ICMA in the middle of a runaway success with Green Bond Principles

The International Capital Market Association, ICMA, has been so successful with their voluntary Green Bond Principles that the group now has gone all in, and launched a set of Social Bond Principles as well. FWAM met ICMA Senior Director Nicholas Pfaff in Paris at the 3rd annual Green Bond Principle conference.
Nicholas Pfaff of the International Capital Markets Association. | Photo: ICMA
Nicholas Pfaff of the International Capital Markets Association. | Photo: ICMA

PARIS - It is a very content senior director FW Asset Management meets in the Palais Brongniart, part of the old stock exchange building, La Bourse, in the 2nd arrondissement of Paris.

The third annual Green Bond Principles general meeting and conference is over. In the room next door hundreds of participants are mingling and drinking wine. The ambiance is good, and people are not in a hurry to leave.

"I think there appears to be general satisfaction from the participants who are close to the process," Senior Director of ICMA and secretary of the Green Bond Principles, Nicolas Pfaff tells FWAM.

A couple of years back, ICMA, a membership organization that serves the interest of both the buy side and the sell side, took it upon itself to set up guidelines and later principles to be used when issuing, buying, or otherwise handling green bonds. A task that has turned out to be more in demand than imagined.

"Green bonds and sustainable finance have become probably one of the three to four key activities of ICMA now. The others are: regulatory policy, the repo market, which is a core activity for ICMA, and our primary and secondary market practices. These are the historic pillars of ICMA and our involvement with green bonds and sustainable finance has become the 3rd or the 4th depending on how you look at it," Nicholas Pfaff explains.

He has been hard to track down since the conference ended – everybody wanting to exchange a word with him.

The Green Bond Principles has been such a success that ICMA launched a set of Social Bond Principles at the conference.

How big should a market be

The growth of the green bond market is a very clear sign that ICMA is running in the right direction, according to Nicholas Pfaff:

"The best estimates for the potential of the green bond market are from the OECD. Looking at the next 15 years, the OECD estimates that the market should reach annual issuance of USD 500-600 billion to make a proportional contribution to the financing of a two degree scenario (i.e. 2 degree temperature increase worldwide). We expect over USD 100 billion of green bond issuance this year – which means we are over 15 percent of the OECD target, and that means that it's doable," Pfaff explains.

Green Bonds enable capital-raising and investments for new and existing projects with environmental benefits. One of the biggest issuers in the past year was China, and there is more to come, chief economist, Ma Jun from the Peoples Bank of China promised at the conference.

"Over the last two years we have had a very constructive dialog with the Chinese authorities about how they want to regulate the market in a way that is compatible with the voluntary principles we provide," says Pfaff looking content. He carries on:

"We've been approached by the ASEAN Capital Markets Forum, we are an observer in the High Level Expert Group on Sustainable Finance to the European Commission – we were also approached by various countries from emerging markets. Our growing experience is therefore that the regulatory community considers the GBP as a key reference in terms of how the international green bond market is organized. We seek to provide a voluntary basis for the green bond market's organization, but we of course work actively and constructively with the regulators."

A runaway success

The entire conference has been held in English but with many different accents. The nationalities of the participants are widespread and of the panel as well.

The OECD is present as well as the World Bank, the Nordic Investment Bank, the European Investment Bank, and many, many others.

And Pfaff is quite happy with the many interested parties:

"The degree of participation is overwhelming. Historically, we have organizations enthusiastically seeking to become observers, to be members, to be candidates for the executive committee and so on. It's a great success in that sense, and that has really taken off over the last two years," Pfaff says.

And that is also why Pfaff believes in a good growth this year in the Green Bond market:

"The green bond market is unlikely to double this year, but I think we are going to see a growth in the range of 50 percent plus, which is very significant. In terms of the further deployment of the use of proceeds bond concept, it is up to us now to fill in the gaps around the social bond principles and the sustainability bond guidelines. At ICMA we are going to continue to invest and support these initiatives," Pfaff says in his exciting remark. And off he goes. Whirled around amongst people from all over the world who want a piece of his and ICMA's mind.

Outside, Paris is breathing and living its own life. Maybe poised to become a bit greener through the issuance of Green Bonds by the French government worth USD 7.5 billion back in January.

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