You may have already heard that green bonds are on the rise, but I want to say it again. Green bonds are on the rise. Take a look at what happened in 2016:
Source: Climate Bonds Initiative
In 2016, the green bond market shot up 92 percent to $81 billion, crushing the previous annual high of $42 billion in 2015. For those unfamiliar with green bonds, they're similar to conventional bonds except the proceeds are used exclusively to fund qualifying green investments such as energy efficiency upgrades, renewable energy installations, or adaptation infrastructure.
While experts anticipate an overall less friendly atmosphere for environmental initiatives under the new administration, banks, corporations, and municipalities are all continuing to issue more green bonds, and there are few signs that distribution will slow down in 2017. Why? It's simple. Green bonds are boosting the bottom line, attracting new pools of investors, and demonstrating corporate commitment to sustainability. They are not only good for business, but they also benefit taxpayers and the environment (I'll explain how further down in this post).
Corporate Green Bonds Exploded in 2016, But They Were Not Alone.
In the corporate world, green bond issuances increased significantly last year. Apple and Starbucks stole headlines with issuances worth $1.5 billion and $500 million, but it's important that other big players such as Iberdrola are not overlooked. Iberdrola, a multinational electric utility supplying electricity to some 100 million people across three continents, is the first renewable energy producer amongst European utilities and the cleanest power company in the United States, with almost zero emissions. So it shouldn't come as a surprise that Iberdrola was also the largest corporate green bond issuer in 2016 and only the second utility to enter the market. In 2016 alone, Iberdrola issued $2.45 billion in green bonds. The majority of the proceeds are being used for Iberdrola’s renewable energy projects, which align with the utility’s commitment to reduce CO2 emissions by 50 percent by 2030 and be carbon neutral by 2050.
Corporate green bond issuances are not alone in attracting headlines. Municipal issuances also nearly doubled in 2016. Some notable issuances include the New York City Metropolitan Transit Authority, and the City of Portland, Ore., among others. Cities of all sizes continue to take bold action on energy efficiency and sustainability, as is evident through the City Energy Project—a joint initiative of IMT and the Natural Resources Defense Council, numerous challenge programs, C40, and several other efforts currently underway. The steady stream of green bond issuances will only accelerate with this type of city leadership. Municipal green bonds benefit every citizen in one way or another. They provide critical funds for infrastructure projects, save taxpayers money by lowering the utility costs of municipal buildings, and help cities and states provide cleaner air and water for all residents. With these benefits, it's easy to see why municipal issuances have risen, and looking at the trends, IMT expects to see even more in 2017.
Climate Bonds Initiative Sets Important Standards
Green bonds would not be what they are today without standards, and the Climate Bonds Initiative (CBI) leads the pack on that front. By creating a robust standard and consistently modifying and adding to it, CBI is improving transparency and helping to ensure that green bond issuers are held accountable. With the help of several third-party verifiers, the Climate Bonds Standard builds investor confidence by confirming that the use of green bond proceeds benefit the environment.
With over 50 repeat issuers and more than 90 new issuers in 2016, the numbers prove that green bonds work. You can keep track of the 2017 green bond market at ClimateBonds.net; IMT certainly will be. It's also important to remember that green bonds are only one vehicle for financing energy and sustainability projects. To learn more about other options, such as on-bill financing or PACE, check out IMT’s and the Retail Industry Leaders Association’s External Financing Guide and Internal Financing Guide.