x Abu Dhabi, UAEMonday 24 July 2017

How to raise money and ecological awareness

Norway's DNV made its name in the 1800s as a ship inspector. Now it checks bonds for environmental credentials.

Det Norske Veritas (DNV) made its name in the 1800s as a ship inspector in Norway. This year it entered a more 21st-century sector: checking if bonds that call themselves green are really all that environmentally-friendly. The National spoke to Noel Peters, DNV's manager of climate change and environmental services in Oceania.

Why are green bonds taking off now?

One of the big issues with managing climate change is the transfer of funds and making sure the funds are transferred to appropriate projects. We see that getting more and more important as the world tries to meet its climate obligations.

What's the benefit for investors?

When a bank raises a bond, it goes to institutional investors to seek that money. If the bank can say that it has a climate bond, then that provides assurance to these institutional investors that these investments are green and that these investments are sustainable. So that helps them in developing a longer-term, lower-risk portfolio, because a lot of investors see climate change as a risk, and see climate change mitigation as a lower-risk strategy.

You find that organisations that have very long-term investment horizons are very much drivers for investment in green things and low-carbon technology.

How do you check if a bond is green?

We look in-depth at what the banks' internal structures and processes and checks and balances are. We are looking at how the treasury people put together their financial flows and the way the bank identifies the particular funds, and make sure they can track those into the pool of money that goes into investing in not fossil fuels projects, but wind projects. We definitely need to do enough auditing to be confident that the projects actually exist. An awful lot of the audit process is actually looking at the project portfolio. The project portfolio may or my not exist at the time we do the audit, but if the projects are in place, we definitely look at project documentation and we also check that the projects are operating in a sustainable way.

Why is it sometimes cheaper to raise money with green bonds than traditional ones?

When we do these audits, we're not privy to the cost of the finance. We see how much they invest in their projects, we see what their project portfolio is, but we don't see the actual contractual arrangements between the bond and the investors, and that's not material to us.

What kind of projects would a green bond finance?

The current standard only allows wind. The intention is to start off with a very low-risk approach. What the standard won't allow is fossil fuel-intensive investments, and wind is the easiest way to go down that path. It's a very robust approach and it's probably one that banks are comfortable investing in.

What about expanding beyond wind to solar or efficiency?

There is no doubt …this is a really important and expanding tool to make sure that we get investment.