Experts call for covered bonds to support low-carbon economy

GLOBAL – The renewable energy sector is in need of large-scale investments, according to Sean Kidney, chief executive at the Climate Bonds Initiative.

Speaking ahead of the Climate Bonds Initiative's roundtable to discuss the viability of renewable energy covered bonds as a means to broaden the debt capital market for low-carbon finance, he said: "Currently, the renewable energy sector is lacking large-scale investments, and government subsidies are drying up. Covered bonds should be explored as a means to support bank lending within the low-carbon economy."

LBBW Bank's Frank Damerow added: "Covered bonds have proven to be a reliable source of term-dated funds for banks to on-lend in specific sectors targeted by policy makers. Banks would benefit from issuing renewable energy covered bonds, as it would give them access to a wider pool of term-dated funds with which they could increase their lending activities."

And Stuart Clenaghan, principal of Eco System Services, said: "Renewable energy projects don't have the long-term financial track records that bond investors need. However, covered bonds have a unique feature – the cover pool of assets is visible and open to analysis. Once specific reporting standards are established, investors could improve their understanding of how renewable energy assets perform, without having to take a direct credit exposure."
 
A Steering Committee for the Climate Bonds Initiative is also being announced.

Joining Kidney, Damerow and Clenaghan will be Christoph Anhamm, head of covered bond origination at RBS; Angela Clist, partner at Aleln & Overy; Julia Hoggett, managing director and head of short-term fixed income origination for EMEA at the Bank of America Merrill Lynch; and Sean Flannery, former CIO of SSgA Americas, now Meister Consultants and IFOK.

Kidney, Damerow and Clenaghan are the authors of the paper 'Renewable energy covered bonds: How the covered bonds market can be adapted for renewable energy finance and how they can help catalyse innovation in low-carbon capital markets', which provided the starting point for the roundtable.