Even though the incoming United States presidential administration does not consider climate change a priority, green bonds are still being issued. Green bonds, created to finance projects with a positive environmental or climate benefit, have been growing in popularity over recent years. Money managers recognize the limitations of the green bonds market, although it has been gaining traction with institutional investors.
Countries signed on to the UN’s Paris Agreement are turning to green bonds as a way to enlist private investors in their fight against climate change. Green bonds suddenly have a whole new reason for being. What was in 2013 a $9 billion niche market of bond offerings tied to environmental projects has this year surged to $72 billion of issuance in November 2016. Investors from all over the world are beginning to see the benefit in investing in Green Bonds.
China has led the charge in bond issuance. After developing a local green bond market, along with standards for bond issuance, Chinese companies and public entities have raised $29 billion. The People’s Bank of China and the Bank of England have played major roles in identifying ways international development banks and other organizations can support the development of local currency green bond markets around the world.
Green Bonds can support more long-term financing for low-carbon and climate resilient projects. Using capital markets to refinance operational projects allows issuers to tap into institutional investor capital. For issuers, green bonds attract new investors and can have reputation benefits. For investors, green bonds carry an environmental benefit without having to sacrifice financial returns, enabling them to address their preference for sustainable investments.
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