Oliver Balch interviews Marilyn Ceci of JP Morgan in his monthly column profiling some of the leading speakers at Ethical Corporation’s events
Marilyn Ceci wasn’t always a greenie. Despite being an award-winning pioneer in sustainable finance, such a moniker in fact sits uncomfortably with her. A veteran denizen of Wall Street, her terrain is one of debt swaps and derivatives, not biodiversity and beards.
Ceci’s background is, as it happens, an unexpected blessing. Finance folk, as a rule, relate best to other finance folk: they speak the same language; they share the same scepticism; and they focus with the same eagle-like intensity on making things happen.
So, when 56-year-old Ceci, who heads up JP Morgan’s green bonds division, talks about the role of green bonds in bringing liquidity to sustainability issues in fixed-income markets, they listen. And they listen well. From next to nothing a decade ago, the global green bond market raised $86bn in the first half of this year, a 26% rise on the same period last year.
If you don’t make it relatively easy to do something like this, the barrier to entry becomes too high
Green bonds (also known as “carbon bonds”) act, as with any other bond, like a promissory note. So the issuer – typically a central bank or multilateral lender (although now increasingly corporations as well) – pledges to pay back the bond amount over a certain period of time, along with either a fixed or variable rate of return.
The only difference with the “green” version is that the capital raised is ringfenced specifically for environment-related investments. For the most part, these are long-term projects with high-capital expenditure requirements: think renewable energy facilities, energy-efficient buildings, water infrastructure projects, and the like.
More than $600bn worth of green bonds have been sold over the last decade, according to market analysis firm BloombergNEF. The instruments’ rapid uptake owes much to their simplicity, says Ceci. “If you don’t make it relatively easy to do something like this, the barrier to entry becomes too high.”
Also working in their favour is their positivity, she notes. Until the arrival of green bonds, investors interested in sustainability had grown habituated to a long list of industries with “don’t buy” labels by their name: fossil fuels, heavy industry, air travel, etcetera. With green bonds, investors suddenly had an instrument that pointed them towards attractive opportunities, not away from nasty ones.
Ceci’s involvement in green bonds dates back more or less to the market’s origins. After two decades working in interest rate sales, she shifted in 2011 to a new internal team at JP Morgan called cross-asset structuring – essentially, an in-house, entrepreneurial division tasked with resolving how different sections of the bank could overcome silos better.
It was while working in this role with the International Finance Corporation, the private-sector arm of the World Bank, that Ceci first came across the green bond concept. The European Investment Bank had already issued the world’s first such bond four years previously. Precious few had followed and those that had were restricted to the private placement market (ie bought by and sold to a limited group of investors; in this case, AAA-rated development banks).
Having rules of the road or a way to describe best practices at the beginning helps create a glide path to a more harmonised approach
The IFC had begun dabbling in similar water, but without much uptake. Traders live to trade. And privately placed debt instruments don’t allow that (well, not outside their limited pool). Together with the IFC, Ceci facilitated JP Morgan's underwriting of the first benchmark size green bond, of $500m, in 2012, followed by a syndicated $1bn benchmark green bond in 2013. The largest of their kind at the time, these fully liquid bonds are widely credited for kick-starting the market.
As an intermediary serving both bond issuers and buyers, Ceci and her colleagues at JP Morgan have been involved in a number of firsts since then. Her achievements include the first benchmark technology green bond (Apple), the first green covered bond (Berlin Hyp), the first sovereign green bond (Poland), the first green revenue bond (NYS EFC), and China’s first bank green bond (Agricultural Bank of China). In total, JP Morgan has notched up over 270 green bonds, to date.
Ceci’s trail-blazing record won public recognition at the Environmental Finance Bonds Awards back in April, when she was named Personality of the Year. Described as a “green bond superstar”, the judges lauded the “relentless passion and integrity” with which she has served the green bond market over the years.
But Ceci’s primary contribution arguably lies outside the US investment bank, which she joined as a young graduate back in 1986. By her own account (as well as that of the award judges), the chief “catalyst” for the green bond market is a set of guiding tenets that Ceci helped draw up six years ago.
Devised with three fellow bankers (at Citi, Crédit Agricole and what was then Bank of America Merrill Lynch), the voluntary Green Bond Principles are widely accepted today as the authoritative word on what does – and doesn’t – constitute best practice for the sector.
“Having rules of the road or a way to describe best practices at the beginning helps create a glide path to a more harmonised approach. In turn, this helps foster a more cohesive vision and encourages a positive path forward,” she explains.
The principles give a clear steer to new and existing market actors, she argues. Thanks to the “proper” governance of the principles’ organising body, the initiative also has widespread credibility in the world of international finance. The executive committee, for example, is divvied up equally between issuers, underwriters (like JP Morgan) and investors, ensuring a “balance of voices” across the board.
Ceci argues that the issuers of green bonds have – to date – tended to self-police one another 'very effectively'
In Ceci’s view, another key factor behind the principles’ success is their flexibility. This helps issuers to mould products in line with specific regional contexts, she argues. She gives the example of China, which operates its own catalogue of green projects for Chinese-owned companies in given markets (eg energy services, clean energy, cleaner production, green upgrading and so on).
Timing was also important, she adds: “Establishing the principles really early [they launched in January 2014] was very important because it helped define the market right at the outset instead of the market having to find its way on its own.”
The principles are not without critics. Some would like to see the definition of green more tightly defined, for instance, as per the more prescriptive Climate Bonds Initiative (the other main standard-setter in the field). Others say a mandatory code would make the market for green bonds more robust.
Ceci bats off such criticisms, arguing that the issuers of green bonds have – to date – tended to self-police one another “very effectively”. On the occasions when bonds have been issued that are not “in the spirit” of the principles, both the market and the media have responded vocally.
True as this may be, as the green bond market grows, so too do worries about “greenwashing”. China, for instance, has been found to be using green bonds to finance coal-fuelled power plants (albeit to a more efficient specification than in the past). In response, the European Union has published the draft of a tougher (although still voluntary) green bond standard of its own.
Then, there are the economics of green bonds. Some analysts fear that this novel instrument could be losing some of its early momentum. The uptick at the beginning of this year comes after a pretty sluggish 2018, during which the market grew barely 5%. Relatively speaking, green bonds also remain a niche phenomenon, comprising only about 2% of fixed-income assets, according to Ceci.
The truth is that any bond issuer that wants to finance a project can do so with either green money or with general funding – what you might call 'brown funding'
Not one to give in to pessimism (she has this Ralph Waldo Emerson quote on her desk: “Nothing great was ever achieved without enthusiasm”), she points to the fact that new issuers are entering the market all the time. Similarly, existing supranational and corporate issuers (such as Enel, Engie and Berlin Hyp) are returning year after year. “I think we are going to see this pattern continuing for some time,” she asserts confidently.
Feeding her bright outlook is the number of government bond issuers now in existence, from central banks right through to municipalities. According to data from the International Capital Market Association, which acts as secretariat for the principles, France has issued $16.7bn in green bonds to date. Other nation-states helping give sustenance to the market include Belgium ($5.5bn), Ireland ($3.5bn), Indonesia ($2bn) and Poland ($2bn). In June, meanwhile, Chile became the first Latin American sovereign to issue a new green bond for two years, a move Ceci describes as “really encouraging”.
Interestingly, when considering the wider impact of green bonds, her answer is not what you might expect. Yes, this innovative sustainable finance instrument has helped billions of dollars find their way into significant environmental projects. But would such projects have found financing anyway? Or, in banker language, do green bonds meet the definition of “additionality”?
Here, Ceci is unconvinced: “The truth is that any bond issuer that wants to finance a project can do so with either green money or with general funding – what you might call “brown funding”. So, in reality, if an issuer wants to do a project, it can do it whether it’s labelled as green or not.”
But she points to the message that green bonds send to the wider market. Issue a bond labelled “environment only”, and you are effectively telling the investment community that sustainability is a priority for you. Moreover, you are giving investors tangible information on the positive environmental impacts being derived from their allocation of capital. As Ceci notes: “Nothing like that has really existed in the market before.”
Green bonds are not a panacea. Nor are they for everyone. But as a mechanism for getting climate cash to where it’s needed, their contribution should not be underestimated. Nor should that of this atypical greenie of Wall Street.
CV: Marilyn Ceci
Managing director in debt capital markets and head of green bonds at JP Morgan’s Corporate & Investment Bank
1986 – today
Co-author of the Green Bond Principles, established in 2014.
Previously vice chair of the principles’ executive committee and a member of the initiative’s steering group for the past four years.
Named among the top three overall most impressive green/SRI bankers for the last three years in GlobalCapital’s Sustainable and Responsible Capital Markets Awards.
BA from Creighton University and an MBA from CUNY/ Baruch.
Marilyn Ceci will be speaking at Ethical Corporation's Responsible Business Summit New York 2020.