Justine Leigh-Bell Executive Director, Anthropocene Fixed Income Institute, former Deputy CEO, Climate Bonds Initiative

Milken Institute: You’ve collaborated with the Milken Institute on several occasions, including two Financial Innovations Labs exploring pathways to growing the green bond market [available here and here]. What did you find valuable about participating in these projects and how have they influenced your work?

Justine Leigh-Bell: The Milken Institute led some very well-respected events in the US that the Climate Bonds Initiative (CBI) had the opportunity to contribute to on the topic of green finance. The Institute shared CBI’s objectives in helping to grow the green bonds market that made the collaboration very valuable. CBI supported the Milken Institute in its efforts to bring more attention to green bonds in the US market. It was a chance to share with the Institute’s partner network the developments of green bonds internationally and how this could help lay the foundations in the US for scaling green bonds. The Institute is well respected in the US and was a great convenor to help drive the discussions forward and offer practical solutions on how to grow the market in the US.

As former deputy CEO and director of market development, you held an impactful role with CBI, working to mobilize the $100 trillion bond market for climate change solutions. For those unfamiliar, could you explain what climate and green bonds are and how your work at CBI helped expand and improve the market?

A green bond is a type of fixed-income instrument specifically earmarked to raise money for climate and environmental projects. The majority of the green bonds issued are green “use of proceeds” or asset-linked bonds. Proceeds from these bonds are earmarked for green projects but are backed by the issuer’s entire balance sheet. There has also been green "use of proceeds" revenue bonds, green project bonds, and green securitized bonds. During my time at the Climate Bonds Initiative, the green bond market went from US$3 billion to over US$1 trillion globally in eight years. We were at the forefront of driving the development of green bond markets worldwide by supporting market practitioners, including governments and regulators, on what was required to issue green bonds using international guidance on labeling these new products. We helped define the vast landscape of green investment opportunities across the key economic sectors of the global economy known as the Climate Bonds Taxonomy, a guide for issuers on what assets and projects are eligible for green bonds underpinned by climate science. The CBI taxonomy serves as the foundation to the EU and China Taxonomies that have led to other taxonomy developments globally.

What drew you to the Climate Bonds Initiative, and why is this work important to you personally?

I was attracted to the vision of CBI’s founder, Sean Kidney, who believed that the only way the world would have a chance to avoid catastrophic climate change was to mobilize private capital at scale, rapidly—the largest source of capital being the $100 trillion bond market. It was also a strategy to get governments to act. Increased investor demand for green bonds has resulted in major governments taking steps to attract green capital (potentially cheaper capital) into their economies to address climate challenges, as we have witnessed in China and the EU. Personally, I wanted to work for an organization that could deliver real change to the climate challenge. It is about understanding how to move the financial markets in the right direction quickly to climate transition; Climate Bonds Initiative was able to create awareness and opportunity on how this could happen in a way that was scalable and achievable—through green bonds. We are nowhere close to where we need to be on averting climate change, but at least we have a sustainable finance movement growing—thanks to the green bonds market.

Why are green and climate bonds an essential tool for advancing environmentally friendly projects and achieving the goals set out in the Paris Climate Agreement?

Green/climate bonds are only one part of the story in achieving our goals in the Paris Agreement, but they are an important one given the role green bonds play in the market. They brought together the sustainability and treasury teams inside institutions looking to issue green bonds, drove governments to incorporate green into their capital expenditure programs, and got regulators to put in place guidance on green for local capital markets. We are also seeing evidence on green bond pricing, for example, where there are advantages for issuers to potentially source cheaper capital for investing in green projects and activities. Investor demand for green is very high and has resulted in a diversity of other labels, most notably the sustainable linked bond, which opens up the market for more opportunity to direct capital to transition companies.

In 2020, the green bond market surpassed the cumulative $1 trillion milestone, and new global green bond issuances reached $480 billion in 2021. As the market continues to grow, what are the most significant challenges facing issuers and investors alike?

The biggest challenge we face is to ensure the credibility of the market as it grows. Greenwashing is a real threat if we do not maintain the ambition for science-based climate-aligned investments in the labeled debt market. As we have seen in the EU, industry lobbying fighting to ensure natural gas is considered in the EU taxonomy sends alarm bells to many in the investor community on what they can rely on to ensure they are investing in climate-positive investments. Disclosing material information to investors on what is financed and the impact delivered remains a challenge in labeled debt market.

Are there specific industry or regulatory changes you feel would address these barriers to broader green bond adoption?

We are seeing a plethora of standards and regulatory proposals emerge to help address the barriers of scaling the green bond market and sustainable finance, more generally. Still, there remain challenges to getting consistency and comparability in the market on what is considered green. The EU Action Plan on sustainable finance should be viewed as an achievement despite ongoing discussions on the inclusion of controversial sector activities. The world is undergoing a huge energy transformation towards low carbon, but the speed at which we get there will be determined by how we define the transition, which must adhere to a 1.5 degree Celsius increase trajectory if we are to be successful.

The Climate Bond Initiative works globally. What are some of the critical differences in the green bond market between developed and emerging regions, and how do you adjust your approach to fit local dynamics?

The key difference is the maturity of the emerging market (EM) capital markets relative to the developed economies. This difference makes green bonds difficult to scale in the EMs. There is also the challenge of investable pipelines of green projects in which global institutional investors may invest. Therefore, CBI focused much of its efforts on building local green bond markets by establishing clear green bond guidelines for local markets that encouraged local investors to invest. CBI supported local green bond market development in countries across Latin America, Africa, and Southeast Asia.

Over the coming decade, how do you envision the development of the green bond market, and can these debt instruments catalyze meaningful advances in global climate solutions?

Green bonds have proven to be a valuable tool in shifting capital to address our climate and environmental challenges. They will continue to attract investors in the decades ahead, but bringing meaningful advancements on climate will require a transformation of the fixed income markets as a whole. We are at a pivotal moment in the race to net zero. Leveraging the fixed income markets will be vital to achieving our climate goals.