What you should know about green bonds
Green bonds first came on the market in 2008 and the World Bank says they have changed investor behaviour.
In Brief
- A green bond, also known as a climate bond, is a fixed income security that specifically finances climate and environmental projects.
- The World Bank issued the first green bond in 2008 and now more than US$500 billion has been invested with green bond instruments.
- Certification schemes, including the Climate Bonds Standard, provide certainty about the environment credentials of a bond.
By Rachel Alembakis
More than a decade ago the World Bank, prodded by Swedish pension funds, issued the first ‘green bond’. It was a new type of fixed income security, the proceeds of which would be used to fund eligible ‘green projects’ that mitigate the negative impact of climate change.
The World Bank states on its website that: “Green bonds raise awareness for the challenges of climate change and demonstrate the potential for institutional investors to support climate-smart investments through liquid instruments without giving up financial returns…
“Green bonds have changed investor behaviours: 10 years later [since green bonds’ inception in 2008], investors are publishing their names and providing quotes when they buy green or other labelled bonds and are much more aware of their power to support initiatives with their investments.”
Since 2008, more than US$500 billion worth of the instruments have come to market. But billions – even trillions – more is required for the world to finance the transition to a low-carbon economy that scientists say is needed to contain climate warming to 2 degrees Celsius by 2050.
