By Jeff Sanford
The market for so-called “green” corporate bonds—corporate issues invested in environmentally sound projects—is rapidly growing. A new report from Standard & Poor`s says the market for green bonds is set to double this year, suggesting advisors will be filling client portfolios with a shade of green beyond cash.
"Corporate green bond issuance is accelerating not only because this aids diversification, but also because of investors' growing interest in implementing environmental, social, and governance goals," says S&P analyst Michael Wilkins.
The bonds are lik other debt-based financial instruments. But in the case of “green” or “climate” bonds the money raised is only invested in environmentally friendly projects. So far, corporate green bonds have largely been issued in Europe. But the market is growing around the world. Toyota has already issued the first-ever auto asset-backed security, which is a note made up of securitized car loans and used to fund green car development. This past March, TD bank issued the first Canadian corporate green bond, offering of three-year deposit note, the proceeds of which will be used to fund green initiatives. The month before Export Development Canada floated a US$300-million green bond that will be used to finance loans made to companies “active in fields of preservation, protection or remediation of air, water, and/or soil, or the mitigation of climate change.” The list includes renewable energy projects in Argentina and the U.S., as well as public ground transport projects in the U.K. and Australia.
Last fall the Ontario government indicated it would become the first government in Canada to issue green bonds. The World Bank Green Bonds are used to support World Bank lending for projects that work to mitigate climate change.
Since 2008, the World Bank has issued over USD $6 billion in bonds. "Because the market is now reaching a reasonably large size, with bigger benchmark issuance, some of the investors who have been sitting on the sidelines is coming into play, like the big insurers,” said Wilkins.
S&P forecasts corporate bond issues will increase rapidly this year, reaching $20 billion, up from the current $10.4 billion.