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Green Bonds: Financing the Path to Sustainability

| October 30, 2019

What is a Green Bond?

by Mike Eardley

A green bond is a type of bond that finances new or ongoing environmentally friendly projects aiming to combat climate change. These typically consist of projects aiming to improve the energy and sustainability of buildings and facilities, wastewater management, transportation, and other efforts to reduce negative effects on the environment. Green bonds have been sold in over 50 countries by federal and state entities, as well as public and private companies and investors. The U.S. is the leading source of green bond issuances, thanks to companies such as Fannie Mae and other government entities looking to improve overall sustainability efforts through infrastructure upgrades, transport improvements, retrofitting existing buildings to increase energy efficiency, and more.[i]

What trends are we seeing?

Green bonds were first introduced in 2007 and gained traction in 2013 when billion dollar bonds were being sold within hours.[ii] Since their emergence, we’ve seen rapid, steady growth and issuance is expected to hit the trillion dollar mark in the 2020s due to the impact of the European Commission (EU) Technical Expert Group (TEG). The EU TEG put out a Green Bond Standard (GBS) with new guidelines on corporate climate-related reporting. The guidelines provide companies with resources on how to support their climate-friendly efforts as well as how to report the impacts the initiatives will have on their businesses.

The GBS also recommended criteria for issuing green bonds to make sure they fall in line with acceptable green initiatives. Having a guideline for what makes a project “green” helps investors determine how legitimate a project is and avoid falling for “greenwashing,” or the act of making a project seem greener in an effort to entice investors.[iii]

Green bond issuance is projected to max out between $180-250 billion by the end of 2019 and hit the $100 billion milestone in June 2019, far earlier than in previous years. In comparison, total green bond issuance in 2017 was $155 billion, hitting $100 billion in November, while in 2018, the total issuance was $163 billion, hitting $100 billion in September.[iv]

What are the benefits?

Green bonds are an effective way for issuers to raise money for new or existing environmentally friendly projects to meet green standards while simultaneously receiving lower interest rates. They are also a great place to invest money for multiple reasons: besides being ethically sound, the money spent on green bonds has the potential to be tax exempt or generate tax credits for the investor.

Looking to go green?

There are a number of ways to improve your company’s carbon footprint:

  • Commissioning (Cx): Commissioning for green building design ensures that an entire building or buildings, new or existing, are designed, constructed, and calibrated to operate as intended.
  • Retro-commissioning (RCx): Retro-commissioning identifies problems or potential issues with a building’s HVAC and other systems and produces engineering solutions to address these problems.
  • Energy Audits & Modeling: This process provides energy reduction strategies by auditing and/or improving energy management, energy generation systems, and renewable energy systems.
  • Green Property Condition Reports (GPCRs): GPCRs provide detailed energy use analyses and utilize green recommendations to lower energy, water, and electricity usage, reduce operating costs, lower carbon footprints, and provide greater savings.
  • ENERGY STAR® Benchmarking: EBI uses ENERGY STAR Portfolio Manager to measure, track, and audit energy and water consumption for new and existing buildings. [v]

 

Citations:

[i] https://www.bloomberg.com/news/articles/2019-03-24/what-are-green-bonds-and-how-green-is-green-quicktake

[ii] https://www.climatebonds.net/market/explaining-green-bonds

[iii] https://earthecho.org/news/what_is_greenwashing

[iv] https://www.climatebonds.net/2019/06/green-issuance-surpasses-100-billion-mark-2019-first-time-milestone-reached-first-half-eu

[v] https://www.energystar.gov/about

 

Mike Eardley is the director of energy and sustainability at EBI Consulting.

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Category: All, Green, Trends and Hot Topics

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