its investment process across strategies in 2018, said the person. Its $1.6 billion global equity long-short fund has delivered an annualized net return of 10% in the four years through July 31, according to the document. The group also runs a global long-only equity strategy with a similar framework.

A spokesman for Boston-based Bain, which manages about $140 billion, declined to comment.

Investment firms are pushing deeper into green strategies as investors funnel capital into the sector to help address climate change and other social issues. On the private-equity side of its business, Bain raised its first impact fund in 2017 and has since backed 13 portfolio companies, according to its website. Its Double Impact strategy had about $1 billion of assets at year-end.

The new sustainable fund will integrate environmental, social and governance considerations into the investment process and assess how these factors will affect companies’ operating margins and earnings power, according to the document. It will aim to back firms that have good management structures, employee relations, compensation and tax compliance.

Updated: 8-27-2021

IRS Pursues Promoters of Green Tax Breaks Worth Tens of Billions

A strategy long used by farmers and conservationists lures investors seeking shelters.

Jack Fisher has raised hundreds of millions of dollars pitching investors on real estate development projects that were never built.

Fisher, an accountant-turned-developer, promoted projects such as the Preserve at Venice Harbor, near Hilton Head, S.C., where marketing illustrations showed houses on canals that evoked the famous Italian city.

Instead of developing the land, he recruited investors to elaborate deals that provided them charitable tax deductions in return for donating easements for conservation. The Internal Revenue Service, however, suspects the deals may amount to tax fraud.

Fisher is at the center of a criminal probe related to these syndicated conservation easements, according to people familiar with the details, who requested anonymity to discuss a confidential matter. The investigation has already led to tax conspiracy charges against three accountants who worked with him.

A syndicated conservation easement gives dozens of investors in partnerships three choices: to build a specific development project; to hold on to the land and build later; or to donate an easement to a land trust or government, promising to forgo development. The third option entitles investors to charitable tax deductions, based on the appraised value of the land, that can be worth four or five times their investment.

Easements have been used—legitimately, and mostly by family partnerships and individuals like farmers—for decades as part of a federal push to preserve more than 30 million acres of land. Those aren’t the focus of an IRS crackdown. Instead, it’s going after promoters like Fisher who sell deals through brokers, accountants, lawyers, and tax preparers, and who market the projects that generate large tax deductions. The IRS has made these an enforcement priority, suing some promoters to shut them down and criminally investigating others.

California conservation lawyer Misti Schmidt says a typical syndicated easement used by wealthy investors is an “ugly tax-shelter scheme” that relies on grossly overvalued appraisals. “There’s so much money to be made, they just keep doing it,” says Schmidt, a partner at Conservation Partners.

Those appraisals are at the center of the legal fight around syndicated easements. Before an easement donation is made, an appraiser assigns it a value based on its highest and best use. That number is then used to calculate the tax deductions. The IRS often argues that those appraisals vastly inflate the development potential of a property, and that promoters use those valuations to market lucrative tax deductions.

Two of Fisher’s associates, the brothers Stein and Corey Agee, pleaded guilty in December to conspiring to promote fraudulent tax breaks and are cooperating with prosecutors. Although Fisher wasn’t charged or named in the Agee cases, he’s referred to as Promoter A in court documents, the people familiar with the details say. Documents reviewed by Bloomberg confirm Fisher’s role in the deals. Lawyers for Fisher didn’t respond to emails and phone calls seeking comment.

In the Stein Agee case, prosecutors say the deals were “illegal tax shelters that allowed taxpayers to buy tax deductions,” according to the charges. Appraisals were “falsely inflated,” while the conservation option was “always a foregone conclusion.” Many investors signed up after the tax year in which easements were donated, prosecutors say, even though the IRS allows deductions only in the same year a donation is made. Promoter A and others had investors backdate checks and agreements, according to the charges.

Updated: 8-31-2021

Biggest Danish Pension Fund Starts Buying Corporate Green Bonds

ATP, Denmark’s biggest pension fund with $170 billion in assets, is entering the corporate green bond market for the first time, in another sign of how sustainable investments are fast becoming mainstream.

After four years buying green bonds issued by governments and governmental agencies, the investment team at the Hillerod, Denmark-based fund is now comfortable enough with its ability to detect greenwashing to take the next step, said Bo Foged, its CEO.

“We have decided to buy actually green corporate bonds in our investment portfolio,” Foged said in an interview. “That is one of the initiatives that our liquid team has been focusing on this first half of the year.”

The market for fixed-income products tied to sustainability is booming, as extraordinary fires and flash floods provide vivid demonstrations of the cost of ignoring climate change. Corporations and governments globally have sold a record $650 billion in green, social, sustainability and sustainability-linked bonds so far this year.

After four years, ATP now holds around 40 billion kroner ($6.4 billion) in green government and agency bonds in its hedging portfolio, and that figure will likely rise, Foged said. The European Union, Spain and the U.K. are among those planning debuts in the market this year.

The government-mandated pension program puts the vast majority of contributions in the hedging portfolio, which is designed to provide pensioners with a minimum payment. ATP also runs an investment portfolio where it takes greater risks, and this is where the corporate green bonds it buys will end up.

“We have to remember that this is a fairly new market,” he said. “It was a bold move back in 2017 to buy the first green bonds, and we have actually grown our portfolio as the market has grown, and and we will probably continue to do that.”

Updated: 9-4-2021

Green Bond Sales Head For Record As More Nations Set For Debuts

The green bond market is hotting up again with investors bracing for a potentially record month of sovereign sales.

Spain, Colombia and the U.K. are due to offer their inaugural green bonds this month, with the latter expected to “certainly be the largest” in the world by Chancellor of the Exchequer Rishi Sunak. That’s in addition to established issuer Germany, which will sell a new 10-year green bond via auction next week.

All that will soon be dwarfed as the European Union prepares to enter the market, with 30% of its 800 billion-euro ($950 billion) pandemic recovery funding slated for green projects. The bloc will hold a call Wednesday with investors to give more details on its plans.

“Based on the way the pipeline is building, we could see a month for record issuance,” said Trisha Taneja, head of ESG advisory for origination and advisory at Deutsche Bank AG. “This is typically the time that most issuers want to go to market, right after Labor Day.”

Sovereign green sales in September could be at least 20 billion euros, according to Imogen Bachra, a rates strategist at NatWest Markets. That would test the current monthly all-time high, set in March, when Italy made a record-breaking debut and top issuer France sold more debt.

Since the first sovereign green bond by Poland in 2016, momentum has grown with more and more issuers coming on board. Governments from around the world sold $39.1 billion in green bonds so far this year, already surpassing a total of $37.5 billion in all of 2020, according to data compiled by Bloomberg Intelligence.

That issuance boom has been led by European countries such as France, Italy and Germany, though developing economies are now joining in. Hong Kong and Chile have been among the largest emerging-market issuers in 2021, with Benin having pipped Ghana to sell Africa’s first sovereign social bonds and Colombia set to debut this quarter.

Supply is just catching up with investor demand, with concerns over greenwashing — overstating the environmental benefits — less of an issue in the European sovereign market. All of the region’s green sovereign bonds trade rich on the curve versus their conventional counterparts, in a so-called “greenium,” and that is unlikely to change even in a record-breaking year, said NatWest’s Bachra.

“I feel there is cash available after summer to deploy and would not expect too much pressure on pricing,” said Ronald van Steenweghen, a fund manager at Degroof Petercam, who would like to see more issuance in five- to 10-year tenors. “Most new sovereign issues have been well telegraphed in advance and demand remains very strong, partially due to regulatory changes.”

The biggest and most anticipated deal this month will be from the U.K., with a green gilt maturing in 2033. Other euro-area debuts may come next year from the likes of Austria and Greece, though by then individual sovereign sales should be dwarfed by the EU.

“I think everyone will try to have their own green bond, but the EU issuance is definitely what everyone should focus on,” said Jorge Garayo, senior rates strategist at Societe Generale SA. “This month may be big because you have Germany and Spain, but it’s not going to be the biggest.”

Updated: 9-6-2021

Spain Plans To Raise 5 Billion Euros From Debut Green Bond Deal

Spain is set to raise 5 billion euros ($5.9 billion) from its debut green bond this week, according to two people familiar with the matter, the first in a flurry of sovereign sales expected this month.

The deal for the 20-year note, which was announced Monday, should launch Tuesday, one of the people said, asking not to be identified due to internal policy.

Spain will join Italy and France in offering green debt this year, which have helped drive sales of syndicated ethical bonds in Europe to a record 286 billion euros. The U.K. is preparing an inaugural sale this month, while established issuer Germany will auction a new 10-year offering this week.

“This will confirm that demand is there for other large green bond issuers testing the market,” said Antoine Bouvet, senior rates strategist at ING Groep NV. “The first Italian green bond saw almost 10 times demand when it was launched.”

Bouvet said the bonds will have fair value if yields are three basis points lower than their conventional peers, and are worth buying if they rise above that. Green bonds typically offer slightly lower rates given strong investor demand, in a so-called greenium.

The sale is going ahead as preparations for Spain’s next budget are now advancing, after the deal previously faced roadblocks due to delays in passing the spending plan. That was because proceeds from the offering need to be spent on specific initiatives tackling climate change, which hadn’t been detailed by the government at that time.

Sovereign green sales in September could total at least 20 billion euros, according to Imogen Bachra, a rates strategist at NatWest Markets. That would test the current monthly all-time high, set in March, when Italy’s debut pulled in the biggest-ever orderbook for green bonds.

Charles Diebel, a money manager at Mediolanum, said high demand for Spain may drive up prices and reduce the offering’s appeal.

“The valuation is likely to be too rich for my blood,” he said.

The offering will be handled by Barclays Plc, Banco Bilbao Vizcaya Argentaria SA, Credit Agricole SA, Deutsche Bank AG, JPMorgan Chase & Co. and Banco Santander SA.

Spain Is The Opening Act For The EU’s Big Green Autumn

The bloc could have stronger standards for its climate-friendly bonds but it is still providing a beacon for companies anxious for leadership.

Nothing says the European summer is over and business is restarting like a blowout sovereign bond sale. Tuesday’s inaugural green bond launch for the Kingdom of Spain certainly fits that bill. The 5 billion-euro ($6 billion) 21-year deal received orders well over 10 times what was on offer. Investors just cannot greenify their portfolios quickly enough. But this is just the first course of what’s on offer for EU green bond issuance come autumn.

Leaving aside the U.K.’s inaugural green Gilt due later in the month — after all, it is no longer part of the bloc — the real focus will be on the European Union itself which is fast becoming the world leader on green finance. Indeed, London has some catching up to do.

EU Budget Commissioner Johannes Hahn confirmed Tuesday that green bonds will form part of the bloc’s 800 billion-euro NextGeneration EU recovery fund bond sales from October. That means over the next half-decade some 250 billion euros of green-labeled debt will be sold — 30% of the EU Commission’s total — putting it firmly on course to be the biggest global green issuer.

Not every issuer gets it right so the EU’s standards will be important. How does it avoid allegations of greenwashing? So far, it has adopted norms established by the International Capital Markets Association; it will likely combine these with recommendations on climate-related financial disclosures and for voluntary carbon markets set up by task forces ahead of the United Nations climate change COP26 summit in Glasgow, Scotland in November.

It is still far from clear what is truly green or what is just painted a nicer shade of aquamarine. And there’s a crowded field of virtuous regulatory bodies offering their own visions of environmental rectitude. The tricky bit is choosing the organization to be arbiter of best practices.

As with Spain’s new green bond, the EU is using the methodology of Moody’s Investors Service ESG solutions unit Vigeo Eiris. This doesn’t mean it necessarily becomes the sole standard. Corporations, as suits them, are picking and choosing between different guidance — especially for sustainability-linked bonds that come with green strings attached.

The EU could have set a precedent with stronger industry standards from the start — if only to show its willingness to suffer the consequences if it falls short of its ambitions. Still it is an important start and is a beacon for businesses eager for leadership. Indeed, nearly half of the new bond sale mandates announced this week in Europe and the U.K. have been green. That in itself is progress.

Updated: 9-8-2021

Walmart Kicks Off Five-Part Debt Sale, Including Green Bond

Walmart Inc. is tapping the investment-grade market with a five-part bond sale that includes a green bond, according to a person familiar with the matter.

The longest portion of the offering, a 30-year security, may yield around 95 basis points above Treasuries, said the person, who asked not to be identified as the details are private.

The new bonds will fund a tender offer for up to $8 billion of existing Walmart senior notes, or for general corporate purposes. The 10-year portion will be used to finance or refinance a portfolio of Walmart’s eligible green investments.

Citigroup Inc., Mizuho Financial Group Inc. and Wells Fargo & Co. are among banks managing the sale, the person said.

Updated: 9-10-2021

Bumper Week Of Green Bond Sales Finds Strong Demand In Europe

A stellar week of green bond sales in Europe looks set to turn into a bumper month for the region’s sovereign issuers.

Spain sold 5 billion euros ($5.9 billion) in its debut green bond deal on Tuesday, attracting an order book that covered the deal by 12 times. Meanwhile, the Isle of Man — a British crown dependency that last came to the market two decades ago — raised 400 million pounds ($550 million).

Coming up, the U.K. will make its inaugural green sale later this month in what has been promised to be the biggest sovereign issue in history, while the European Union will start its 240-billion-euro green issuance program in October.

The boom in green debt is continuing apace despite concern that incoming rules from the EU on what constitutes an environmentally friendly security could fragment the market between issuers that adhere to these standards and those that don’t. For investors who are wary of potential greenwashing, that’s muddying the outlook.

Yet despite the headwinds, demand remains robust, with a boom in ESG investing mandates pushing up the “greenium” investors are willing to pay for ethical debt, according to Deutsche Bank AG.

“The problem is not too much debt, but not enough,” Chris Iggo, chief investment officer of core investments at AXA Investment Managers, wrote in a note. “Institutional asset owners and their asset managers need to de-carbonise portfolios by increasing the share of “green” assets.”

Bumper Week Of Green Bond Sales Finds Strong Demand In Europe

A stellar week of green bond sales in Europe looks set to turn into a bumper month for the region’s sovereign issuers.

Spain sold 5 billion euros ($5.9 billion) in its debut green bond deal on Tuesday, attracting an order book that covered the deal by 12 times. Meanwhile, the Isle of Man — a British crown dependency that last came to the market two decades ago — raised 400 million pounds ($550 million).

Coming up, the U.K. will make its inaugural green sale later this month in what has been promised to be the biggest sovereign issue in history, while the European Union will start its 240-billion-euro green issuance program in October.

The boom in green debt is continuing apace despite concern that incoming rules from the EU on what constitutes an environmentally friendly security could fragment the market between issuers that adhere to these standards and those that don’t. For investors who are wary of potential greenwashing, that’s muddying the outlook.

Yet despite the headwinds, demand remains robust, with a boom in ESG investing mandates pushing up the “greenium” investors are willing to pay for ethical debt, according to Deutsche Bank AG.

“The problem is not too much debt, but not enough,” Chris Iggo, chief investment officer of core investments at AXA Investment Managers, wrote in a note. “Institutional asset owners and their asset managers need to de-carbonise portfolios by increasing the share of “green” assets.”

Updated: 9-16-2021

Canada’s Desjardins Eyes Dollar ESG Bond To Capture Greenium

Desjardins Group, North America’s largest financial services co-operative, is considering a sale of sustainable bonds in the U.S. after its debut ESG debt sale in Canada priced at lower interest rates than its conventional debt.

“If I see another opportunity to issue senior debt in the U.S. just as other banks did since 2017 or something like that, I would,” Desjardins’ Head of Treasury Yassir Berbiche said in an interview after selling C$500 million ($396 million) of sustainable bonds last week at a so-called greenium of 4 basis points, referring to the price benefit of issuing environmental, social and governance bonds.

Desjardins may also use its ESG bond program to eventually offer subordinated debt, Berbiche said.

Canadian issuers from governments to corporations have raised C$19 billion of ESG bonds in the domestic and international markets so far this year, according to data compiled by Bloomberg. That’s already an annual record with more than three months to go as issuers get lured by the steady growth of credit funds focused on such securities.

The goal is “to create a virtuous circle,” said Berbiche, who was treasurer at Caisse de Depot et Placement du Quebec before joining Desjardins over two years ago. “If I have a greenium, I would transfer prices to our business line, so there will be more competitive assets, so my inventories will increase, so I can issue more.”

Desjardins priced its sustainable debt at a spread of 73 basis points, allowing the firm to lock in a higher greenium than other other ESG bonds sold in Canada, he said. The sale got an order book equivalent to 3.2 times the deal size and 52 investors took part in the offering.

Given the current low yields in most debt markets, issuers have to be mindful about where they utilize their ESG bond programs, said Berbiche.

“Tomorrow I can use it for a covered bond in Europe,” said Berbiche. But “chasing a greenium in the covered bond space, where the spreads are so low, is not good.”

Desjardins’ 500 million euros of 0.01% covered bonds due 2026 are quoted at a negative yield of around 26 basis points, which is equivalent to a spread of around 38 basis points over German government securities.

Updated: 10-18-2021

Green Investing Looks To Clean Up The Maritime Industry

Wall Street is embracing a new kind of environmentally friendly debt aimed at lowering ocean pollution.

First bonds went green. Now they are going blue.

Seaspan Corp. , the world’s largest containership lessor by cargo-carrying capacity, sold nearly $1 billion of so-called blue bonds earlier this year that sought to entice new investors by promising to fund vessels that will lower emissions and pollution at sea.

The sale illustrates how the craze for sustainable investing is extending to the world’s oceans. The debt is the latest iteration of investments known as green bonds, which aim to fight climate change and spur the transition away from fossil fuels by reducing the cost of financing such projects.

Seaspan, which has an operating fleet of 132 vessels, initially tapped asset managers for $500 million of bonds in July to pay for ships that reduce carbon emissions—the company’s first U.S. blue bond. The sale attracted more investors than anticipated, allowing the company to increase its junk-rated offering to a total of $750 million eight-year notes with an annual yield of 5.5%.

The deal demonstrates how investors’ demand for environmentally friendly debt has grown in recent years, part of Wall Street’s rush into selling investments that consider environmental, social and governance, or ESG, factors. The Seychelles archipelago and World Bank pioneered the first blue bond in 2018, raising $15 million. On Friday, BNP Paribas SA said it coordinated a blue bond for Bank of China worth $942.5 million.

Green bonds were first issued about a decade ago by highly rated borrowers committing to long-term sustainability targets. Now Wall Street is selling a record amount of the debt. Total issuance of green bonds in 2021 has jumped to more than $350 billion, according to data from the Climate Bonds Initiative, already surpassing 2020’s record total.

“We see branding a green bond blue as an effort to increase visibility on issues related to the maritime environment,” said Nicholas Pfaff, head of sustainable finance at the International Capital Market Association.

In theory, attracting more investors, including those seeking environmentally friendly assets, should drive down borrowing costs for companies going green. That is particularly useful in shipping, where the pandemic has slowed plans by members of the International Maritime Organization, the United Nations’ marine regulator, to improve fuel efficiency by 30% by 2025 and slash greenhouse-gas emissions in half by 2050 from 2008 levels.

‘We see branding a green bond blue as an effort to increase visibility on issues related to the maritime environment.’
— Nicholas Pfaff of the International Capital Market Association

One of the challenges facing the maritime industry is the lack of a low-emitting fuel that is commercially accessible at scale. While Seaspan operates ships traversing the globe, its clients ultimately decide which fuel to use.

So the company is building vessels with tanks that can be swapped out to accommodate new fuel types—and pioneering designs that alter the shape, nose and propulsion systems of the vessels. Most of its new container ships operate on liquefied natural gas.

Bing Chen, president and chief executive officer of Atlas Corp. , Seaspan’s parent company, said Atlas was committed to growing a sustainable business in line with green initiatives.

Seaspan’s blue bonds abide by ICMA’s green-bond principles, a set of guidelines set by the European self-regulatory body. More than 95% of environmental finance deals in 2020 followed the trade association’s suggestions, according to an ICMA study conducted this year.

Some investors said green bonds and other types of sustainable-linked financing lack an enforceable rulebook to ensure that funds are being used as promised. Rating companies that certify green bonds answer to no official authority in the U.S. The fine print on some bonds stipulates that not all of the cash raised will necessarily be funneled into environmental projects.

Companies that don’t fulfill their environmental promises or fail to meet targets likely face criticism and consequences the next time they try to borrow, some analysts said.

Sarah Peasey, director of European ESG investing at Neuberger Berman, said the asset manager chooses its green bonds selectively, avoiding things such as one-time deals that seem like the company is just looking to take advantage of the label.

“For us, it’s first and foremost about assessing the company at a sustainable level because the risk sits with the overall company, not the bond issue,” said Ms. Peasey.

Others worry that Wall Street will flood investors with too many niche products. The ICMA’s Mr. Pfaff said the Zurich trade-based association would like to limit the number of niche bonds.

“The whole success in ESG over the past two years has been creating broad and consistent categories,” he said.