The green bond market is growing exponentially, having seen $36 billion issued in 2015 from only $11billion issued in 2013. It remains a fledgling market, yet with continued investor demand and issuers embracing a ‘new green market,’ the future looks bright – according to a panel on the final afternoon at New Metrics ’15.
What differentiates a green bond from a standard bond? Not much in reality, as you are investing in the same companies you have already invested in, which have the same credit ratings. So what is different? Instead of companies listing “general corporate purposes,” they list out the specifics of projects (for instance, upgrading all bank branches to LEED-certified buildings) and their relevant ‘green’ impacts.
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This transparency allows investors to vote with their dollars and direct investments to the projects and companies they believe in. But since there are currently no industry standards, is transparency safeguard enough against greenwashing? Bond issuers have stated they are not the judge and jury for this aspect; in fact, the panel – moderated by Andrew Winston and featuring representatives from banking giants Citi, Morgan Stanley and Bank of America Merrill Lynch– agreed that while the bond issuer has to list out the category, its up to the investor to then make the decision if they agree that the cited project is green or not - and therefore whether they want to invest or not.
Yet, the panel also agreed it is unlikely that the companies and municipalities putting forward green bonds would risk doing so if they were not very confident in their proposition. Companies are scrutinised during the bond-offering process regardless, and it’s understood that green bond issuers will face a further level of scrutiny.
So where does the surge in green bond investing come from? It’s believed that it is not only municipalities and corporations seeing a larger purpose in their growth, but also individual investors. The divestment movement is not only focused on divesting from carbon-rich products but refocusing investment dollars in new, innovative sustainable projects.
Whilst the progress is encouraging, the panel together agreed there is a lot more room to grow, with less than 10 corporations issuing green bonds this year.