Record Month for Green Bonds
Green Bonds can help governments raise finance for projects to meet climate targets and are enabling investors to achieve sustainability objectives. Like conventional bonds, green bonds allow the bond issuer to raise funds for specific projects or ongoing business. The “green” label tells investors that the funds raised will be used to finance environmentally beneficial projects.
A recent study by BloombergNEF (BNEF) published that Green bonds have passed their biggest milestone yet, with more than $1 trillion issued since these securities first emerged in 2007. More than $200 billion worth of green bonds – which are used to finance the pursuit of environmental projects and activities, from wind farms to wastewater management – have been issued in 2020 thus far.
Green bonds have become known for their impressive growth, with global issuance increasing every year to date, reaching a record of more than $270 billion last year. However, for 2020 the trend is slightly changing. Still, there were in September, more than $50 billion bonds issued. Germany federal government issued a 6.5 billion-euro ($7.7 billion) sovereign bond at the start of the month, making it this year’s biggest single new green bond. Adidas, French electricity firm EDF and telecommunications firm Orange, along with Germany, Egypt and Sweden, all issued green bonds last month, helping the volume jump by five times from August.
The integration of environmental, social and governance criteria has never been more important for investors than in 2020.
The ICMA defines green bonds as those which finance renewable energy, energy efficiency, biodiversity, pollution reduction and other similar projects.
Today, renewable energy is present in around half of all green bonds issued. The cumulative issuances of green bonds are below USD 1 trillion, while the global bond market is valued at around USD 100 trillion, accounting for less than 1% of cumulative global bond issuances. To grow the green bond market, co-operation between policymakers, standard setters, capital providers and investors is essential.
Last month’s boom is due in part to the fact that many operations were postponed earlier in the year because of the coronavirus pandemic. The sector still has to improve the evaluation of projects that receive the green label, however.
Other companies, such as luxury house Chanel, issue so-called sustainability-linked bonds meanwhile, reports Straitstimes. The proceeds from these bonds can be used to finance any type of project, but the borrower makes pledges to meet certain sustainability targets and pays a penalty if they fail.