The need to address climate change is expected to drive innovation, create financial products that meet the demands of investors, and mobilize bond markets as a low-cost financial tool for a low-carbon, climate-resilient economy. However, Aldo Baietti, co-author of the book Green Infrastructure Finance: Leading Initiatives and Research, argues that many governments lack a clear, comprehensive framework for assessing the green investment climate and formulating an efficient mix of measures to accelerate green investments, adding that they are unfamiliar with international funding sources.
Taking up the reins, the World Bank, an international organization created in 1944 to end extreme poverty and promote shared prosperity in a sustainable manner, works to improve financing opportunities for green infrastructure investments by identifying “practical ways to value and monetize environmental externalities of investments” and improving the promotion and bankability of green projects. Green investment opportunities are generally identified in the following sectors: energy, transportation, finance, waste and pollution control, buildings and industry, agriculture and forestry, and water.
The need to address climate change is expected to drive innovation, create financial products that meet the demands of investors, and mobilize bond markets as a low-cost financial tool for a low-carbon, climate-resilient economy. However, Aldo Baietti, co-author of the book Green Infrastructure Finance: Leading Initiatives and Research, argues that many governments lack a clear, comprehensive framework for assessing the green investment climate and formulating an efficient mix of measures to accelerate green investments, adding that they are unfamiliar with international funding sources. Taking up the reins, the World Bank, an international organization created in 1944 to end extreme poverty and promote shared prosperity in a sustainable manner, works to improve financing opportunities for green infrastructure investments by identifying “practical ways to value and monetize environmental externalities of investments” and improving the promotion and bankability of green projects. Green investment opportunities are generally identified in the following sectors: energy, transportation, finance, waste and pollution control, buildings and industry, agriculture and forestry, and water. [text_ad] And thus, the green bond era has begun, proclaims the Climate Bond Initiative (CBI), a nonprofit organization. A presentation titled “Climate Change, Green Bonds and Index Investing: The New Frontier” by S&P Dow Jones Indices LLC, a part of McGraw Hill Financial Inc., the world’s largest global resource for index-based concepts, data, and research, dubs green bonds as “a recent market innovation designed to facilitate capital formation in projects and companies whose activities have a positive environmental impact” that will hopefully mitigate the long-term negative sway of climate change. Green bonds are the new, big market, states Lauryn Agnew, principal at Seal Cove Financial. While they have the same value as other bonds, the difference is their promise to be used on environmental projects like renewable energy. Specifically, green bonds are debt instruments issued to finance environmental projects focused on climate-change initiatives. The identification and labeling of a green bond is typically based on the Green Bond Principles, a set of voluntary standards drafted by a consortium of investment banks that outlines the process for issuers to designate specific green projects; these guidelines recommend transparency and disclosure and promote integrity in the development of the green bond market by clarifying the approach for issuance of a green bond. The guidelines specify that a bond issue qualifies as green if the issuer uses the proceeds solely for capital expenditures associated with green or climate-related environmental benefits in accordance with certain disclosures and transparent “policing” standards. No required level of climate or environmental benefits is specified. A third-party provider is expected to ensure compliance with the use of funds as well as project selection to identify plans with the greatest environmental benefits. Working with the Oslo-based research center CICERO, the World Bank has identified a list of green topics that include climate mitigation projects such as solar and wind installations, funding for new technologies that permit significant reductions in greenhouse gas emissions and carbon reduction through reforestation and avoided deforestation. Adaptation projects, such as protection against flooding and the implementation of stress-resistant agricultural systems, are also considered green projects. The History of the Green Bond It was the European Investment Bank that issued the first green bond in 2007, but the World Bank followed suit shortly after. “Then large utility companies began issuing them,” says Agnew. “They were bought by large insurance companies to hedge risk.” Early issuers of green bonds were primarily highly rated multilateral development banks (MDBs) that had a mandate to direct funds into climate-related and environmental projects. Those early projects were often small and risky. The backing of MDBs, with their high ratings and transparency that assured the proceeds would go to targeted environmental projects, boosted their ability to raise capital. As a result of the success of those early projects, MDBs have developed a base of investors seeking low-risk instruments with an environmental mission. Today, according to the S&P, the green bond market has expanded in size and scope to include diverse issuers such as municipalities, cities, and corporations. This group is expected to become the largest set of issuers of green bonds.
And thus, the green bond era has begun, proclaims the Climate Bond Initiative (CBI), a nonprofit organization. A presentation titled “Climate Change, Green Bonds and Index Investing: The New Frontier” by S&P Dow Jones Indices LLC, a part of McGraw Hill Financial Inc., the world’s largest global resource for index-based concepts, data, and research, dubs green bonds as “a recent market innovation designed to facilitate capital formation in projects and companies whose activities have a positive environmental impact” that will hopefully mitigate the long-term negative sway of climate change.
Green bonds are the new, big market, states Lauryn Agnew, principal at Seal Cove Financial. While they have the same value as other bonds, the difference is their promise to be used on environmental projects like renewable energy.
Specifically, green bonds are debt instruments issued to finance environmental projects focused on climate-change initiatives. The identification and labeling of a green bond is typically based on the Green Bond Principles, a set of voluntary standards drafted by a consortium of investment banks that outlines the process for issuers to designate specific green projects; these guidelines recommend transparency and disclosure and promote integrity in the development of the green bond market by clarifying the approach for issuance of a green bond.
The guidelines specify that a bond issue qualifies as green if the issuer uses the proceeds solely for capital expenditures associated with green or climate-related environmental benefits in accordance with certain disclosures and transparent “policing” standards. No required level of climate or environmental benefits is specified. A third-party provider is expected to ensure compliance with the use of funds as well as project selection to identify plans with the greatest environmental benefits.
Working with the Oslo-based research center CICERO, the World Bank has identified a list of green topics that include climate mitigation projects such as solar and wind installations, funding for new technologies that permit significant reductions in greenhouse gas emissions and carbon reduction through reforestation and avoided deforestation. Adaptation projects, such as protection against flooding and the implementation of stress-resistant agricultural systems, are also considered green projects.
The History of the Green Bond
It was the European Investment Bank that issued the first green bond in 2007, but the World Bank followed suit shortly after. “Then large utility companies began issuing them,” says Agnew. “They were bought by large insurance companies to hedge risk.”
Early issuers of green bonds were primarily highly rated multilateral development banks (MDBs) that had a mandate to direct funds into climate-related and environmental projects. Those early projects were often small and risky. The backing of MDBs, with their high ratings and transparency that assured the proceeds would go to targeted environmental projects, boosted their ability to raise capital. As a result of the success of those early projects, MDBs have developed a base of investors seeking low-risk instruments with an environmental mission.
Today, according to the S&P, the green bond market has expanded in size and scope to include diverse issuers such as municipalities, cities, and corporations. This group is expected to become the largest set of issuers of green bonds.
