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Green bonds

The challenge

Green bonds direct investment towards renewable energy, but continued uncertainty over qualifying criteria is stifling the financing of hydropower projects.

An innovative new investment instrument, green bonds are fixed income loans for the finance and refinance of projects and assets that help address environmental and climate risks.

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The green bond market has grown rapidly in recent years, up from USD11bn of issuances in 2013 to over USD155bn in 2017. This is helping to shift much-needed investment towards a low carbon, sustainable economy.

Some issuers have however excluded proceeds from green bonds being used to finance or refinance hydropower projects, citing uncertainty over their sustainability profile and potential greenhouse gas emissions.

Much of the concern has focused on hydropower plants located in tropical regions and a lack of authoritative research over the methane emissions from reservoirs.

 

Our strategy and action

IHA is working with partners to agree recognised eligibility criteria for green bonds to fund hydropower projects.

We are seeking international agreement on climate compatible criteria for hydropower projects, which are approved by the Climate Bonds Initiative (CBI), stakeholders and accepted by the hydropower sector.

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In June 2016, we joined the Hydropower Technical Working Group (TWG) an investor-focused not-for-profit group launched by the CBI. The group is taking a robust science-based approach to develop criteria looking at climate mitigation, climate resilience and adaptation and adherence to broader environmental, social and governance good practice. Since its formation, the TWG has made substantial progress in developing eligibility criteria, which are expected to be finalised in 2018.

IHA’s contribution draws upon the Hydropower Sustainability Assessment Protocol, and our participation in a World Bank funded project to develop criteria on climate resilience and adaptation impacts.

In addition, the agreed criteria are expected to benefit from the G-res tool, which we launched in 2017 as a way of reliably estimating net reservoir emissions.

 

Recent activities

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 In May 2017, during the World Hydropower Congress, we joined representatives from industry, the finance sector and various international NGOs to discuss the objectives, scope and emerging outcomes of the CBI Hydropower Technical Working Group (TWG).

Over the course of 2017, there were eight CBI TWG meetings to develop technical criteria to identify and monitor climate-aligned hydropower investments. These meetings looked at climate mitigation benefits, adaptation and resilience, and adherence to broader environmental, social and governance good practice.

In December 2017, IHA published a briefing titled ‘Bringing standards to the green bond market and what it means for hydropower’ to update members on the development of the market and the eligibility criteria.


 

Join the community

Members interested in learning more about green bonds can join the Finance and Investment Knowledge Network

Contact us

For more information, please contact IHA senior analyst Nick Troja at nicholas.troja@hydropower.org

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