Cedric Rimaud on combating green washing and capitalising on Green Bonds

Cedric Rimaud is a Corporate Bonds and Green Finance Specialist, a seasoned credit analyst specialising in Emerging Markets and a Green Bonds advisor to the United Nations Economic and Social Commission for Asia Pacific. Cedric plays an important role in helping attract capital flows from institutional investors into green/social projects in low income countries and regularly contributes to the Business Times in Singapore on the topic of green and social bonds.

In this interview, Cedric helps us to understand the complexities of regulatory restrictions, the reasons for immense growth in green bonds, he unpacks the viability of Green Bonds as a financing mechanism and what is being done to combat greenwashing.

Can you tell us what kind of initiative is needed to bring together state and non-state players to work with climate-vulnerable LDCs, LLDCs and SIDS from APAC and help these countries access green debt capital markets?

Regulation is being drafted to design taxonomies conducive to the inclusion of green debt instruments into the toolbox that these countries can use to attract private investments into green investments.

There are multiple impediments remaining for these capital flows to flourish: country risk, currency restrictions, legal ownership rights, volatile economic trends, high inflation, etc. But in the long-term, the support from philanthropic donors and development finance institutions can be used to help accelerate the inflow of capital. In particular, I believe that this concessional capital should be used much more proactively to de-risk transaction.

Currently, this capital is not used optimally, focusing on individual projects to serve as "proof of concept", but lacking the ambition to be a way to leverage much higher levels of participation from private capital.

The green bond market has seen exponential growth, what trends are you seeing specific to the Asian market?

The global green bond market has seen exponential growth, but the Asian market has been lagging, despite some very promising earlier trends of issuance by a variety of issuers and a diverse array of instruments.

We have seen only a couple of repeat issuance from sovereign issuers, which should be the largest issuers in the market. We need to see more green bonds come to market, now that the barriers have been greatly reduced. There is evidence that green bonds are achieving lower costs of capital, given the strong demand from investors. The Asian market should take advantage of this.

What’s your perspective on the viability of Green Bonds as a financing mechanism to encourage sustainability in the built environment (ie. green buildings)?

Green Bonds are great instruments to drive the greening of our economies in the various infrastructure segments that are in need for more financing. Bonds are a huge market, in excess of USD130 trillion globally, and there is abundant capital looking for steady, predictable returns.
The "green" label is a small additional step for issuers, which needs to specify to investors how it intends on using the capital it has raised. New bond formats are also available for issuers who prefer a global decarbonization strategy at their group level, rather than a "use of proceeds" format, such as the sustainability-linked bonds or loans.

Can you tell us what you’re seeing in terms of the incorporation of ESG factors into investment strategies and what impact this is having on the Fixed Income market?

ESG factors are predominantly used as a risk management tool and they have become prevalent across the investment world, including in Fixed Income. The add an additional level in the evaluation of investment opportunities. There are different levels of ESG engagement that we have seen across the investment industry.
The fixed income benefits from the incorporation of non-financial parameters in the evaluation of investment opportunities, more disclosure and greater trust among investors develops. We see global investors create their own ESG frameworks or implement methodologies created by third-party providers. It creates new opportunities for vendors to develop an offering, given that all asset managers are looking to have in place a system of classification for their investments. It also creates a strong interest in labelled bonds, as these instruments are focusing heavily on the environmental and social aspects. As a result, the demand for green, social and sustainability bonds is rising very fast.

With the issuance of green bonds reaching a record $517.4bn in 2021, up 74 per cent from $297bn the previous year - concerns are rising over green wash bonds. What initiatives are in place to combat greenwashing?

The green bond market is well anchored in solid standards of additional disclosure and annual reporting practices. Issuers of green bonds are carefully selecting projects that comply with established green standards, such as those established by various taxonomies across the world. The introduction of a second party opinion in the issuance process adds to the levels of disclosure. Regulators have also established rules for green bond issuance. The creation of a domestic (e.g. Singapore) and regional (e.g. ASEAN) taxonomy will further develop the market and create trust among investors.

What initiatives are in place to combat greenwashing?

Regulators must take active action to ensure that securities brought to market adhere to the best market standards and practices. Stock exchanges, where both equity and fixed income instruments can be listed, are somewhere where greenwashing can be addressed, with the creation of strict listing and disclosure rules. Investors should exert great caution and look into the global strategy of issuers to ensure the sustainability goals of the green bond issuers align with the investors' own investment policies. For example, particular attention must be paid to issuers from carbon-intensive industries, which come to market with labelled bonds. Investors will need to understand whether these issuers are truly engaged in the decarbonization of their business, or merely taking advantage of the strong demand for green bonds to achieve short-term gains. That way, investors will be able to avoid the downside risks of securities that come to market with the wrong frame of reference.

What makes you excited to be a part of Fixed Income Leaders Summit?

This is a great opportunity to meet with investors and market practitioners to understand the latest progress made by the industry. The financial markets are great at creating new solutions to fix new problems. Sharing ideas with fellow market players is a great opportunity. Thanks for organizing it.