"Investors don't want to be too insistent in terms of all the standards to be applied just to start the ball rolling. I think eventually, maybe in the spread of about 5-10 years' time, you will see harmonisation," he said.
Hanife Ymer, head of Sustainability Services for KPMG's Lower Gulf region, argued that good governance should be a priority for investors in green bonds.
"Why would you treat issuance of a green bond any different to any other bond issued to the market?" she argued.
"Investors are making decisions about these disclosures, so let's make sure they're true, accurate, complete and governed by the highest parts of the organisation. Investors, if I can be a little bit provocative, I think they just really need to understand the content, the subject matter, a bit better."
Timucin Engin, a senior director at ratings agency S&P Global, said that although the first green bond was issued more than 10 years ago, by the European Investment Bank in 2007, there have only been 3-4 years of "meaningful issues". Over the five year period from 2007-2012, just $11 billion of green bonds were issued, but last year alone green bond issuance increased to over $155 billion.
"If you look at the total outstanding bonds labelled green bonds, there's about $400 billion out there and they represent a very small portion of the market. It is really a space that has a 3-4 year history and everything in this space, from issuers to investors and market practices, are evolving," Engin said.
He said that over the next five years, S&P Global expects green bond issuance to continue growing to reach around $500 billion annually.
"To comply with the objectives of the last 15-20 years we need to invest a significant amount of funds in the green space," Engin said. "Banks will play an important role because they do generate credit for these transactions, but capital markets will also have to play a role," he argued.
Engin also said that he expected more of these green bonds to be issued from emerging markets in the future, stating that China, Mexico and India combined represented "a very small portion of the market" a few years ago.
"Together, they are about 20 percent now and this will continue to grow," Engin said.
Making the right noises
The panelists agreed that standards, and even the language used, by issuers of green bonds in different parts of the world have developed differently, but Engin said that more cross-border funding was taking place in the green bonds market, "so I think more harmonisation in terms of taxonomies will be coming".
Haneef also pointed out that green bond issuers differed in the rigour of their approach, with some only seeking a second-party opinion that bond proceeds are being invested in sustainable projects, others having independent, third party annual audits, and others still doing both of these, as well as seeking stamps of approval from ratings agencies and other green certification bodies.
"So you find different issuers are adopting different standards," he said. Haneef argued that over time, investors may insist that issuers meet at least three, or all four, of these requirements.
"I think eventually the market will evolve," he said. "(But) I think it's better to let the market dictate, as opposed to regulators coming in."
(Reporting by Michael Fahy; Editing by Imogen Lillywhite)
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