By: Namrita Kapur, Managing Director of the Corporate Partnership Program
As noted in my last post on green bonds, there has been a recent dramatic growth in green bond issuance. Supply is responding to burgeoning demand. Quite simply, investors are snapping up these debt instruments that are linked to an environmental benefit. Three recent transactions highlight this seemingly insatiable appetite:
- Massachusetts’ sale of $350 million in green bonds in September attracted more than $1 billion in demand from retail investors and institutions. This — the state’s second green bond issuance — will fund clean water, energy efficiency, open space protection, and river preservation projects.
- The order book for the Nordic Investment Bank’s $500 million green bond issue quickly climbed to $800 million, with more than a third of investors being new to NIB. This bond will funnel proceeds to climate-friendly projects in Nordic countries, such as renewables, energy efficiency, green transportation, and wastewater treatment.
- In September, the World Bank tripled the size of its planned structured green bond to $30 million in response to investor demand, raising more than expected for climate projects, such as energy and forestry initiatives. Since its first green issuance in 2008, the World Bank reports raising more than $7 billion from 77 bonds in 17 currencies.
The significant growth that we have seen in the past year in green/climate bond issuances – $11.4 billion in 2013 and an estimated $40 billion in 2014 – strongly suggests a threshold market acknowledgement of the enormous potential in these instruments. Growth in the market and a rapid increase in the volume of climate/green bonds strongly suggest that we are approaching a broad yet fundamental market acceptance of this new asset class. If so, it is important that we begin to shift gears and move from proving the model to creating the market infrastructure that incorporates meaningful standards to support a wider and more liquid market for climate/green bonds.
Green bonds and climate bonds are issued to pay for environmental projects. These are often issued by large institutions, such as World Bank, Bank of America, and Toyota that invest in both environmental and non-environmental projects. However, the proceeds from these bonds are invested exclusively in environmental projects. Many, but not all green bonds are climate-focused. Climate bonds, however, are totally linked to assets that encourage a rapid transition to a low-carbon and climate resilient economy. Read More
Source: 401(K) FlicThe past two decades have seen a tremendous growth in our understanding of the climate change imperative and in the enormity of the challenge that confronts us. It has become clear that meeting climate change mitigation objectives will require the aggressive deployment of clean energy technologies, substantial amounts of capital, and creative methods of engaging that capital around these activities.
Transitioning to a low-carbon economy costs money (and lots of it). In fact, the International Energy Agency has estimated that $10.5 trillion will be required between 2010 and 2030 to fund this transition worldwide. Given the continuing challenges confronting global economies, the bulk of the capital needed to transition to this clean energy future will, by necessity, be private capital. As a result, creative financing solutions are essential to engaging and unleashing private, institutional capital, and accelerating the flow of those funds toward clean energy projects.
But the question of how to most effectively unlock the enormous amounts of capital necessary to pay for our transition to a low-carbon economy still remains. Read More