Green bonds Green bonds are similar to regular bonds but the money raised from these bonds goes towards funding of ‘green’ business activities or projects in fields such as renewable energy, sustainable waste management, etc. These bonds are generally certified by Green Bond Principles (issued by International Capital Market Association) and Climate Bond Standards (issued by Climate Bonds Initiative) to ensure they are to finance projects that would generate environmental benefits. These bonds can be in different forms, the most common being the full recourse green bond which is earmarked exclusively for environmentally beneficial projects. There are other varieties such as green ‘use of proceed’ revenue bonds and green securitized bonds.
In 2007, the European Investment Bank (EIB) issued a €600 million bond focused on climate awareness. By 2010, climate-focused bonds worth more than $4 billion had been issued by several entities like the World Bank, Multilateral Development Banks, governments etc. The Climate Bonds Initiative (CBI) reported issuance of green bonds worth $120.
2 billion in 2017 which did not include bonds issued by Chinese entities worth of $10.2 billion that were not certified as green according to CBI. Source: Bloomberg New Energy Finance. 1 According to a recent report by Bloomberg New Energy Finance “renewable energy sources are set to represent almost three quarters of the $10.2 trillion the world will invest in new power generating technology until 2040”.
It is estimated that 72% of the 10.2 trillion would be invested in new wind and solar PV plants. Solar energy is already challenging the costs of coal in countries like Germany, U.S., Spain and Italy and is expected to be cheaper than coal by 2021 in India, China, Mexico, Brazil too. Also, in 2017, there have been several corporate renewable energy deals by various corporate giants such as Google, Facebook, Cummins and General Motors.
Various governments in China, India, Norway and Britain have announced that they are considering bans on fossil fuel powered cars. Companies like BP and Shell have recently announced investments of $200 million and above in solar energy. Even though these are relatively small moves and there is much more to be seen in the future of green bonds and the environment, it is an interesting trend to watch out for.