by Stephan Pouyat, Global Head of Capital Markets and Funds Services, Euroclear

At the IMF Annual Meetings last week it seems everyone agrees that encouraging investment into environmental and social projects is ‘a good thing’ – hence the rise in green bonds and the trend to impact and ESG (Environmental Social and Governance) investing.

Other similar emerging asset classes to consider are PPPs.

But building critical mass in this area is difficult. One example: there are around USD 200 billion of green bonds in existence but that is just a fraction of a USD 100 trillion global bond market.

What’s more, there are question marks over the ‘greenness’ of a number of them. There is no doubt that some sharks have been feeding in this pool.

The World Bank has recently launched its Global Green Bonds Partnership designed to help scale up issuance by cities, states, corporations and others. But the truth is that local infrastructure issues are often sub-scale and attract only local interest. There is a lack of fungibility across the marketplace.

Where the likes of the International Finance Corporation, or another supranational entity, launches a sustainable infrastructure bond, there are doubtless good intentions. But how to ensure that the issue genuinely fits with ESG criteria?

Project audits imply added cost

All of these issues were debated at a closed conference I attended in Singapore this month. It comprised a wide mix of people – from wealthy individuals and venture capitalists across Asia to politicians and ambassadors.

One idea that emerged was to put in place some kind of administrative structure for green and other infrastructure bonds to ensure the issue proceeds are applied in a sustainable way.

But that, of course, piles on cost and reduces the attraction of the product. Take the analogy of the food industry. If organic foods cost more than their non-organic equivalents, people tend not to buy them. Better by far to penalise the polluters than make the virtuous pay more.

Fortunately there are moves afoot to establish a clear set of principles in this area. I understand that BAML, Citi, Credit Agricole CIB, HSBC, JPM, Morgan Stanley, Rabobank, SEB are working on such principals. Moreover, the IFC is due to unveil a set of 13 criteria for impact investing at the World Bank/IMF annual meeting in Bali next week.

An issue for the planet as much as individual issuers

But if the green bond/sustainable infrastructure market is truly to take off it requires states and supranationals to lead the way. Only they can issue on a scale that ensures liquidity in the aftermarket – and they are the ones with the resources to guarantee that the proceeds go to the appropriate environmental and developmental causes.

The European Investment Bank launched the first green bond back in 2007 and it has just launched a €500 Million ‘sustainability awareness bond’. The fund is designed to finance water supply, sanitation and flood protection projects. Those chosen must meet strict criteria with measurable impact.

This, surely, is where we should be going. The issues green or impact bonds are meant to address are planetary issues. The solutions should be on a similar scale.

At Euroclear, we know that as a global steward of capital we can must support the future liquidity of new products - green bonds, impact bonds, infrastructure bonds … - by seamlessly connecting post trade flows and helping to build more confidence in developing markets.

But, it is the markets and their investors who will decide if these are the right products.


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by Stephan Pouyat

Global Head of Capital Markets and Funds Services, Euroclear

As Global Head of Capital Markets and Funds Services at Euroclear, Stephan Pouyat cares passionately about aligning the financial sector with moves to accelerate development among the world's emerging economies.