My recent suggestion that fund managers wanted the government to issue green bonds in response to investor demand received short shrift from someone who, I think, thought he knew how markets worked. His claim was that such bond issues were not necessary, or desirable, despite my agreeing that they were.
I am, then, slightly pleased to note that the FT is firmly on my side, saying yesterday:
War loans historically funded governments in crises. The UK parliament this month declared a climate emergency. The government should react by issuing “green bonds”, reckon large asset managers, led by Columbia Threadneedle.
A letter sent to the UK's Debt Management Office set out the case for issuing debt specifically to finance climate-saving projects. The DMO has so far hesitated. It should not do so for long.
I also note that they report this:
For once, the cynics might be wrong. Bicycle-friendly and flood-alert Netherlands on Tuesday hopes to raise up to €6bn via a green bond, becoming the first triple A-rated government issuer. Its promises of independent certification and regular reporting on the use of proceeds will help boost the credibility of green bonds.
In the world we now live in every supposedly rational assumption that those who think they understand markets claim to make needs to be examined in a new light. The quantitative data on which they form their opinions is far too limited to be a rational basis for most decision making. Real people know that. Most who manage investments on their behalf do not.
No wonder we're in a mess.
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“The quantitative data on which they form their opinions is far too limited to be a rational basis for most decision making. Real people know that. Most who manage investments on their behalf do not”.
I suppose your post is directed at me and as is often with your rhetoric it is slanted towards your bias and away from the truth (i.e what i said in the previous thread on this subject).
At no point did that green bonds shouldn’t be issued..indeed i listed £9billion of renewable energy closed ended funds which pay yields of circa 5-6%, and have long term successful track records. You clearly have no idea about this sector. I listed all the funds the previous thread they all publish report and accounts , have independent boards, shareholder meetings etc..i suggest you acquaint yourself with what they are about. The key point being that investors want to marry a good cause with an investment return. There is a lot of analysis goes into the sector. iNDEED MANY FUNDS TRY TO LAUNCH BUT DONT RAISE ANY MONEY BECAUSE THE INVESTMENT CASE IS NOT STRONG ENOUGH.
You tied in negative yields on German bunds and cited this as a reason why investors will invest in Green bonds without being bothered about the returns. This is where we clashed as it is clearly nonsense and you can’t make the association. German Bunds trade on negative yields because of the return generated should the euro break up and bunds denominate in DM. This is the “real world” explanation Again you had clearly no insight into this.
you have no real insight into the pricing of german bunds or any bonds (other than what you read in the paper) and have no insight into existing renewable investment funds with long and successful track records where investors do try and understand the proposition as opposed to just invest blind because it is green. Money isn’t raised in this way. You talk like you have invented the wheel. You havn’t. I even listed some research papers from a real environmental economist from the late 70s/80s Dr Paul Burrows. I suggest you read them you might find them enlightening.
You still spectacularly miss the point Arif
Why not think about why the Netherlands fully expects to succeed with its bond issue?
Then come back to me and explain why those buying them are wrong, because that’s what this is about
There is no indication of what yield the Netherlands Government will be able to sell bonds successfully at, and that is the key point. A Triple A issuer would be able to sell Trillions of an issue successfully if it promised a relatively high yield.
Your assumption that their upcoming green issue will be successful merely because it is a green issue simply demonstrates your paucity of knowledge of how debt markets work.
The Netherlands, with one of the lowest debt to GDP ratios because of its prior fiscal prudence, has the second lowest yielding debt in the EUR area, and for similar reasons, benefits from the same premium attributed to German Bunds. As such, it can successfully issue debt at low yields, and that is nothing, as Arif has politely attempted to explain to you and your acolytes, to do with the fact that the bonds in question will be ‘Green’ bonds. You could call them Dutch Pollution bonds and still issue them at the same yield, because the substantial buyers you require to subscribe for a successful issue (who ARIF and I evidently know, and I’m afraid you do not) care much more about financial returns than they do destination of the money raised.
With respect, I disagree
In fact, I’d describe this as pure nonsense
But keep up the pretence, if you wish. It’s the way the climate burners will do this too
Do you know if the Green Bonds are in addition to the ‘normal’ Netherlands bond issues or are a ‘rebranding’ and reporting change?
I suspect they are a bit of both
No problem with that
With respect, could you be a little more specific as to what part of that posting you disagree with, and which part is pure nonsense ?
Everybody is a ‘climate burner’ I’m afraid (even those who advocate their green credentials while jetting off to talking shops on foreign soil) , so your insult is both accurate, and of course as usual, totally lacking in self awareness.
I made clear you entirely missed the point I was making, so the response made no sense
That is not a lack of self awareness on my part
I am saying you are entirely missing my point – and so the lack of awareness may entirely by by you
These aren’t “Green” bonds as such. They are issued by the Dutch government, and repaid by the Dutch government – not through the proceeds of “Green” investments.
The only thing that makes these bonds “Green” is that the money raised will be used for environmentally friendly projects.
Which is fine, but they are just like any other government bond, where the proceeds could also be used for similar things. The only difference is in the name.
And the monitoring
That is quite emphatically not the same
What has monitoring got to do with these bonds? Or anything in fact?
All an investor will look at is this: They are Dutch government bonds, with the Dutch credit rating and will be repaid through general taxation. They are just government bonds with a different name.
If those bonds were issued separately from government, with repayments from a separate income stream (say the revenue from Green projects) then it would be a different story. They wouldn’t have the same credit rating though and would trade at a much higher yield because they would be much more risky.
But in this case they don’t. They are just government bonds.
You may not have noticed that there is a monitoring process for a reason
Some of us are able to work it out
So I’m sure you’ll be able to educate us as to the purpose of this monitoring process in that case?
And more importantly, how such a monitoring process makes these bonds trade any differently to normal government bonds?
Of course, the Dutch government themselves say (having read the prospectus) the monitoring process is only there to ascertain value for money for the projects they invest in and to monitor the effect these projects have on their climate change/CO2 targets.
So how will that affect these bonds, in comparison to any other government bond which could be used for exactly the same purposes, and is repaid in exactly the same way.
I get the impression you are dissembling hard to try and make a point – but in reality these bonds are in no way new or special.
If they were the same as all other bonds there would be no such process
If you do not see the difference I think it best you stop wasting my time
If it walks like a duck, talks like a duck, in your world it seems as long as it is monitored, it’s a lizard.
But you might like to look again at those “Green” bonds – and that monitoring.
Firstly, you’ll probably find it interesting that 50% of the money raised by this “Green” bond can go straight to general government expenditures – not just green projects.
Secondly, the reporting that will be done is not as specific as you think. All that will be reported is a general amount spent on various general categories (UN sustainable development goals) and not specifics, and the impact assessment will be that for government as a whole against climate targets, no specific reporting for these bonds.
So, unsurprisingly, given they are EXACTLY the same as any other bond issued by the DSTA, everyone treats them like any other government bond.
Except you it seems, because you see quacking lizards.
So you are going to tell the Netherlands government this is fraudulent?
Fraudulent?
What on EARTH are you talking about?
If fraud is reading the bond prospectus (issued by the DSTA) then……lizards???
As ever, you entirely miss the point
It seems to be the skill of the fund manager
Michael says:
“The only thing that makes these bonds “Green” is that the money raised will be used for environmentally friendly projects.”
Erm……??? Isn’t that rather the point ?
One of us is missing something.
How about Index-Linked Green National Savings Certificates?
I’d be up for those.
Neil Ferguson says:
“How about Index-Linked Green National Savings Certificates? I’d be up for those.”
So would I if I had any money to save or invest, and I think perhaps a lot of people would. As Simon Gray below suggests, people are prepared to put their money into things they support and believe in and are not entirely profit orientated.
The entire population of the UK has not yet been won-over to neoliberal psychopathy.
I suspect there is a demand for Green Bonds sold direct to the public. To be fair it is the purpose of the majority of investment professionals to maximise financial gain irrespective of ethical issues.
I would suggest there are those who invest for low or zero returns because they care about the thing they are investing in and not solely in maximising the return they will make.
Fans who purchase shares in football clubs do so not in the hope of realising a huge return. In fact most owners bar those investing in a very few highly successful clubs, and even those probably do not give a return large enough for the professional given the risk and high level of capital required, do not invest in the hope of ever getting a return. Those individuals who invest in films or theatre projects take huge risks given the chance of success but do so because they want to be involved in the project. Those who ‘invest’ in lotteries do so on the basis there is little chance of a true return but a possibility of a generous return if they are the 1 in 140,000,000 who win the Euromillions jackpot an event so unlikely as to be almost non-existent.
Green bonds are likely to be far more popular with non-professional investors, as were war bonds, than with the highly trained experts. Many I suspect would invest at par with a guaranteed small interest payment as part of a portfolio of other investments.
What would be needed is a clear understanding as to what the funds would be used for given the dangers of misappropriation or waste but I don’t see the financing by a bond being the issue. (Excuse the pun)
But the highly trained experts may not be doing what their clients want in that case
They assume an objective the public do not have
Mandates given to fund managers come with incredibly detailed and strict guidelines. Failure to adhere to theses guidelines will result in losing a mandate. Incidentally I have yet to come across ANY client , institutional or retail who have stipulated “please invest for a zero or negative return”..and if I did I would suggest they instead donate any positive returns to charity – and indeed some do.
But then mandates are not written by the real investors, are they?
People like you make them up
And that’s why so many people are failed, by people like you
And the world is in the mess it’s in
“But then mandates are not written by the real investors, are they? People like you make them up..And that’s why so many people are failed, by people like you..And the world is in the mess it’s in”..irrational rant by Richard Murphy
I am indeed in the fund management industry. The clue in what area was the post graduate tutoring in environmental economics by Dr Paul Burrows at York University in the mid 80’s where I did my PHD. I now co manage a renewable energy fund..the mandate set out is strict although no doubt you would find objection though probably from a petty agenda rather than any industry insight or knowledge..anyway you continue operate in your “real world” and I look forward to further “comedy analysis” from you in an area (environmental investment) you clearly know nothing about.
Go on …. share the mandate
And tell us who it is for