Demand for environment-focused “green bonds” is on the rise. They could help the private sector save the climate.
Just over 100 years ago, the United States found itself embroiled in a world war, but with few options to finance its efforts. In 1917 the first “Liberty Bond” was issued. Over the next year, millions of Americans out of a sense of patriotic duty purchased the bonds.
The war for the future of the planet now has its own version of the Liberty Bond: “Green bonds.” And these climate-aware investments are seeing record growth.
Since the European Investment Bank issued its first climate awareness bond in 2007, around $1 trillion worth of bonds have been issued for various environmental and climate-related causes, with more than $322 billion in green, social and sustainability bonds last year.This year that number is expected to grow by more than 12%.
Green bonds, issued mostly by governments, corporations, banks and large multi-national organizations like the World Bank, have a number of draws, not the least of which is their public relations value: Companies and institutions use them to buff up their green image. Green bonds also attract a wider and more diversified investor base, offer the same security as a traditional bond, and cost about the same. In the United States, green bond issuance is also an increasingly important way for states, and cities to fund green-related municipal projects.
More than 60 countries are active in the green bond market.
More than 60 countries are active in the green bond market. When combined, European Union nations are the largest issuers, followed by the United States and China. Historically, green bonds have been mainly used for renewable energy projects, building or retrofitting energy-efficient buildings, or building mass transit projects. However, increasingly green bonds are being used for water projects, sustainable land use, waste projects, and dozens of other climate-focused projects.
To better report and understand this fast-developing green bond market, particularly in the United States, Climate & Capital Media has launched the U.S. Green Bond Review along with the leading third-party verifiers of green bonds, the U.K.-based Climate Bonds Initiative led by Sean Kidney.
Rome was not built in a day, nor will the new climate economy.
With interest in green bonds surging, so too will questions. A recent report by the Bank of International Settlements (BIS), the Basel-based club of central bankers, argues that the environmental benefits of specific green bonds can be difficult to verify. Furthermore, green bonds are not a better deal than non-green bonds.
But that those sorts of questions are being asked only highlights the growth of the green bond market — and its potential to grow and evolve. Rome was not built in a day, nor will the new climate economy. So-called transition bonds are beginning to be used by large carbon polluters to help these companies transition from fossil fuels. But when one adds up all the new climate-focused bond groups (and subtract a fair sum for specious “greenwash” bonds) there is little doubt that the role bond markets play in allocating capital to the right climate projects is only just beginning. But like Liberty Bonds of yore, the green bond, and its social, sustainable and transition bond cousins, will be decisive the building blocks of the new Climate Age.
