With climate finance now in a position to be as attractive to investors as ever, there is scope for the sector to propel itself into the mainstream. As more consumers start expecting a certain level of involvement with and attention to climate investments from big companies, capital has an increasing potential to pour in.
However, experts have made it clear that in order to grow the green bonds market effectively, some precautions need to take place to ensure that the market follows the right frameworks and makes the most of its apparent potential at this stage.
Experts in the field of green loans recently announced that they have been working on a set of principles to help develop the sector. These particularly center on how the growth of the climate finance industry can become sustainable. With many companies and investors now saying that they want to invest in green assets but require stability in the market, moves such as this are an important step.
Without stability and consistent government decisions occurring on a certain path, it has been difficult to reach any consensus so far. However, Pinsent Masons Partner Jeremy King has been working according to the Green Loans Principles framework. He said that following certain patterns when investing makes it much easier to identify green bonds quickly.
One of the key features of green loans and bonds is how they work with credit facilities. A series of loan associations in the Asia Pacific region built the Green Loans Principles with the mindset that green bonds will all need to follow the same path.
Although these loans and bonds do not undergo monitoring to the point of regulation, investment vehicles can work within the guidelines to show that their products are green or figure out how they can meet this criteria. There is a worry that some companies are putting out products and calling them green without much evidence to suggest that they actually are. Developments such as the Green Loans Principles can bring clarity to the subject.
There are four main principles guiding the green loans market, including research, reporting, evaluation and management. The same ideas are likely to apply to green bonds, and as the desire for renewable energy investments increases, the market will be expecting different kinds of capital leverage to be available.
With no mandate for external interference, key performance indicators should guide reporting from both a qualitative and quantitative perspective.
King said that increasing renewable investments and climate finance means that Australia needs a market that it can trust when looking for positive areas to place capital. Citing official struggles to agree on any form of energy policy over the last decade, he noted that the ‘regulatory uncertainty at the federal government level in Australia for some time’ is concerning and that the renewables market has to find a way around it.
However, King added that there is plenty of positive news coming from state-based developments, which have found much more success than national progress in a short space of time.