Green Bonds: Financing the Future

by Laura Simons

Large scale negative-emission projects are necessary in tackling the ongoing climate crisis. Lack of both recognition and funding are significant barriers that hinder these projects in their launch and success. In the world of business, ecological value has long been sacrificed in the name of more expedient and less costly commercial processes. Green bonds offer an accessible way for businesses, sovereigns and individual investors to make a positive environmental impact.

The green bond serves the role of an ordinary bond: a loan to finance a project with a promise of future reimbursement, plus interest, for the investor. The key difference is that green bonds fund exclusively sustainable projects. The first green bond was issued in 2007 by the European Investment Bank and since then, investors from all over the world have entered the green bond market. In 2019, a record $257.7 billion of green bonds were issued, indicating a huge 51% growth from the previous year [1]. ‘Renewable Energy’ incorporates the largest sector of green bond projects, entailing decarbonisation of energy sources e.g. establishing solar/wind farms. In 2019 alone, 50,925 GWh of energy was saved, equivalent to 37 million tonnes of CO2 [2]. 

For example the global tech giant Apple has financed a diverse array of green bond projects, from the installation of 600 solar panel rooftops in Japan to the development of an aluminium alloy made from 100% recycled materials [3]. Another leader in the green bond market is the People’s Bank of China (PBOC). China was ranked as ‘Highly Vulnerable’ in the most recent Environmental Vulnerability Index (EVI) report, suggesting the country stands to benefit considerably from green initiatives [4]. A sustained commitment to green bond issuance could be instrumental in mitigating some of China’s environmental problems. Furthermore, China’s position as the second highest Gross Domestic Product (GDP) nation could send green shockwaves throughout the world, encouraging further positive environmental contributions. 

Green bonds mark the beginning of a symbiotic relationship between global organisations and environmental sustainability. From an investor’s perspective, there are no overt financial benefits in choosing a green bond over a regular bond. However, entry into the green bond market can stimulate an increase in shareholder value in the stock market, an effect observed across multiple industries [5]. What’s more, a greener brand image is conducive with the recent surge in green consumer demand, particularly following the outbreak of Covid-19 [6].  

The Covid-19 era demands huge infrastructural changes within industries. As they struggle with these unprecedented circumstances, green bonds may prove a restorative measure in more ways than one [6].


Laura is a 21 years old neuroscience graduate and writer from Bath, UK. Lover of languages, animals and nature. She speaks Korean and Spanish and regularly volunteers with rescue animals. She completed an internship as a manuscript editor at the School of Civil and Environmental Engineering, Yonsei University, Seoul. She is a flexitarian and advocate of eco-friendly living, especially advocating creative thinking for ways of enlisting the global population into the climate crisis fight.

References:

[1] Climate Bonds Initiative, (2020). “2019 Green Bond Market Summary. https://www.climatebonds.net/system/tdf/reports/2019_annual_highlights-final.pdf?file=1&type=node&id=46731&force=0&fbclid=IwAR08wIWvGbOQq7jAWbOB7IPpmo169DSw6Cpb5uiFs–siOd-v3Np5kXe1_I (accessed 20 Jan 2021).

[2] The World Bank, (2019). “Green Bond Impact Report 2019”. http://pubdocs.worldbank.org/en/790081576615720375/IBRD-Green-Bond-Impact-Report-FY-2019.pdf?fbclid=IwAR13hPL21NV-IjwQeoQUMkmiZnAK3Pf4Rolo5Gq-go5fALFh5OjrE5-jvaM (accessed 20 Jan 2021).

[3]  Apple Inc., (2018). “Annual Green Bond Impact Report 2018”. https://s2.q4cdn.com/470004039/files/doc_downloads/additional_reports/Apple_GreenBond_Report_2018.pdf (accessed 25 Jan 2021)

[4]  Environmental Vulnerability Index, (2013). “Country Classification Report”. http://www.vulnerabilityindex.net/ (accessed 25 Jan 2021)

[5]  Flammer, Caroline. 2018. “Green Bonds Benefit Companies, Investors and the Planet”. Harvard Business Review. Nov 22 2018. https://hbr.org/2018/11/green-bonds-benefit-companies-investors-and-the-planet (accessed 22 Jan 2021)

[6] Climate Bonds Initiative, (2020). “China’s Green Bond Issuance and Investment Opportunity Report”. https://www.climatebonds.net/system/tdf/reports/cbi_gfo_china_05b.pdf?file=1&type=node&id=54717&force=0 (accessed 22 Jan 2021)

Categories Climate Economics

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