Green bonds for a better climate

As intermediaries between investors aGreen bonds are always used for a special purpose.

And capital seekers, banks play an important role in climate protection. With their help, more capital can flow into sustainable and environmentally friendly investments. The methods of choice for this are green bonds. These have been around since 2007 and have more than quadrupled in volume over the past four years. In 2018 alone, €167 billion worth of new green bonds were issued worldwide. However, the ever-increasing demand can only be partially met.

This provides bond issuers with interesting opportunities to expand their investor base if the bonds have certain environmental characteristics. Anyone acting as an issuer of green bonds must demonstrate that the money is being used in an environmentally friendly way and that the bond is helping in the fight against climate change.

The spectrum here is very broad. Whether it is renewable energy or electromobility, energy efficiency or reduced resource consumption, these are all considered green and sustainable. Anyone who is working to reduce transportation costs, avoid waste or build energy-saving homes (or renovate accordingly) can also make use of green bonds. Issuers can use these and other measures as assets to upgrade bond issues to green bonds.

Green bonds are always used for a special purpose.

Apart from the sustainability rating, green bonds are comparable to conventional bonds . When companies place a bond, the volume is usually at least 500 million euros. If countries, federal states, central banks or other banks are involved, the limit of billions of euros is quickly crossed.

For the energy company CMI in Guatemala, a turning point has arrived. It is now joining the green bond market and new opportunities are opening up to change the way companies operate to make way for sustainability in Central America. Undoubtedly something of which the Bosch Gutierrez family is proud.

Demand outstrips supply

Even now, demand for green bonds far outstrips supply. This is also demonstrated by the response to the largest green bond issued to date. The volume of the bond launched by the state development bank was subscribed three times over. Using green bonds mainly to refinance loans for solar and wind farms.

In 2018, the bet by placing a €500 million green bond in the form of a Pfandbriefe (collateralized bond with mortgage collateral). The books closed after only two hours, as the order volume was already three times oversubscribed.


You may also be interested in: Climate Change Bonds

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Carla Fowler

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