Wednesday, December 3, 2014

The Growth of Green Bonds Show the Power of Capititalism

The global green bond market is thriving and driving new investment to much needed climate change related projects. The World Bank has pioneered the green bond market and they have worked to raise awareness about opportunities in environment-friendly investment. The World Bank kicked off green bonds by beginning to issue them in 2008. The World Bank’s green bonds are triple-A rated and can be easily traded offering investors a high rate of liquidity.

A green bond is a bond whose proceeds are used to fund environment-friendly projects. This includes everything from projects related renewable energy and energy efficiency to clean water, habitat restoration, and climate change mitigation efforts. Green bonds typically carry the same credit rating as the issuers’ other debt obligations and they provide investors with a way to earn tax-exempt income.

At the start of the year The Green Market Oracle and others predicted that the green bond market would be one of the climate success stories of the year. As the year draws to a close it appears that these predictions have materialized.

Green bonds are an important way of leveraging the power of investors to address the crisis of climate change. Green bonds generate funding for sustainable development and clean energy technology. It would appear that the green bond market has more than quadrupled government contributions to the Green Climate Fund. This shows how financial incentives can be a powerful inducement to engage.

In 2013 alone $10 billion of green bonds were issued. Investors in these green bonds include Zurich Insurance, JP Morgan and Daiwa Securities. More than 34bn USD have been issued in green bonds worldwide in 2014, and they are expected to reach 40 billion by the end of the year. As of the end of 2015 green bonds are expected to increase to about $100 billion, according to Climate Bonds Initiative, a not-for profit organisation that seeks to mobilise the debt capital markets for climate change.

Some of those who have issued green bonds include the Bank of America, Merrill Lynch, Citi, Crédit Agricole Corporate and Investment Banking, JPMorgan Chase, BNP Paribas, Daiwa, Deutsche Bank, Goldman Sachs, HSBC, Mizuho Securities, Morgan Stanley, Rabobank and SEB. Ginnie Mae and Fannie Mae have also issued "green" mortgage backed securities as has the European Investment Bank. US municipalities have also been issuing bonds for the specific purpose of funding environmental projects for several years. The first American green bonds came from the Commonwealth of Massachusetts, which in June 2013 sold $100 million of 20-year notes. There is also a growing green bond market in China.

Green bonds are now available to individuals. As of October 31, 2013, Calvert Investments was among the first to launch a green bond available to the public. Known as the Calvert Green Bond Fund, it trades under the ticker CGAFX.

To address the growing interest in green bonds there have been a number of information oriented events. This includes a conference in Madrid that was held on December 3, 2014. The conference was widely attended by investors, financial analysts, directors, CFOs and investor relations directors, managers, technicians with responsibility for sustainability, technical Experts. As well as those involved with banking, insurance, business, public administration, and universities.

This conference follows a November, 2014 live webinar and question and answer session by the IFC, Earthshare and .green, focused on green bonds.

In November, a new green bond index family, measuring the global market of fixed income securities issued to fund projects with direct environmental benefits, was launched by Barclays and MSCI.

The growth of green bonds reflects the power of the profit incentive and the overarching capabilities of capitalism to unleash investments with a higher purpose. The importance of leveraging investors cannot be overstated. We simply will not be able to raise the necessary funds to address environmental degradation, without engaging investors.

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