The video provides a comprehensive overview of the evolving market for green bonds, featuring a discussion between representatives from the European Bank for Reconstruction and Development and the Ontario Financing Authority. They highlight recent high-profile bond issues, such as EBRD's 1 billion euro bond and Ontario's 30-year green bond, as evidence of the growing prominence of green finance. The conversation broadly focuses on how the green bond market has matured over time, drawing an analogy with the development of rules in a soccer game, indicating the increasing complexity and structure of today's green bond environment.

The dialogue also delves into the challenges posed by the imposition of rules and regulations in the green bond sector. There is an emphasis on the necessity for dialogue and transparency within the financial markets, and concerns about the potential barrier that over-regulation might impose on both new and existing participants in the green bond market. The potential risks of greenwashing are addressed, with a consensus that outright deception where non-green investments are labeled as green is rare due to the current levels of transparency and dialogue. The speakers express caution regarding the proliferation of conflicting taxonomies and regulations, which can create obstacles rather than facilitate market entry and progression.

Main takeaways from the video:

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Key Vocabularies and Common Phrases:

1. sophistication [səˌfɪstɪˈkeɪʃən] - (n.) - The process of becoming more developed or complex. - Synonyms: (refinement, complexity, cultivation)

I would say that what we've really seen is a maturing and a sophistication coming into the market over the ten years that I've been involved.

2. plethora [ˈpleθərə] - (n.) - An excessive amount of something. - Synonyms: (excess, abundance, profusion)

...but you have just a plethora of rules.

3. taxonomies [tækˈsɒnəmiz] - (n.) - A system used for classifying and naming things, particularly within a specific discipline. - Synonyms: (classification, categorization, systematics)

...you have taxonomies, you have regulations...

4. reputational [ˌrɛpjʊˈteɪʃənəl] - (adj.) - Relating to the beliefs or opinions that are generally held about someone or something. - Synonyms: (prestige, standing, stature)

So I'm hearing that the market force is reputational

5. proliferation [prəˌlɪfəˈreɪʃən] - (n.) - Rapid increase in numbers or the spread of something. - Synonyms: (expansion, multiplication, escalation)

And it's just, I think it's adding confusion.

6. contextual [kənˈtɛkstʃuəl] - (adj.) - Related to the circumstances or setting surrounding an event or idea. - Synonyms: (background, situational, environmental)

What we've started referring to as contextual inconsistency.

7. regulations [ˌrɛɡjʊˈleɪʃənz] - (n.) - Rules or directives made and maintained by an authority. - Synonyms: (rules, directives, guidelines)

My concerns are a bit, I'm cautious on the degree to which we're imposing rules and regulations on top...

8. dialogue [ˈdaɪəˌlɔɡ] - (n.) - A conversation between two or more people as a feature of a book, play, or movie. - Synonyms: (conversation, discussion, communication)

I think, you know, dialogue. dialogue is everything.

9. deterrent [dɪˈtɛrənt] - (n.) - A thing that discourages or is intended to discourage someone from doing something. - Synonyms: (obstacle, hindrance, impediment)

But it's that kind of. Yeah, it can be quite a deterrent, especially for a new issuer.

10. consistency [kənˈsɪstənsi] - (n.) - Conformity in the application of something, typically that which is necessary for the sake of logic, accuracy, or fairness. - Synonyms: (uniformity, constancy, steadiness)

Also a sense of consistency in terms of what the market is and what it is not.

EBRD & OFA Leaders on ESG Investing

Good morning. Thank you so much for joining us today. I'm very happy to be here. So both of your organizations, the European bank for Reconstruction and Development and the Ontario Financing Authority, have had a good year. I think some issuances have come. I know dozens from the EBRD, including a 1 billion euro, seven-year bond that was issued in July. And then earlier this month, Ontario issued a 30-year green bond.

So congratulations. Thank you. And of course, both of you have also been in the green bond space for many years. So I'm curious to know, how has the market for green bonds changed over time? And Elizabeth, we'll start with you. Oh, okay. I would say that what we've really seen is a maturing and a sophistication coming into the market over the ten years that I've been involved.

Also a sense of consistency in terms of what the market is and what it is not. And those are things that have evolved over time. And I use this analogy, if you've ever had kids that have learned how to play soccer, you show up when they're four or five, six years old, and they learn two rules, which is don't touch the ball with your hands and don't grab other kids, like, don't grab them as they run by you. Two rules.

And I think, and then you look at a league match and you see so many rules and cards flying, and everyone's got an opinion on how those rules are being applied. But you have just a plethora of rules. And I would say for the green bond market ten years ago, you had a few rules to just kind of get everything started and put a little bit of structure around.

And as time has gone on, you've got a lot more of that infrastructure in place. So you have green bond principles, you have taxonomies, you have regulations, and that's really been, I think, over that ten-year span. What is most notable is the things that support the market have been built out, and they've been built out in a thoughtful way and in a sort of timely way, so they haven't collapsed the market with the weight of them.

They've been brought on as and when needed. And I suspect that that is something that we'll see continue that sort of continuous learning about what's going to work best in this space and put together something that supports issuers, investors and the market as a whole. Okay, I'll think about that the next time I watch a soccer game.

And, Isabel, how do you see the evolution over your time in the industry? Well, I think the, I like the analogy. I also like the degree of optimism. We've been issuing green bonds since 2010. So we predated the green bond principles. And in so doing, we actually followed essentially what they were doing.

And there have been, there's been a broadening, there's been a depth to the market, there's been global aspects to the market. I suppose my concerns are a bit, I'm cautious on the degree to which we're imposing rules and regulations on top, often conflicting, often with less understanding about what markets need.

So the principles, the green bond principles really said, if you're transparent about what you're issuing, how you're selecting, how you manage proceeds and allocate those proceeds, and ideally impact report, then it's up to somebody else to determine whether this is a good product or not a good product. And that to me works beautifully because as long as we've got a good dialogue internally within organizations and externally to investors and underwriters and index providers and all the sort of myriad of people that surround the markets, then it seems to me a very good place to start.

And it allows people to come into the market progressively learn and then become more in-depth. And what I feel at the moment is a concern is the expectation is so high so quickly as to, yes, you shall impact report immediately and you need to actually provide all this additional information. And by the way, there's, yesterday I was told the number of taxonomies was in three digits, I'd stop counting at over 30.

And many of them conflict and what is and what isn't. And I think that it creates a barrier to not only entrance to the market, new entrants, but actually a barrier to those that are in to continue because the cost and the challenges of issuing become so much higher than just doing ordinary issuance. And that's my big concern is how do we avoid loading on costs and problems for people that want to fund green things that simply don't exist, even for people wanting to do brown things, let alone just the norm.

So, you know, I think we need to be very careful about exactly what the requirements are and understanding that we need the global market to move. It can't just be about in one jurisdiction. And, you know, there will be banks that have projects globally, MDBs have projects globally. Perhaps slightly easier for you at one level in that your projects are in one place, but you still have global investors.

And therefore they're going to need to report according to some sort of regional or local regulations. And that is really problematic because it's simply impossible for us all to provide the information that everybody requires for all the different areas.

So, slightly more concerned, but I agreed with your analogy. And then just the optimism. I was trying to get on board and wondering if it was jetlag or something. If I can just add to what Isabel was saying. I think one of the things that was most interesting to me in the early days of this market was that the green bond principles were principles.

There was a lot of dialogue around should they be rules? Should they be? And the idea of having principles and guidelines, I think, is something that helps direct people in the right way without perhaps handcuffing them, which I think is your point, is, is it getting overwhelming so that it's actually a deterrent instead of something that's supporting the market? And I think it's partly because it's so difficult to say in a given context, is this green enough, good enough? What is the baseline we're comparing it to?

What do we need? How do we crowd all the different people in that we want to crowd in? So it can't just be about doing lots of new renewable energy things in near zero, net zero jurisdiction. We need to get everything moving. And unless we're doing that, we're really failing the promise of the green bond market, of trying to help the transition to the Paris agreement for all the sectors and in all the geographies in which we need to do it.

And if it's about just transparency of information, you get to decide. So a fund manager sitting here or in North America could say, yes, I consider that this is what's needed in this jurisdiction. It's enough. But I would demand something more in another jurisdiction or less.

Yeah. And, I mean, I guess the challenge with that is it does put a lot on the investor to kind of have those standards for themselves. And I guess the other side of it is the challenge of greenwashing. If you have sort of flexible standards or flexible rules, how do you guard against that? Well, I think greenwashing is massively overstated.

So most of the time, I mean, if by greenwashing, we're talking about something that we say is, you know, flagged as being green and is absolutely not green, that I don't really see. What we have seen is where people say, well, actually, you know, you've just done the equivalent of, for instance, you know, change your freezer to the next more efficient one or your car to the next more efficient one, rather than taking the leap to something else or boiler.

So as in just business as usual and just making sort of slight improvements where you could be going further. And we've had what we've started referring to as contextual inconsistency. So where you end up with say a very high emitter doing a very good green project, but they haven't explained how this is consistent with that overall business strategy so that everything is moving in the right direction. It's not just some sort of nice flag little advertising thing on the side.

And that we can do by explaining context and giving direction through impact reporting and more information as to what's ambitious enough. We don't need to start killing things and stopping people getting going, which is the problem. And you know, I'm not applauding anything going through that would be sort of considered greenwashing, but outright greenwashing we simply aren't seeing in the markets.

And I think the dialogue and the transparency requirements really fight against that. That's comforting. What are your thoughts, Elizabeth? I've been listening fascinated to Isabel's comments on this. It's one of those areas that, I mean, you live in fear of it as an issuer, that someone will point to you and say that's greenwashing because it's your reputation as part of what you're using to issue part of the platform you're issuing from.

And again, we just don't have a lot of clarity in terms of what is greenwashing. And I think there's those sort of standalone projects in an organization that is not really moving the dial at all but is sort of throwing a crumb to say, oh no, but look over here, we're doing all of this over here that you won't like, but we have this piece, focus on this little piece over here.

And I think that you don't want to see that in the markets at all. But yeah, I haven't come across a lot of it myself, but I heard a lot of talk about it in the same way you're referencing where really it's almost fear mongering isn't the right term because it's not at that level. But it's that kind of.

Yeah, it can be quite a deterrent, especially for a new issuer. Reputation is everything as an issuer, so you're always wanting to protect that. And anything that might call that into question I think is going to limit your enthusiasm for getting into this space. Sure.

And I think sometimes they're asking for data that simply makes no sense, you know, as though it were a sort of greenwashing thing. So they would, you can see, in Europe, for instance, they're asking a lot about carbon footprint. All carbon footprint tells you is where you are now. It's the externality of where you are now.

And they may go on to ask you for your water footprint or your nature footprint or something else, but it tells you where you are now. It doesn't tell you whether the impact of what you're investing in to try and make changes is really going to achieve that. And if you're a bank and you're really trying to help the hard to abate sector and including in emerging markets, and you're really trying to help transition, then you're in the interim, your carbon footprint's likely to go up because you're going to be lending to people that are the harder ones.

It doesn't mean that they're greenwashing. It doesn't as fund managers, as portfolios, as anything. It just means that they're trying to crowd in things that are meaningful that we need to see move forward. And we can't just be doing things that easy. Low hanging. Exactly.

And also in a slightly blinkered way, because, you know, it's not like your green card isn't made of metal and glass and other things which are all the difficult bits. And then, you know, let's not think about how they're made or the mining, you know. So I think we need to be more inclusive in that sense, and more thoughtful and not too knee jerk and prescriptive. Got it. So I'm hearing that the market force is reputational.

You know, the due diligence that's necessary anyway will sort of mitigate some of those challenges with regard to greenwashing. Okay, that makes sense. You mentioned earlier the taxonomies and the regulation. Canada last week released guidelines for the taxonomy that it will eventually create. A third party is going to do it.

So we don't know exactly what it will be yet. And that adds to one of, I believe, 42 that are either in development or have been released. There's lots around the world. You mentioned the inconsistencies as well. There's also securities regulations, and various groups have put out their version of what is green.

How the heck do you manage all that? So, yeah. Elizabeth, what are your thoughts from our side? I mean, we can't manage all that at its base case when we came into this program, and what we continue to do with it is our best with the material we have, with the information we have, with the situation we're in as a province and we're trying to move the dial, there's only so much we can do realistically.

And so I think we just have to know our lane, understand it fully, and try and keep moving forward in it. I can't tell another issuer how to, how to, do you know, how to do it better for them. I can only look at my own situation and what's going on within Ontario. The projects we have, the reputational thing is a bit of a, is a bit of a problem in as much as governments are very much, are very focused on their reputation, it's how voters vote is based on who they think is most credible in the space.

So it's one of those things where as you layer on all these different ideas about how to sort of structure the market, you in many ways are frightening away some really good projects that we have in the province, etcetera, because they hear things and they're like, oh, but there's a regulation. There's a, this, there's a, you know, does this fit within the taxonomy? Oh, because I thought we had to fit within the framework you have now. It's something different.

The second party opinion provider, we had said something, is that no longer true? Because, as Isabel says, it conflicts now with the taxonomy. Like it just becomes this whirling, sort of. There's a lot of momentum to the information just swirling and swirling and nothing landing and nothing really feeling like you can say for sure that that's how it should be interpreted.

So I think when you're in that space, it makes things almost more difficult rather than easier, which I think was the overall concept to begin with, was, let's provide a roadmap for people, put things in boxes that they can understand, and they can decide if they want to buy something in Box A, box B box. And now instead we have box a, box a one, box a two. And it's just, I think it's adding confusion.

And so I think it would be really nice to see some consolidation actually in that space, maybe a broader look instead of a more detailed look. And then have investors decide for themselves, because, again, contextually, they know what their motivations are, they know what they're trying to achieve. I think they could probably, with just some basic bare bones structure, understand where it is they want to be participating and where it is they want to avoid.

And, Isabel, what is your advice for investors navigating this many varied area? Well, I think, you know, dialogue. dialogue is everything. So trying to listen to issuers have a dialogue, explain what they will do, what they won't do, how they think about it and we can all learn from each other and we can keep pushing forward and, you know, not to make the perfect, the enemy of the good that we really need to work together to try and move the whole sector forward and perform the function that the green bond market is trying to do.

And I completely agree with everything you said. Oh, thank you. Well, that's a great place to end. Thank you so much to both of you and thanks, all of you. Thank you.

Finance, Green Bonds, Leadership, Sustainability, Policy, Innovation, Bloomberg Live