Green Bonds Surge

18 Sep 2018

The green bond market is growing exponentially. Predictions are that the world’s green bond market will reach $1 trillion by 2020, at least according to financial representatives at last week’s Global Climate Action Summit.

These public and private bonds are used to finance low-carbon infrastructure, including renewable energy projects, green buildings, energy and water efficiency and low-carbon transit. They are called bonds with a “double bottom line,” producing stable returns and carbon reductions.

The green bond market started a decade ago and has “escalated dramatically,” said Laura Tuck, with the World Bank. It grew to $160 billion last year, representing a 75 percent increase from 2016 levels, according to a report by the state Treasurer’s Office, Growing the U.S. Bond Market, released last month

These green bonds were introduced in 2007 by the European Investment Bank. The next year, the World Bank issued green bonds.

In the first six months of this year, green bond issuances totaled $76.9 billion.

However, California has yet to put its money where its mouth is on green bonds. State Treasurer John Chiang, however, is working to promote clean energy bond financing.

Earlier this summer, Chiang pledged California would use green financing to combat climate change. This Green Bond Pledge “commits the world’s 5th largest economy to using green bonds to efficiently raise billions of dollars in new and affordable capital to build climate-friendly infrastructure,” he stated.

During a Sept. 12 Principles for Responsible Investment Conference, Chiang said that California has to build and to build green. “Let’s build to protect ourselves from rising sea levels. Let’s build to protect ourselves from extreme weather. Let’s build to protect ourselves from the horrific wildfires ravaging our state year after year,” he said.

Racing far ahead of California is China.

As of the first sixth months of this year, it supplied 12 percent of the world’s green bond market. It issued $9.3 billion in green bonds, which align with international green definitions, according to the 2018 China Green Bond Market Mid Year Report.

The top three funding categories were renewable energy at 36 percent, low carbon transportation at 30 percent and low carbon buildings at 10 percent. More than 40 percent of the bonds issued the first half of this year were issued overseas.

Last year, China issued $22.9 billion in bonds that met international definitions. Of those $6.01 billion were climate bond certified. (In 2014, Climate Bonds Initiative certification based on CBI’s Climate Bonds Standard with third-party verification was launched.)

The biggest issuer the last two years has been the Industrial & Commercial Bank of China, the biggest bank in the world. It issued $2.15 billion in new green climate certified bonds, according to the 2017 China Green Bond  Market Annual Report.

India and South Africa are also growing their green finance markets.

While the green bond market shows much promise there are several challenges. They include green washing—bogus green bonds—and a lack of market standardization. Improvements also are needed in the definition of “green,” data reporting, and investor accessibility, according to the state treasurer.

“It will take an innovative collaboration between policymakers and the financial markets; plus buy-in from both lenders and borrowers across the municipal bond issuance process to streamline and grow the green bond,” stated Chiang’s report.

Elizabeth McCarthy

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