Green Bonds Showing Promise in 2015
The World Bank issued its first Green Bond Impact Report on August 11, detailing the success of its various green bond projects around the world. The World Bank reported that it has issued 100 green bonds in 18 currencies. Together, they’re valued at an equivalent of USD $8.4 billion.
More promising is that proceeds from those sales have gone on to fund 77 eligible projects with a total commitment of USD $13.7 billion.
All evidence points toward green bonds becoming a major player in the investment market, in North America and abroad. China, India, Mexico, and Brazil are just a few of the countries that have successfully issued green bonds this year.
In the U.S., Seattle just issued $900 million in green bonds to help finance improvements to the train and bus systems with the goal of reducing carbon emissions. Canada just issued green bonds to help finance the construction of TELUS Garden, a 1-million-square-foot development consisting of an office tower as well as a residential tower, built to LEED Platinum and LEED Gold specifications, respectively. The $225 million issuance is the first instance of green bonds being used to finance real estate development, though it’s unlikely to be the last.
Even big finance corporations are getting involved, with big names such as JP Morgan Chase, Goldman Sachs, and Bank of America Merrill Lynch not just supporting green bonds but issuing them. In addition, they, and many other organizations have contributed to establishing standards and guidelines for determining what qualifies as a “green bond.”
What’s The Appeal of Green Bonds?
One factor that many experts attribute to the success of green bonds is that the “green” moniker helps attract the attention of investors who are looking to build an environmentally friendly profile. Even though many of these projects might succeed if they were issued as ordinary bonds, they draw more attention from people who are actively concerned about the environment.
Something else that has helped increase the bonds’ popularity is the increasing amount of oversight. There aren’t any legal requirements to label a bond as “green.” Instead, the bond issuers voluntarily elect to undergo independent vetting to ensure that the proposed project meets certain specifications. It takes more time and money, but the additional verification is crucial to gaining trust among investors. The leading standard is Green Bond Principles, as issued by the International Capital Market Association.
What is the Green Bond Market Worth?
In 2013, global green bond issuances totaled about USD $11 billion according to the World Bank. That number more than doubled in 2014 to more than $36 billion. Moody’s Investor Services estimates that 2015 green bond investments will hit $100 billion this year.
Still, those numbers are comparatively small considered to the total investment the International Energy Agency predicts will be required to keep climate change under 2 degrees Celsius — a full $1 trillion worldwide every year until 2050 — and the overall size of the bonds market — $80 trillion. Still, demand is high and the rapid growth shown over the past few years is certainly promising as individual and institutional investors alike look for a positive way to contribute to climate change.
