The treasurer of German development bank KfW has called on
investors and intermediaries – including law firms
– to accept lower yields and fees on
says investors should make financial concessions for
He also said green funds must be invested in
programmes under which the environmental impact can be
Frank Czichowski’s comments at an International Capital Market Association (ICMA)
forum this week touch on two of the nascent
market’s points of contention: premiums and impact
Green bonds are debt securities under which all
funds flow into environmental and climate-related investments.
Introduced by the World Bank in 2008, they have become
increasingly popular with corporates over the past 12
Many market participants, including SEB’s Christopher Flensborg who designed
the first green bond, believe the instrument’s
success depends on comparable pricing with ordinary bonds. But
there is no consensus on the issue.
"I know I am entering very controversial territory,
but investors should be prepared to accept a lower yield,"
- Frank Czichowski,
treasurer of German development bank KfW, has called on
investors to pay a premium and law firms to charge lower fees
for green bonds;
- Speaking at the
ICMA’s primary market forum, he said impact
reporting is needed for the asset class to reach its full
- Czichowski said green
bonds also represent an opportunity for the financial
industry to improve its reputation, which remains
He acknowledged that asset managers would push back on this,
citing their fiduciary responsibilities to earn the best return
for their investors. But Czichowski stressed that growing
investment in environmental protection measures would, in the
long run, mean they are cheaper to develop and will generate
World Bank Group president Jin-Yong Cai’s
statements earlier this year. In March he wrote that as the
asset class develops and investors assess the long-term costs
associated with a warmer climate, they may be willing to pay a
higher price for green bonds.
The treasurer of the German development bank, however, went
one step further noting that intermediaries could also play a
role by lowering fees.
"Why not say that if bonds have a specific structure we are
willing to support them either pro bono or with lower fees and
in this way contribute to lower total yield on the security?"
he asked. "If that were the case, if all three constituencies
– investors, intermediaries and issuers –
have a stake in this, I think there would be a conceptual
discussion on how we could best achieve what we want to
Czichowski also suggested that impact reporting was
essential for the market to reach its full potential. This
constitutes reporting commitments imposed on the issuer
regarding the environmental benefits to flow from the
investment. It is often measured based on the reduced volume of
carbon dioxide emissions stemming from the investments.
It’s a topic on which Czichowski is well
qualified to speak. KfW is a pioneer in the area, with its
€1.5 billion ($2 billion) green bond in July making it the
first corporate to adopt these environmental-style key
"Investors should be
prepared to accept a lower yield"
A growing number of investors are now refusing to invest in
green deals that don’t include impact reporting.
But it is an added expense, and whether it will become a pillar
of green bond documentation is still uncertain.
In addition to their environmental and long-term economic
benefits, Czichowski said green bonds present an opportunity to
improve the financial industry’s tarnished
"The financial crisis and many different scandals have
seriously undermined public perception and credibility of
financial institutions," he said.
"The more we can demonstrate and communicate that we can
provide solutions to the challenges of our societies at the
world at large, the more we can contribute to the repairing of
the rift between financial sector and rest of society."
The ICMA’s Green Bond Principles are available
Green bonds’ growing
Green bonds report
Asia corporate green bond first to open