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

Is there a way we can super-charge the nascent green bond market? Is there a mechanism for bringing it out of the shadows and into the mainstream – with issuance on a scale to attract big buyers and an investor pool to match?

This is a topic I touched on in October last year and it was a question much debated at Davos last month. Outside the conference rooms all was white; inside all was green. Sustainable finance, ESG (Environmental, Social and Governance) and impact investing were among the dominant themes throughout.

There is no shortage of goodwill. A note put out by Bank of England adviser Huw van Steenis said six in every ten institutional investors had changed their approach to voting or incorporated ESG principles in the past 12 months.

According to McKinsey, asset managers controlling more than a quarter of global assets under management are looking to integrate sustainable principles in their investment criteria. Investors increasingly see these principles as an important filter. It’s not just about what’s right for the planet; it’s about avoiding financial disasters too.

But van Steenis went on to highlight one of the obstacles. ‘For markets to do their job,’ he wrote, ‘we need more information to be visible. Investors need better-quality, comparable metrics woven into company reports.’ How right he is.

But the information deficit is not just at the company level. It is at the marketplace level, too – and this is where we at Euroclear may be able to help.

Indeed, this is our vision for the future and what we can build with the commitment and involvement of governments, central banks, regulators and issuers.

Expanding issue sizes and the investor pool

One of the key challenges is to find a way to move from moderate issue sizes, an illiquid market and small ticket sizes. The Climate Bond Initiative estimated last year there were USD 385 billion of certified green bonds. That is sideshow in a USD 14 trillion Eurobond market.

As mentioned in this very same blog last autumn, we need more states and supranationals to issue in this space, creating issues of USD 1 billion to USD 3 billion, helping develop a yield curve and genuine liquidity. For that to happen, we also need to expand the investor pool by encouraging sovereign and wealth funds, central banks and other big investors into this market – effectively to act as ‘role models’.

This is something a number of central banks have recognised, among them the Banque de France. In the wake of the COP21 meeting and the Paris Agreement, it has been particularly active in promoting the development of the green bond market and discussing possible ways forward with interested parties, Euroclear included.

We have a long history of making markets more accessible. Our vision for green bonds is that, working with others such as central banks and regulatory bodies, we could repeat what we have done for many emerging markets – attract meaningful flows, deepen liquidity and provide transparency.

Classifying and identifying sustainable bonds

The first step is to develop a taxonomy of international bonds. Within that taxonomy there would be a new category of ‘sustainable’ bonds. I accept that will take time: agreeing the scope and definition of what constitutes sustainable will be a lengthy process.

The next step is to make these bonds readily recognisable through a new ISIN coding (ISIN being the alphanumeric identifier accepted worldwide for any security). The green bond ISIN might begin with ‘XG’, for instance, as opposed to the current ‘XS’ coding for all Eurobonds.

Determining qualification for a bond’s sustainability status would be the responsibility of regulators, prospectus issuers and intermediaries. The numbering agencies such as the Association of National Numbering Agencies (ANNA) would have the job of issuing a dedicated ISIN.

There would have to be clear-cut procedures for transitioning bonds from the traditional XS market to the XG market as, hopefully, more large corporates took steps to clean up their act.

To track progress and aid transparency, Euroclear could further develop its infrastructure to provide reporting to issuers, investors and regulators. The overwhelming majority of financial market participants, including 100 central banks, are already members of our system.

Turning words into action

The widespread interest in the ‘greening’ of the world economy at Davos was nothing if not encouraging. But the key now is to turn words into action and vision into reality. Certainly, Euroclear is ready to play its part.

Accelerating the growth of new green bond issues is one thing. But the big prize is to encourage the transition of existing ‘dirty’ bonds into the sustainable marketplace as corporate behaviour progressively changes.

Imagine a world in ten years’ time where half or more of the Eurobond market – around USD 7 trillion of bonds – is made up of green issues.

That is what real success would look like.


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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.