Green Bonds for a sustainable future
ECONOMY & POLICY

Green Bonds for a sustainable future

Somewhere in 2006, Swedish pension funds concerned with global warming and environmental degradation were looking to diversify their portfolio to include investments in environment-friendly projects that would not carry additional risk. They could not find any such instruments. This led them to explore the possibility of creating an instrument like a regular investment product in terms of yield, security, risk and maturity, while addressing concerns related to the environment. After many discussions with stakeholders, the draft of an instrument was prepared. With this, investors approached the World Bank within a month of deliberations, the Bank accepted the concept and worked out the details and the first ‘green bond’ was born in 2008.

This bond created the blueprint for today’s green bond in terms of the criteria to be followed to be classified as one. While drafting the product, financial and environmental teams interacted, understanding and addressing their respective concerns, to ensure that the bond meets the objective with which it was designed. This included criteria like opinion from recognised climate research institutions, transparency and impact reporting.

This bond established that it is possible to raise funds at competitive rates for environmentally sustainable projects and that there is a large pool of investors willing to invest in such bonds.

A recent analysis by McKinsey suggests a total of $ 9 trillion in green investment is needed each year to reach netzero by 2050. This figure is higher than some other estimates but provides a headline reference against which to compare current investment levels. Sean Kidney, CEO, Climate Bonds, has estimated an annual $ 5 trillion in green bond issuance by 2025 as the next global milestone that governments, policymakers and investors need to reach as the necessary contribution to achieve our climate goals.

Together, with equity flows and sovereign outlays, the investment projected by McKinsey should be achievable.

To read the full article, CLICK HERE.

Somewhere in 2006, Swedish pension funds concerned with global warming and environmental degradation were looking to diversify their portfolio to include investments in environment-friendly projects that would not carry additional risk. They could not find any such instruments. This led them to explore the possibility of creating an instrument like a regular investment product in terms of yield, security, risk and maturity, while addressing concerns related to the environment. After many discussions with stakeholders, the draft of an instrument was prepared. With this, investors approached the World Bank within a month of deliberations, the Bank accepted the concept and worked out the details and the first ‘green bond’ was born in 2008. This bond created the blueprint for today’s green bond in terms of the criteria to be followed to be classified as one. While drafting the product, financial and environmental teams interacted, understanding and addressing their respective concerns, to ensure that the bond meets the objective with which it was designed. This included criteria like opinion from recognised climate research institutions, transparency and impact reporting. This bond established that it is possible to raise funds at competitive rates for environmentally sustainable projects and that there is a large pool of investors willing to invest in such bonds. A recent analysis by McKinsey suggests a total of $ 9 trillion in green investment is needed each year to reach netzero by 2050. This figure is higher than some other estimates but provides a headline reference against which to compare current investment levels. Sean Kidney, CEO, Climate Bonds, has estimated an annual $ 5 trillion in green bond issuance by 2025 as the next global milestone that governments, policymakers and investors need to reach as the necessary contribution to achieve our climate goals. Together, with equity flows and sovereign outlays, the investment projected by McKinsey should be achievable.To read the full article, CLICK HERE.

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