(This article is an opinion piece published in IFR Asia, on
* Kexim saves on green bond
* Asians eye growing SRI pool
* Results of carbon market not encouraging
By Jonathan Rogers
Feb 27 (IFR) - In the knowledge that green is apparently the
new black, it was highly appropriate that South Korea's Kexim
last week tapped hungry SRI funds with its first "green bond".
The acronym stands for Socially Responsible Investment, and
Kexim will be investing the proceeds from the US$500m foray in
the eco-friendly projects it sponsors around the world. In the
process the canny Korean policy bank managed to shave five basis
points off its implied funding cost in conventional format at
five years, which isn't too shabby a result on a benchmark-sized
The deal also featured as bookrunner Sweden's SEB Enskilda
Bank, an institution I can't recall having featured on any
public offshore bond offering from Asia in the near decade I've
been covering the region's debt markets. SEB's presence on the
deal, unlikely though it may appear, is a reflection of
Scandinavia's love of all things green and eco-friendly.
A large chunk of Scandinavia's pension fund and insurance
cash sits in SRI funds, and its banks are expert at structuring
products that comply with the rag-bag of global eco-friendly
edicts. And if Asia - which has, to put it mildly, a patchy
record on environmental awareness - gets hip to the green issue,
we might well see more Scandinavian banks leading public
issuance out of the region.
In fact, while Asia is home to many notoriously
eco-unfriendly projects, there are growing pockets of social
investments in the region. One is the joint project between
Singapore and China to develop the Tianjin Eco-city in China,
which will recycle its water and draw energy from the sun and
the ground. In South Korea, a "green action plan" has been put
in place and US$85bn of state funds is being devoted to a range
of eco-friendly initiatives, with the aim of transforming the
country into a "green nation" by 2020.
There's no doubt that green funds are growing into a
significant pool of global capital too, with around US$3trn
invested in SRIs as of 2010, according to researchers at the
Forum for Sustainable and Responsible Investment.
But there's one aspect of the green wave that has failed
entirely to live up to the breathless hype assigned to it in the
middle of the last decade: carbon trading. You will remember
that hype. Carbon trading was the means by which countries could
meet the requirements stipulated in the 1997 Kyoto Protocol to
reduce carbon dioxide emissions. Companies that produce less
carbon dioxide can sell a valuable carbon credit to others that
produce too much CO2, who will need to buy the credit.
I recall interviewing the softly spoken Haruhiko Kuroda,
chairman of the Asian Development Bank - and, incidentally, a
possible candidate to replace Masaaki Shirakawa as governor of
the Bank of Japan - back in 2007 when he enthused about the
potential for the growth of the carbon trading market.
That enthusiasm wasn't in the least surprising coming as it
did from the head of a multilateral development bank with a core
mission to reduce pollution in the countries under its purview.
But flash forward six years and despite all its initial promise
the global carbon trading system, the clean development
mechanism, is in a state of disarray.
This is partly the result of reduced economic activity in
Europe which has meant most companies have no need to purchase
carbon credits. The price of carbon credits in the clean
development mechanism has collapsed from around US$20 per credit
at the time I met Kuroda to around US$3 today. This means the
value of the credit companies could have earned from setting up
clean-energy projects - when they were assessing them at that
US$20 per credit - is so low that projects are being abandoned
Meanwhile, investors who poured into the carbon credit
market have also left in droves after losing their shirts in
what was meant to be a sure-fire money spinner. No green was
earned from the black, so to speak.
It all seems rather paradoxical, with the blame perhaps best
laid at the feet of the world's governments and the setting of
quotas that were too high, given that the US refused to ratify
Kyoto and that China is under no obligation to reduce emissions
under the terms of the protocol.
But if government is to blame for the collapse of the carbon
trading market, it is also at the heart of the SRI boom, and
some are getting the joke faster than others - South Korea among
them. With a ready pool of dedicated green capital coming out in
force to support Kexim's debut SRI trade and the bank saving on
its funding costs into the bargain, I would bet that others are
going to start getting the joke as well.
(Reporting By Jonathan Rogers; editing by Steve Garton)