Green Bonds: Analysing trends, opportunities and risks TBLI Conference: Nordic 2016 September 20, 2016

Philip Brown Managing Director

Head of Public Sector and SRI Fixed

Income Origination

Philip.brown@citi.com

+44 (20) 7986 8950

Over 15 years of Sustainability

Joined UNEP

Finance Initiative

Published first Global

Citizenship Report

Co-developed &

launched Equator

Principles for project

finance transactions

Launched comprehensive ESRM

Policy

Launched 10-year $50B Climate Initiative

Joined the UN Global Compact (first US bank)

Exceeded 10% GHG emissions reduction target (achieved 13.58%)

Released Statement of Supplier Principles

Named the World’s Greenest Bank by Bloomberg Markets magazine

Launched Energy and Power Framework

Reached $50B goal

Launched

Sustainable

Progress Strategy

and $100B

Environmental

Finance Goal

Included in Dow

Jones Sustainability

Index (DJSI)

1997 2000 2001 2003 2004 2007 2009 2010 2011 2012 2013 2014 2015

Citi was one

of the two co-

founders of

the Green

Bond

Principles

1

Environmental Finance Case Studies

Half of the Everglades has already disappeared. Now the remaining half of this

fragile ecosystem is at risk from pollutants in stormwater runoff.

The problem has been decades in the making. But the millions of Florida residents,

visitors and native animals relying on this watershed don’t have decades to wait for

a solution. So the South Florida Water Management District designed innovative

stormwater treatment wetlands and Citi found a way to finance the project in weeks

rather than years. Now, clean water from those wetlands is replenishing the

Everglades and an incomparable global landmark is on the mend.

For over 200 years, Citi’s job has been to believe in people and make their ideas a

reality.

At one point, 40% of streetlights in Detroit didn’t work. This made life even more

difficult for a city that was already struggling.

The Public Lighting Authority of Detroit devised a plan to reilluminate the city. But

finding a bank to finance the project during Detroit’s bankruptcy was challenging.

Citi stepped up and committed its own capital, which encouraged other investors.

So far, thousands of new LED lights have been installed, lighting the way as a

model for similar projects around the world.

2

’s Flagship Research in Green Energy

The Car of the Future

https://ir.citi.com/kTV1i1epgd3LAMr0SU8T2D4

PrfGFRhpD2vwew4c7HpGLWHvDqoLk42OZn

%2FKLKRrENEECmzMEPhU%3D

Energy Darwinism

https://ir.citi.com/Jb89SJMmf%2BsAVK2AKa3

QE5EJwb4fvI5UUplD0ICiGOOk0NV2CqNI%2

FPDLJqxidz2VAXXAXFB6fOY%3D

Energy 2030: Financing a Greener Future

https://ir.citi.com/BOkALUJBhr6ezsrQxov5ZpfX

3D8UkGSU7cyUzHOPUzfK%2FaozVshGqUW

COwuxH0eFBsfY5BSB8aM%3D

Energy Darwinism II

https://ir.citi.com/E8%2B83ZXr1vd%2Fqyim0Di

zLrUxw2FvuAQ2jOlmkGzr4ffw4YJCK8s0q2W5

8AkV%2FypGoKD74zHfji8%3D

Together with being a lead underwriter in the green bond market, Citi regularly produces flagship research documents exploring different

areas of Green Energy to help our clients identify future themes and trends in this area.

Most recently Citi GPS produced Energy Darwinism II – Why a Low Carbon Future Doesn’t Have to Cost the Earth. The report aims to

raise awareness in the financial community of the issues and solutions surrounding climate change and examines the likely costs of

inaction and whether or not we can afford to act. The report recognises green bonds as having enormous potential to facilitate low carbon

investment.

Energy Darwinism II has been the single most successful Citi GPS document receiving upwards of 40,000 downloads.

Please find links to some of our flagship Citi GPS research documents below:

3

‘s Green / SRI Bond Credentials

Unilever

1st GBP Green Bond

2.000% Due

19/12/2018

GBP 250 Million

18 March 2014

Toyota

1st ABS Green Bond from

An Auto company

Green ABS

USD 1.75 Billion

11 March 2014

GDF Suez

Largest Corporate

Green Bond

€1,200 6yr

€1,300 12yr

12 May 2014

ASE

1st Green Bond in Asia

2.125% Due

24/07/2017

USD 300 Million

17 July 2014

Citi is an innovator in the green bond market; Citi hasfacilitated over $20bn in green and social bond issuance and is

currently in the No. 2 bookrunner for Corporate Green Bonds

BRF

1st Green Bond in Brazil

2.750% Due

03/06/2022

EUR 500 Million

29 May 2015

Toyota

2nd ABS Green Bond from

An Auto company

Green ABS

USD 1.25 Billion

10th June 2015

WHEEL

1st Energy Green

ABS Bond

Green ABS

USD 12.58 Million

18 June 2015

Largest US Dollar

Corporate Green Bond

3.625% Due

13/10/2025

USD 1.25 Billion

07 October 2015

IFC

1.250% Due

27/11/2018

USD 500 Million

17 November 2015

1st Yankee Bank

Green Bond

Dual Tranche

$800m Due Nov-18

€500m Due Nov-20

USD 1.3 billion

17 November 2015

India’s 1st Green Bond

by a commercial

state-owned bank

4.250% Due

30/11/2020

USD 350 Million

23 November 2015

1st auto sector senior

unsecured green bond

2.875% Due

16/03/2021

USD 500 Million

08 March 2016

Digital Realty

3.950% Due

01/07/2022

USD 500 Million

18 June 2015

EIB CAB

Tap of 2.25% Due

07/03/2020

GBP 300 Million

17 July 2015

IADB

“EYE BOND”

1.500% Due

25/09/18

USD 500 Million

17 September 2014

Vestas

2.750% Due

11/05/2022

EUR 500 Million

04 March 2015

EIB CAB

Citi’s 1st GBP CAB for EIB

Tap of 2.25% Due

07/03/2020

GBP 500 Million

13 April 2015

KFW

Largest USD Green Bond

At the time of issuance

1.750% Due

15/10/2019

USD 1.5 Billion

07 October 2014

Development Bank of

Japan

1st Green Bond in Japan

0.250% Due

06/10/2017

EUR 250 Million

30 September 2014

Alliander

0.875% Due

22/04/2026

EUR 300 Million

18 April 2016

Iberdrola

1.125% Due

21/04/2026

EUR 1 Billion

14 April 2016

Toyota

3rd ABS Green Bond from

An Auto company

Green ABS

USD 1.6 Billion

02 May 2016

TSKB

1st Sustainability / Green

bond from Turkey

4.875% Due

18/05/2021

USD 300 Million

18 May 2016

Axis Bank

1st USD Green bond by an

Indian private sector bank

2.875% Due

01/06/2021

USD 500 Million

23 May 2016

4

1 3

1 3

10

36

42

46.03

0

5

10

15

20

25

30

35

40

45

50

2009 2010 2011 2012 2013 2014 2015 2016

Supranationals 21%

US 17%

Germany 15%

France 12%

Netherlands 11%

Sweden 4%

India 3%

China 3%

Nordic 4%

UK 2%

South America 3%

Asia (excl China) 2%

Others 3%

Previously, green bond

issuance volumes were

dominated by

Supranationals and

European agencies and

corporates.

China 28%

Supranationals 18%

US 15%

Netherlands 15%

Germany 6%

Sweden 5%

South Korea 3%

France 2%

India 2%

Other 6%

In December 2015 by the

Peoples Back of China

(PBoC)’s official

guidelines on green bond

issuance in China’s inter-

bank bond market, there

has been a substantial

increase in green bond

issuance from Chinese

financial institutions,

approximately - $8.5bn

equiv

The Green Bond Market

2015 saw a rise in the number of investors seeking to invest capital in products that support environmental sustainability.

The growth in the number of investors will incentivise further growth in the green bond market in 2016.

Am

ount ($

bn e

quiv

)

Source: Citi, Dealogic and Climate Bonds Initiative

Global Green Bond Issuance Volumes

Source: Citi, Climate Bonds Initiative Source: Climate Bonds Initiative

Green Bonds Issued by Geography (excluding US Municipals)

2016ytd

2015

Citi expects approximately $60-

$70bn of green bond issuance in

2016

Global Green Bond Issuance Volumes: 2016ytd

9.07

2.18

6.26

4.99 5.5

7.9 8.4

3.3

0

1

2

3

4

5

6

7

8

9

10

Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16

Am

ount ($

bn e

quiv

)

5

Multi Sector 49%

Energy 29%

Buildings & Industry 9%

Transport 6%

Water 6%

Waste & Pollution 0.75%

Agriculture & Forestry 0.1%

Corporates 18%

Finantial Institutions

31%

Munis (excluding US) 5%

Agencies & Supranationals

30%

US Munis 16%

Corporates 25%

Finantial Institutions

23%

Munis (excluding US)

3%

Agencies & Supranationals

43%

US Munis 6%

The Green Bond Market

Source: Citi, Dealogic and Climate Bonds Initiative

Green Bonds by Issuer type

2015

2016ytd

Green Bonds Issued by Use of Proceeds

Although green bonds by SAS issuers continues to dominate issuance

volumes, the market has seen a growth in the number of green bonds

issued by Financial Institutions and US Municipalities access this market.

• Green Bonds finance a range of green projects, with the largest

proportion of proceeds going to renewable energy and energy

efficiency projects

• Whilst many funds are classified as being for ‘new and existing

projects’ the majority of funds raised so far are used for (re) financing

existing projects

Issuers may choose to include several

different eligible project categories in their

green bond framework and not limit

themselves to just one eligible project

category.

6

in $bn

Total

Green

Issuance

Total

Issuance

% of Green

issuance

Agencies &

Supranationals

13.8 7,843 0.2%

Corps 8.28 1,360 0.6%

in $bn

Total

Green

Issuance

Total

Issuance

% of Green

issuance

Agencies &

Supranationals 18.06 8,632 0.2%

Corps 10.5 1,675 0.6%

Green Bond Market Trends and Outlook for 2016

Policy attention:

Green Bonds have caught policy

attention as a means to address

climate change

Emerging market issuance:

Increase in green bond issuance

from emerging countries like

China & India will drive further

growth in the green bond market

Mainstream Investors:

Increasing number of

mainstream investors are

interested in adding green bonds

to their portfolios

Repeat issuers:

Repeat issuance from

Supranationals such as EIB, IFC

and IBRD help raise the profile

of the green bond market

Green bond pricing

incentives:

Will we see pricing incentives

introduced for green bonds?

Importance of transparency

& impact reporting:

Market participants are putting

greater emphasis on

transparency and reporting to

mitigate risks of “greenwashing”.

Green Bond

Market

7

The Green Bond Principles (GBP) are voluntary process guidelines that call for transparency and disclosure and promote integrity in the development

of the Green Bond market by clarifying the approach for issuance of a Green Bond.

Citi was one of the two founders of the Green Bond Principles and has served as member of the Executive Committee

The GBP’s definition of a green bond: Green Bonds are any type of bond instrument where the proceeds will be exclusively applied to finance or re-

finance in part or in full new and / or existing eligible Green Projects and which are aligned with the four core components of the GBP

Green Bond Principles 2016

Investors, issuers and underwriters worked to establish the Green Bond Principals (GBP) to aid in the development of the

Green Bond market by providing guidance on the approach for issuance of a Green Bond.

Source: Citi, ICMA Green Bond Principals http://www.icmagroup.org/Regulatory-Policy-and-Market-Practice/green-bonds/green-bond-principles/

Use of Proceeds The utilization of proceeds should

provide clear environmental

benefits, which will be assessed

and, where feasible quantified by

the issuer. Proceeds may be used

for refinancing.

Process for Project

Evaluation and Selection The issuer of a Green Bond should

outline a process to determine how

the projects fit within the eligible

Green Projects categories identified;

the related eligibility criteria and the

environmental sustainability

objectives.

Management of Proceeds The net proceeds should be

credited to a sub-account, moved to

a sub portfolio or otherwise tracked

by the issuer in an appropriate

manner and attested to by a formal

internal process that will be linked to

the issuer’s lending and investment

operations.

Reporting Issuers should make, and keep, readily

available up to date information on the use of

proceeds to be renewed annually until full

allocation, and as necessary thereafter in the

event of new developments

Issuers with the ability to monitor achieved

impacts are encouraged to include those in

their regular reporting

1 2 3 4

External Review

Consultant Review Eg. Second Party Opinion’s (SPO),

Certification Use of proceeds can be certified against an

external green assessment standard. Eg,

Industry standards, Climate Bonds

Certification

Verification It is recommended that an

issuer’s management of

proceeds be supplemented by

the use of an auditor, or other

third party, to verify the internal

tracking method and the

allocation of funds from the

Green Bond proceeds

Rating

An issuer can have its Green Bond or

associated Green Bond Framework

rated by qualified third parties, such as

specialised research providers or

ratings agencies.

Green Bond ratings are separate from

an issuer’s ESG rating as they typically

apply to individual securities or Green

Bond Frameworks.

Eg. Moody’s Green Bond

Assessment

8

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footprint, and engage with stakeholders to advance shared learning and solutions. Citi’s Sustainable Progress strategy focuses on sustainability performance across three pillars: Environmental Finance; Environmental and Social Risk

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