On Thursday, February 2nd, the CFA Society New York (CFANY) hosted its Green Bond Investment Outlook. The event was organized by CFANY’s Thomas Brigandi—recipient of the Society’s 2016 Benjamin Graham Distinguished Service Award, 2015 Volunteer of the Year honors and the 2013 Young Investment Professional Award—in conjunction with his team comprised by over 130 CFANY-member volunteers. The event, which was the 47th CFANY event organized by Brigandi, brought together upwards of 120 attendees and featured notable speakers from within the green bond universe, including a variety of 10 asset allocators, investment managers and thought leaders.
The discussion focused on the appeal of green bonds and their role in the climate change equation. Beginning with a keynote address by Mike Eckhart, Head of Sustainable Finance at Citigroup, the event was followed by a Green Bond asset-manager panel, moderated by Henry Shilling of Moody’s Investors Service, and featured panelists Eric Glass of AllianceBernstien, Stephan Bonte of Standish, Timothy Coffin of Breckenridge and Ann Marie Griffith of APG Asset Management. The asset-manager panel was proceeded by a Green Bond asset-allocator panel, moderated by Manuel Lewin of Zurich Insurance and featured panelists Bryon Willy of Mercer Investment Consulting, Andrew Russell of the Pension Boards-UCC and Stephen Freedman of UBS Wealth Management.
Mike Eckhart opened his keynote address emphasizing how thin and vulnerable the earth’s atmosphere is. While it is difficult to perceive with the naked-eye from ground level, he noted that greenhouse gasses are building up in the atmosphere and, consequently, the earth is getting warmer. “Currently, financiers invest $329 billion per year in clean energy. That number must increase to $1 trillion per year just to keep the average change in global temperature to a threshold of 2 degrees Celsius,” Eckhart said. Moreover, based on his research, investors must invest twice as much into green energy in developed countries, and up to 25 times as much as they currently pour into green energy in developing countries to stay below the suggested threshold. He concluded his address by speaking to the role green bonds will play in driving sustainable investment going forward.
Henry Shilling, Senior Vice President at Moody’s Investors Service, provided an overview of 2016’s green bond issuance levels, with issuance reaching a record of $93 billion. He posited that much of this funding likely stemmed from the expansion of Green Bonds Principles. The timing of this growth, he noted, also coincided with the Paris Agreement, which served to move climate change to the forefront of the discussion among many leaders.
With all the focus on the environment, it has become material to the bottom line for companies to invest in greener technologies, says Timothy J. Coffin, Senior Vice President at Breckinridge. Being “green” affects a company’s public image, which in turn influences consumer decisions. Issuing green bonds is a good way, in his perspective, for companies to transition towards environmentally friendly technologies and to boost their overall product appeal.
Moreover, to increase issuance of green bonds, there must be an alignment of interests among issuers and investors, says Ann Marie Griffith, Managing Director for US Fixed Income at APG Asset Management. Issuers will be incentivized to develop green technologies to avoid future fines and attract public appeal, while investors will find incentive in using green bonds as a means of hedging risk.
Eric Glass, CFA, Portfolio Manager at AllianceBernstein, made a strong argument that while owning green bonds is objectively positive, there must be more standardized key performance indicators, as well as third party rating systems capable of articulating how “green” the green bond is. “I do care about green bonds, largely because if we don’t care about green bonds, we’re in trouble,” Glass offered. “If we don’t act soon, then we will have no hope of remaining in a low carbon environment.”
Stephan Bonte, CFA, Director of Sustainable Investing at Standish, was hopeful regarding the future of green bonds. The rise in their popularity indicates a willingness among investors to embrace ingenuity and to break with traditional practices. Ideally, says Bonte, managers will be looking to make a value-oriented portfolio that “doesn’t detract from financial value, yet still aligns with ethics in a positive way.”
Andrew Russell, Director of Fixed Income Investments at the Pension Boards-UCC, argued that green investing is more of a lens than a strategy. As such, an investor might be willing to choose a green bond that fits their fund’s strategy, but may be unwilling to buy green bonds exclusively. Unfortunately, he noted, there are very few green bonds to choose from. Of the $90 trillion in global bonds worldwide, only $180 billion-worth are labeled as green bonds.
“Issuers will need to float more bonds,” said Stephen Freedman, PHD, CFA, Executive Director and Head of Thematic and Sustainable Investing Strategy at UBS Wealth Management Americas. “The more supply you have, the more touch points you have.” As financial managers gain the confidence necessary to begin investing green, there must also be sufficient options from which they may choose from. Municipal green bonds will be a strong option since they are closer to home and can make investors feel like they are making a positive difference.
Per Bryon Willy, Principal at Mercer Investment Consulting, Green bonds figure to have a large appeal to the corporate pension crowd. “There are hundreds of billions of pension-dollars that are under hedged,” Willy said. Investment-grade green issuance could serve as that hedge, benefiting both the funds and the environment.
In summary, the speakers’ consensus was that green bonds will play a vital role in the climate change equation. As more green bonds are issued, investors will be more capable of purchasing the bonds that best align with their strategies. Ultimately, based on the discussion among the asset-allocators and asset-manager panelists, financiers are ready to purchase green bonds, but issuers must meet their demand with higher issuance levels.
Green bonds are expected to play an important role in such mobilization initiatives The event is intended to focus on current green market dynamics, such as why we don’t see even higher levels green bond issuance, but importantly, it will address the factors that could further stimulate the future growth and development of green bonds in the US and overseas.