Green Bonds: a market in search of landmarks

For several months, companies, local authorities and international organizations use “debt green” on the bond markets. The concept of “green bond” was defined by its promoters. This activity is now framed by the Green Bound Principles, an initiative led by the main international banks, adressed to all the stakeholders. But grey areas still remain.


Green Bonds are defined as  fixed-income securities that raise the capital for a project with specific environmental benefits. Most green bonds issued to date  have been climate bonds, where the proceeds go to climate mitigation or adaptation efforts. Corporate, infrastructure and other projects have reduced access to traditional finance given the financial crisis’effect on the global financial sector, so debt capital markets represent a key pool of assets that must be trapped in order to finance the transition to a low-carbon, resource-efficient and climate resilient economy. The Green Bonds issued by International Financial Institutions such as the World Bank (largely to fund their own projects) have been highly rated, while asset-backed bonds by  renewable energy and other corporate issuers have been smaller and higher risk. If government could provide the right support and enabling environment, the market for green bonds could grow.


green bonds

Source: Financial, “Green Bonds win new fans and investors”, Farah Kalique, 18 juin 2013.


The value  of bonds labelled “green” or “climate” issued globally to date is approximately USD $ 7.2 Billion, acccording to the Word Bank. Rated by multilateral lenders such as the World Bank, The International Finance Corporation, the African Development Bank, and the European Investment Bank, these bonds carry the same credit risk and pay the same coupon, or close to the same,  as the issuer’s conventional paper, but the proceeds are ring-fenced for environmental-related investments, chosen on the basis of internal due diligence processes that include ongoing monitoring of “green” projects.


Table 1. Notable existing green bonds and related issuances (2012)

World Bank 2008-2010 Green Bound 1896.7$ For climate change projects at 2-10 year terms. World Bank green bonds have been structured to have simple and standard financial features.
US Government Agencies and Utilities 2009-2012 Qualified Energy Conservation Bond program and Clean Renewable Energy Bonds program 895 $ May be used by state, local and tribal governments to finance qualified energy conservation projects
African Development Bank 2010 Clean Energy Bond 705 $ For investment in renewable energy sources and infrastructures (5-7 year terms)
AirTicity 2006 RE corporate bond 300.8 $ 3 year bond to fund wind energy farms in Europe and US.

source: Sustainable Prosperity, Economy wide and emerging issues, “Green Bonds” , June 2012, p. 5.


Environmental pressures continue to increase, and one of the major barriers to the deployment of technologies that would increase energy efficiency, reduce carbon emissions, and provide other environmental benefits is lack of capital. The capital required for transitioning to a resource-efficient economy is estimated at USD $79.3 Trillion in 2010. Green Bonds can provide long-term and secure returns to institutional investors, since their portfolios are already heavily invested in bonds (more than 50 % on average in OECD countries. They do not have to sacrifice yield to invest in assets and projects that support climate change mitigation and adaptation efforts.

Demand is strong for structuring green bonds and allow them some credibility. Many actors involve Vigeo, a french non financial rating agency, to set criterias of eligibility of projects that are selected. The issue is that green bonds are not all subjet to validation by an independant third party. Even some  companies go so far as to mix the concept of “green bond” to their sustainable development policy, such as Unibail, Unilever or Toyota. They have issued green bonds to finance their traditional activities, justifying those emissions by their ambitous policy of sustainable development program.

A growing consensus is building pertaining to the particular form green bonds will take. On January 13, 2014, a set of principles for green bounds was agreed upon by environmental groups, issuers and investors. Essentially these principles revolve around three primary recommendations: transparency – disclosure – integrity. Support for these principles comes from a consortium of some of the biggest names in investment banking: Bank of America Merrill Lynch, Citi, Credit Agricole Corporate and Investment Banking, JP Morgan Chase, Daiwa, BNP Paribas, Goldman Sachs, HSBC, Mizuho Securities, Rabobank and SEB.

To round things off, it’s difficult to identity the environmental added-value brought specifically by these green bonds. The non-governmental organization BanTrack, who expressed his support to the Green Bond Principles calls already more precision about the definition of the spectrum of eligible bonds.

Thus governments and all the stakeholders have a role to play in ensuring that financial sector regulations and insitutions reflect the evolving needs of the capital markets and investors. For instance, the UK’s Green Deal  legislation derisks securitised energy efficiency loan portfolios through legislated repayment collection mechanisms. In terms of institutions, the creation of a “Green Investment Bank” in Canada could facilitate a number of the previous examples. The absence of these transactions could tarnish a concept which provides financial support to a greener economy.



Sustainable Prosperity, Economy wide and emerging issues, “Green Bonds” , June 2012, 11 p.

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1 réponse

  1. Clara de Roquefeuil dit :

    Dear Mme Cadix,

    I appreciated the effort you made to let us know this new sort of bound. Even though I don’t speak english as well as you, I will make some efforts to criticize the point of view you took in your essay.

    First of all, knowing the workings of finance and corporate finance especially, I doubt of the possible perennity and efficiency of environnmental bonds. In fact, this can be lucrative, but not efficient for the planet.

    This market is like the medical market : when you can have obvious returns in your investment, people give you money. The fact is that environment has no obvious short term return. This is why no one wants to value these bonds.

    And especially the governments.
    If you take a look at the current condition of european states (, no money is available for the bare necessities.

    Your risky green bonds won’t be very attractive

    And you write as if it was the state’s fault, and not the market fault

    I deeply think that it is the market fault.

    I will be glad to speak with you about that subject (in french, it will be better if you can)

    Please contact me.

    Clara de Roquefeuil

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