The World Bank is likely to increase the size of its green bond issues to a range of $300 million to $500 million this year to attract large bond funds to the environmental debt market, said an official at one of its lead managing banks.
The World Bank so far has issued more than $3 billion of triple-A rated green bonds and has used the proceeds to support its projects in areas such as renewable energy, flood protection and watershed management in developing nations.
Most of the bank's 46 green bond transactions have been under $100 million, which fall off the radar of many large bond fund managers. "We expect to see bigger issues coming out in 2012," Christopher Flensborg, head of sustainable products at Skandinaviska Enskilda Banken (SEB), told Reuters.
According to the OECD, environmental bonds could raise hundreds of billions of dollars a year to help finance a shift to cleaner economic growth if governments set strong goals such as for slowing climate change.
SEB, a top lead manager for World Bank green bonds, in December increased the size of a World Bank green bond to $510 million. Flensborg said SEB is likely to work together with other banks to scale up the size of future issues.
Multilateral development banks have issued just over $7 billion in green bonds in varying currencies so far. The market, including some private sector bonds, totals around $12 billion, a small fraction of the more than $90 trillion held in global bond markets.
Bigger green bond issues are likely to appeal to large bond fund managers such as State Street Global Advisers, one of the world's biggest fixed income managers with $306 billion in assets, he said.
Last October, State Street announced a green bond strategy to enable its investors a way to direct fixed income investments to climate solutions.
FUND APPEAL
UN climate talks in South Africa in December made headway on the design of a green climate fund to channel up to $100 billion a year by 2020 to poorer nations but achieved little on establishing where the money will come from to fill it.
"I see the green bond being an important part of that contribution," Flensborg said. Flensborg said banks are working with investors and environmental groups to develop international certification standards on the environmental credibility of green debt issues.
He also expects to see green bonds issued by corporations and governments this year. Flensborg said fund managers are becoming more aware of climate-related risks, such as severe drought or flooding.
"Investing in a green bond is not only about being good, it's about being a prudent manager," he said. Buyers of green bonds have ranged from private investors and banks to large pension funds such The New York State Common Retirement Fund, the California State Teachers' Retirement System and the United Nations Joint Staff Pension Fund.
Nikko Asset Management Europe manages two World Bank Green Funds for investors in Japan, Europe and the Middle East.
Other notable green bond investors include Calvert Asset Management, Cazenove Capital Management and Rathbone Greenbank Investments, according to the World Bank's website.
In addition to the World Bank, green bonds have been issued by the European Investment Bank, the Asian Development Bank, the Nordic Investment Bank, and the African Development Bank.
Banks that have distributed World Bank green bonds include Bank of America Merrill Lynch, Daiwa Securities, HSBC, JP Morgan, Mitsubishi UFJ Securities and TD Securities.