Green Bonds Could be the Climate Success Story of 2014

Train Station

By James Noble

January 30, 2014

The era of the green bond may have arrived with the world’s largest investment banks backing a new set of guidelines aimed at spurring investment. Issuance of the bonds are expected to more than double this year to a record $25 billion, as increased information on the financial product will be used to attract more investors to the fledgling market.

The issuance of green bonds is primarily driven by capital needs of the issuers and the commitment of institutional investors to responsible investment, therefore coming up with a definition of what qualifies as a green bond was important.

Until last year, most of the green bonds issued were from multilateral development banks such as the International Finance Corporation and the World Bank. However, with global banks now providing a blueprint for how to qualify as a green bond and the issuance process, issuers, investors and underwriters can offer the clarity and transparency that financial houses, such as Deutsche Bank, Goldman Sachs and HSBC require. 

It’s expected that Ontario will be the first province in Canada to issue green bonds later this year to help fund it’s public transit expansion. Ontario could be a precedent setter for the embryonic green bond market in Canada, which would create liquidity and encourage other provincial governments – and eventually private corporations – to issue their own green bonds.

The bonds are an important tool for governments and private companies to raise capital for environmental initiatives, but are by no means a panacea for solving the underfunding of green projects. For those long-term investors waiting to add climate-friendly investments to their fixed income portfolio, they may now have the transparency they’ve been waiting for.