22 May, 2012 – A proposal to create Renewable Energy Covered Bonds to leverage private-sector investment into the low-carbon economy was released by the Climate Bonds Initiative. The €2.5 trillion covered bonds market provides for a unique dual recourse structure that offers investors a high degree of security.
“The current financial crisis has forced banks to cut back on lending as a result of severe losses of capital and the forthcoming Basel III regulation represents a further restraint on bank lending”, says Sean Kidney, Chair of the Climate Bonds Initiative, Director of NSFM and a co-author of the proposal. “Governments, on the other hand, which have been the main supporters of clean energy are unlikely to increase investment given tightened fiscal conditions”.
Proposal co-author Frank Damerow of LBBW Bank, notes that: “Covered bonds have proven to be a reliable source of term-dated funds for banks to on-lend in specific sectors targeted by policy makers. Covered bonds are highly regulated and enjoy superior ratings and lower funding costs. Banks would benefit from issuing ‘Renewable Energy Covered Bonds’ as it would give them access to a wider pool of term-dated funds with which they could increase their lending activities”.
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