Moving communities away from carbon dependence is a serious challenge; to achieve the goal of $53 trillion in clean energy investment needed by 2035 to keep global warming below two degrees, the International Energy Agency suggests using several tools, including Green Bonds. Green bonds can promote the adoption of innovative new technologies, finance projects that create green jobs, and promote economic and climate resilience in all regions.
Investor demand and diversification.
Investors are increasingly demanding socially responsible investing (SRI) opportunities and have expressed a strong appetite for green bonds by repeatedly oversubscribing to issues. While retail investors demand sustainable investments from their brokers and fund managers, institutional investors are using green bonds to address ESG (environment, social, governance) mandates, something that, prior to green bonds, had been a struggle to address with fixed income tools. As a result, green bond issues have attracted new investors and new types of investors, providing a potential market for future issues.
Enabling projects at a lower cost of capital.
Green bonds are an excellent way to secure large amounts of capital to support environmental investments that might otherwise be unavailable or uneconomical using more expensive capital. Green bonds are well suited for large-scale sustainability projects, such as wind and solar development, which often require capital investment prior to proceeds and generate modest revenues over a longer investment horizon.
A recent case of green bond issuance occurred in Guatemala with the company owned by the Bosch Gutierrez family, CMI Energía, this company generated the largest bond issuance to date in Central America.
Green bonds versus other options.
Green bonds offer an exciting opportunity for both investors and issuers to foster sustainable growth while leading the investment community. Green bonds provide several advantages over other financing options.
- They provide institutional investors with a means to access sustainable investments in the fixed income market in a familiar, low-risk vehicle.
- The issuance of this type of emerging security sends a strong, proactive message to stakeholders while attracting a new investor base.
- Green bonds also provide municipalities with an ideal opportunity to develop public-private partnerships (PPPs) to accelerate the advancement of new technologies and energy efficiency. An example of this is the “Morris Model” , where Morris County issued low-cost bonds for solar projects on government buildings, passing the low cost to a private developer.
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