There are some pretty devastating facts about the environmental impact the human race has had on the planet in the past hundred or so years, and if your Facebook feed is anything like mine, those clickbait links serve as a constant reminder about it. There is only so much an individual can do by putting our plastic bottles in the recycling bin, but Green Bonds could be a way to do that little bit more while earning a bit more on the side.
So what is a Green Bond?
Sometimes called “climate bonds”, these debt investments are no different from normal bonds except for the fact that they have positive environmental effects. The market for these bonds has been growing insanely fast as well. According to our old mate Bloomberg, less than 0.6% of the bonds around the world are “green,” but this is twice as much as the bonds back in 2015.
Who is issuing these bonds?
As I stated, these aren’t any different from normal bonds, the only difference is what they are funding. So the issuers consist of various companies, banks and, of course, governments. Poland and France were the first sovereign issuers of green bonds. Issuance of the bonds is expected to surpass US$200bn this year, up from US$95bn last year. Like many surges nowadays, this has been attributed to Chinese borrowers who made up just over a third of the issuances. The interest has definitely been growing globally though with the EU and the US among the leaders as well.
What are the returns like?
Going “green” doesn’t mean you are compromising on returns. While the bond doesn’t have to sustain a commercial rate of return itself, it can be backed by the balance sheet of the issuer and will usually share the issuers’ credit rating, meaning the yields are going to be pretty similar. Some green bonds, like the ones sold by the World Bank, have actually outperformed peers in the secondary market.
Australia’s history of Green Bonds
The first Australian dollar-denominated green bond was issued in 2014, with the World Bank Kangaroo Green Bond. It attracted $300 million from investors. Banks like NAB and ANZ each raised $300m and $600m respectively for their own causes. Even CBA priced its first Climate bonds just this year, raising A$650m for a range of renewable and low-carbon projects. The Victorian government even got in on the action and issued green bonds of their own last July, raising $300m to finance initiatives in energy efficiency, renewable energy generation, low carbon public transport and water treatment.