Written by: Thomas Kostigen
Sustainable investing is garnering huge interest around the globe, powered by the green transition and the focus the new Biden administration has placed on climate change. Much of this fanfare has to do with companies reducing their carbon footprints and electronic vehicle makers raking in huge returns.
However, the true financial engine that may power this green movement, which includes infrastructure projects, tech development, and energy efficiency work are bonds, green bonds.
“Green bonds are expected to account for more than 50% of the new issuance volume in the total sustainable bond market in 2021. In about two to three years, the annual new issuance volume should approach the $1 trillion mark,” predicts Environmental Finance, a publishing and analysis firm that tracks the market. “We expect the total sustainable bond market to grow by 25% to $655 billion in 2021.”
That’s a massive amount of financing. Bonds are, of course, credit instruments. They are used to finance big infrastructure projects and for companies to procure more assets. Bonds return interest in the form of yields to investors, unlike most stocks that count on capital appreciation for investor rewards.
The Biden administration’s Build back Better Campaign, and country commitments (such as China’s) to become net zero carbon emitters in the coming decades is setting the green bond market ablaze with issuances.
Italy last week raised approximately $10 billion by selling green bonds. It was a record, and not just for the amount raised: demand was ten times supply, with lead banks receiving $100 billion worth of orders. The demand shows just how large the appetite is for green bond investors.
Not letting that appetite go to waste, other countries have announced plans to issue green bonds, or fixed income instruments that raise money for environmental initiatives.
The United Kingdom announced plans for a $20 billion green bond offering this year. Hong Kong set plans to double its green financing program to $25 billion over the next five years. And Singapore said it has earmarked $14 billion worth of green investments that it hopes to finance via green bonds.
The United States led all countries last year in green bond issuance, raising more than $51 billion for environmental initiatives, according to Climate Bonds, which monitors the global green bond market. Germany issued more than $40 billion worth of bonds; France, $32 billion; China, $17 billion; the Netherlands, $17 billion; Sweden, $13 billion; Japan, $10 billion; Canada, $9 billion; Spain $8 billion; and Norway, $5 billion.
It seems that if you are going to choose to invest in a green bond, there are a lot of places you can choose to place your money. A good financial advisor can guide you as to where and which green investments may suit you best.
No matter, what’s a good bet is that green financing is going to be increasingly needed. The World Economic Forum’s Global Risks Report 2021 lists the top riskiest areas over the next 10 years, and four of them are related to the environment. The top five risks are: extreme weather, climate action failure, human environmental damage, infectious diseases, and biodiversity loss.
Next week we’ll look at which sectors are getting all that green money.
Thomas Kostigen is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Thomas is a best-selling author and longtime journalist who writes about environmental, social, and governance issues.