Green bonds, an environmental investment
The issuance of green bonds, aimed at financing sustainable projects, continues to rise after closing 2020 with historic figures of $270 billion. The European Commission and countries such as Spain are joining this investment trend.
Green bonds are fixed-income instruments that are exclusively aimed at financing or refinancing environmental or climate change-related projects. Thus, they promote energy efficiency, pollution reduction, ecosystem protection or clean water management; they promote sustainable agriculture, fishing and forestry; and they even mitigate climate change, with the so-called climate bonds.
After nine years of consecutive growth in the sector, the green bond market closed 2020 with a total of $270 billion issued and a cumulative volume of $1 trillion. The World Bank is the largest issuer of these bonds, having issued $14.4 billion worth of bonds in 22 different currencies in the last year, which have gone to 111 projects around the world, mostly focused on renewable energy (33%), clean transport (27%) and agriculture (15%).
Bonds serving the community
Through green bonds, investors provide financing to companies, projects, even governments, that want to take advantage of the debt capital markets to deliver sustainable and global solutions for the community. To ensure this green purpose, the International Capital Markets Association (ICMA) regularly updates the GBP (Green Bonds Principles) that all such bonds must comply with. Although it is a voluntary guide, all stakeholders are encouraged to use it to promote transparency in the sector and awareness of the product and the market among the actors involved.
The Climate Bonds Initiative is a non-profit organisation and one of the leading bodies in this sector, which is responsible for developing and mobilising the $100 trillion bond market. With the intention of paving the way for all the actors involved in the sector, they work through an open code, particularly focused, on protecting investors, facilitating the entry of governments into the market, and providing the necessary knowledge and tools to all the organisations that participate.
A global commitment to a sustainable economy
In 2008, the World Bank issued the first green bonds, and shortly afterwards the Bank’s green bond fund was launched. The European Commission also joined in 2018 with the creation of a sustainable financing plan, and since then the European trend has continued to grow. In October, the Commission launched the NextGenerationEU scheme, which plans to issue €250 billion in green bonds by 2026, a milestone that will make Europe the world’s largest green bond issuer.
At the state level, many governments are joining the green bond issuance trend. The Spanish government, for example, issued its first issue earlier this year for €5 billion with a 20-year maturity. Investor demand has exceeded 60 billion euros, a figure never seen before in green government bond issuance in Europe and which has allowed coupons to be issued at 1%, with a yield of 1.034%. Another example is Germany, which entered the green bond sector in September last year with a ten-year term, and this year launched the first 30-year bond facility worth €6 billion.
The growth of this sector, the commitment on the part of companies and administration, and the high demand from investors predict that the growth of this sector will continue to increase in the coming years. By doing so, the development of economies and environmental preservation join an economic trend where profit becomes global.
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