Estanislaio de la Torre
Chief Operations Officer
HSBC Mexico
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Insight

Untapped Potential for Green Bonds

Wed, 02/22/2017 - 10:34

Mexico seems to transform every green opportunity into gold. Its first global green bond, valued at US$500 million and issued in late 2015, was five times oversubscribed. The first green bond issued in Mexican pesos also attracted a lot of attention, with the total offering of seven-year notes for MX$2 billion sold in the local market. Both were issued by NAFINSA, Mexico’s development bank, to finance clean energy projects here.

The country’s latest venture into the green bond market was its US$2 billion issuance to finance part of Mexico City’s new airport. The green bond was issued by Grupo Aeroportuario de la Ciudad de México (GACM), a state- owned company, while the sale was coordinated by Citigroup, JP Morgan and HSBC, a bank with strong expertise in the global green bonds market.

“As one of the top three global underwriters of green bonds in 2015, we are really pushing for the overall development of the market,” says Estanislao de la Torre, Chief Operations Officer of HSBC Mexico. “Last year, for example, HSBC helped the International Finance Corporation (IFC) issue the world’s first renminbi green bond. To date, we have committed to investing US$1 billion in green bonds and to contribute to various multi-stakeholder initiatives including the ICMA Green Bond Principles, FSB Taskforce on Climate Related Financial Disclosures and the Carbon Pricing Leadership Coalition.”

According to de la Torre, HSBC has been taking steps with other financial institutions to push the development of green bond markets, which could be replicated and built upon, to grow and support a market for sustainable financing. These initiatives include the launching of HSBC’s Climate Change Center of Excellence in 2007 and its participation in a consortium with other banks and institutions that introduced the Green Bond Principles, a framework for the issuance of bonds whose proceeds support environmentally sustainable activities. “In 2015 we also issued our own EUR$500 million green bond, which has been used to finance wind, solar, smart grid and sustainable waste projects in Europe and Africa. We also are sponsors and supporters of the Climate Bonds Initiative, an organization aimed at mobilizing the global bond market for climate change solutions,” he adds.

Regarding its regional operations de la Torre says that “our strategy in the Americas focuses on four key themes: renewable energy, sustainable buildings, smart cities and sustainable supply chains. The opportunities that are presented when we approach bonds, loans, securitizations and other corporate financing solutions from a low-carbon climate-friendly perspective are vast. It helps to grow our business sustainably, in a way that serves both our clients and our communities.”

Investors also want in. “Two thirds of institutional investors want to put more capital into low-carbon and climate- related investments. HSBC advises large organizations such as multinational companies on investing in renewables and clean technology. Here, we share their views on the rising profile of green investment and on some of the trends reshaping the low-carbon sector,” he adds. To facilitate the connection between green investors and projects, de la Torre mentions two main areas of opportunity. “Firstly, green investment opportunities, such as investments in energy efficiency, are often small scale and can be very fragmented. A mechanism to aggregate green projects would make it easier to do more business efficiently. Another challenge is making the business case for green bonds clearer. Policy incentives that create even a relatively small change in the price of green investments can drive investors and CFOs to pay more attention to green finance, rather than conventional bonds,” he says. “By building understanding and expertise on low carbon technologies, and by arranging the finance that will help bring these technologies to market at scale, HSBC, and the businesses and investors who are our clients and customers or stakeholders, are supporting a low carbon future.”

Renewable energy has come a long way in a relatively short time and de la Torre says it is here to stay, even if the exact details remain unclear.