Investing in a greener future with Green Bonds

The Intergovernmental Panel on Climate Change is clear: if we want to ensure a bright future for biodiversity and human beings, our societies must shift to another way of living. Clean transportation, renewable energies, circular economy and more responsible waste management are the main solutions raised to tackle climate change. It is easy to ask local government and States to change their policies, but how can we finance such a big shift ? Green Bond may be part of the answer. Here is a short presentation of this financial instrument.

According to the Organisation for Economic Co-operation and Development (OECD), “Green bonds are debt instruments used to finance green projects that deliver environmental benefits. A green bond is differentiated from a regular bond by its commitment to use the funds raised to finance or refinance “green” projects, assets or business activities. Green bonds can be issued by either public or private actors up front to raise capital for projects or for refinancing purposes, freeing up capital and leading to increased lending”. In other words, green bonds are financial instruments used by States, companies or local governments to contribute to the green transition.

In order to develop a credible green bond market, the International Capital Market Association and the Climate Bonds Standards coordinated the elaboration of guidelines with the help of key market participants. This led to the creation of the Green Bond Principles (GBP), which set up international standards to design a bond as “green”.

Here is an example of how green bonds are issued in Germany. Source : https://www.kfw.de

Multilateral development banks were the first to issue green bond in the market: the European Investment Bank pioneered the green bonds market by issuing the world’s first Climate Awareness Bond in 2007. Since then, more than EUR 18 billion financed over 160 renewable energy and energy efficiency projects all over the world. In addition, the World Bank recently celebrated 10th anniversary of Green Bonds: 44% of the US$ 13 billion issued financed renewables energy projects and energy efficiency. 25% of the green bounds issued were used to finance clean transportation.

National governments are also participating in the green bond market: last October, Dutch government announced its intend to issue its first. On 21st May, the Dutch State Treasury Agency launched a 20 year green Dutch State Loan: the order book was closed with a total bid volume of EUR 21,1 billion, whereas only 4 to 6 billion were expected. It is the first green sovereign bond rated with a triple A. Indeed, the notation by an independent financial rating agency is a way to avoid greenwashing. At the same time, on the other side of the planet, Hong Kong raised 1 billion with its first green bond, under the Hong Kong’s green bond Program. This program aims at funding green buildings projects, clean transportation and air quality improvement.

According to the Climate Bonds Initiative, more than US$ 62 billion of green bonds were issue this year all over the world. And the international finance is going further: blue bond and social bond were recently issue. Last year, Seychelles issued the world’s first sovereign blue bond to support sustainable marine and fisheries projects. It looks like international finance stakeholders are going in the right direction, but the actual impact of projects financed through green, blue and social bonds should be continuously assessed.

Sources :

World’s first AAA sovereign green bond sale gets bumper orders, Luxembourg Times, 21/05/2019

Le premier green bond des Pays-Bas note triple A fait un carton, Delphine Cuny, La Tribune, 21/05/2019

10 years of Green Bonds: creating the Blueprint for Sustainability Accross Capital Markets, The World Bank, News, 18/03/2019

10 years of Green Bonds: Join the celebration, European Investment Bank, News and media, 05/07/2017

OECD (2017), Mobilising Bond Markets for a Low-Carbon Transition, Green Finance and Investment, OECD Publishing, Paris, https://doi.org/10.1787/9789264272323-en.

A propos de Barbara KIM

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