2014 Green Bonds Surging as Climate Change Continues

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Written By: Emma Websdale

With a growing need to cope with the impacts of climate change, billions of dollars are being invested in green bonds—a trend that is set to escalate in 2014.

Scrabble investmentIn 2013, the issuance of green bonds—bonds that finance environmentally friendly projects that address climate change and promote the production of clean energy, energy efficiency, and sustainable waste management—increased more than fivefold.

According to HSBC’s Bonds and Climate Change: The State of the Market in 2013, 2013’s outstanding climate-theme bonds totaled $346 billion—nearly twice the 2012 figure of $174 billion.

In 2013, the International Finance Corp (IFC) also issued $1 billion of green bonds to finance climate-friendly projects in the developing world. Supply could not keep pace with demand, and now the IFC plans to issue at least $1 billion in green bonds per year.

The first euro-dominated green bond, developed by the French energy group EDF, was issued in 2013, as well. With a maturity of 7.5 years and an annual yield of 2.25%, the $1.9 billion bond has been extremely successful with institutional investors.

Eleven green bonds have already been issued in 2014. Combined, these are worth $3.78 billion. Further helping to promote green bonds, a consortium of 13 leading banks—including the Bank of America, JPMorgan Chase, Deutsche Bank, and HSBC,—have announced their support of the Green Bond Principles.

Developed with guidance from issuers, investors, and environmental groups, these Green Bond Principles serve as voluntary guidelines for recommended processes in the development and issuance of green bonds. The Principles encourage transparency, disclosure, and integrity in the development of a green bond.

“By providing transparency and integrity to the green-bond market and [thereby] bolstering investor confidence, we expect the Green Bond Principles will expand capital allocation to projects that provide environmental benefits”, says Marilyn Ceci, one of JPMorgan Chase’s managing directors.

Across the globe, green bonds are already producing positive results. In Colombia and Mexico, green bonds support energy-efficient public-transit systems, while, in Tunisia, green bonds have helped improve the reliability of water supply in rural areas.

No longer only for sustainable-minded investors, green bonds are becoming common in leading global financial institutions that desire a significant profit on investments.