Presented at the 4th Global Infrastructure Basel Summit 21 & 22 May 2014. Read more about the world leading platform for Sustainable Infrastructure Finance at www.gib-foundation.org. Next Summit: 27 & 28 May 2015 in Switzerland

1. Why green bonds?
Green bond
frameworks and
Sustainability Grading
1
©Istockphoto.com/WWF-Canada
02. Mai,2014
Katharina Serafimova, Head of
Finance Sector Engagement WWF
Switzerland

2. Some observations
• Enthusiasm and optimism from the part of issuers on
one side: EIB, World Bank, Rabobank, Merrill Lynch
• Welcome and some caution from buy side investors
and NGOs: “Many shades of green”
• Jim Kim, President World Bank: above $50 billion
2015.

3. Why do we need green bonds?
October 23rd 2012 3
“Companies with strong environmental records
consistently pay lower costs for debt, while firms
with weaker records face higher costs of
financing and lower credit ratings.”
“Corporate Environmental Management and Credit Risk,” by Rob
Bauer and Daniel Hann 2010.

4. We do need green bonds…
October 23rd 2012 4
Materiality of ESG-
issues
Fixed income
Impact on ratings - interim
changes to rating might not
change pricing of existing
business  but does impact the
capital requirements & pricing in
new transactions
Timing
• Profitability, liquidity and
solvency determine a
company’s capacity to
meet its debt obligations.
• ESG issues are hard to
quantify over short time
periods
• Difficult to link them to
common financial ratios
(like debt to equity or
asset turnover).

5. Why do we need green bonds?
5
To trigger a change towards
sustainable economy : There is a
demand of 700 billion USD / a to
finance decarbonization
1. Ideal for high capex, long payback infrastructure projects
2. Largest single pool of capital: $80trn vs $53trn in equities
3. Mobilisation of bond market is key to meeting 2-degrees-
targets.

6. Green bonds as chance to increase
green capital allocation, if we get it
right• Many shades of green: There is a need for standards
and third party verification
• Relatively new concept: There is a need to develop
investment track record
• Scalability beyond the niche: There is a need to
improve the attractiveness. (Do we need carrots?)

7. The market is on a knife edge
October 23rd 2012 7
• Greenwash,
intransparency and
hiding risks
• Good standards leading
to high-impact
investments

9. Regulatory events can have an
impact over night: Adaptive capacity
to event risk outcomes is very limited
11.03.2011: Fukushima , earthquake
and nuclear catastrophe
Source chart: Performance RWE Stämme,
16.02.2012,
http://www.rwe.com/web/cms/de/109536/rwe/invest
or-relations/aktie/aktienkurse/
14.03.2011: Merkel announces „Atom-Moratorium“
„Ethikkommission“ presents final report
06.06.2011: Federal Government
enacts „Energiewende“
09.08.2011: RWE presents business development first half of fiscal 2011
Source chart: Performance RWE Stämme, 16.02.2012,
http://www.rwe.com/web/cms/de/109536/rwe/investor-
relations/aktie/aktienkurse/

10. Are fixed income instruments
impacted?
RWE – constant decline, lack of CO2
strategy
Moody's:
„The negative outlook therefore continues to reflect the execution risk around the
disposal programme and other remedial measures, as well as the challenges the
company faces in managing the implications of the nuclear phase-out, renegotiation of its
long-term gas contracts and looming CO2 burden which in Moody’s view imply
uncertainty around recovery in RWE’s financial strength in 2012 to a level consistent
with its A3 rating“
S&P (Global Credit Portal, 30/6/2011, page 10 & 2)
Corporate Credit Ratings History
RWE:
08-Jun-2011 A-/Negative/A-2
08-Apr-2011 A/Watch Neg/A-1
13-Jan-2009 A/Negative/A-1
03-Jun-2008 A/Stable/A-1
25-Feb-2008 A+/Watch Neg/A-1
Weaknesses:
• High carbon intensiveness of electricity generation
operations.
• Challenging market outlook characterized by falling
generation spreads and rising carbon dioxide costs.
• Structurally impaired gas operations and unfavorable
cost structure of imported gas.