Going Green

Jul 05 2014, 01:59 IST
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SummaryA surge in green bonds means investors and businesses see climate change as an opportunity

Investors worldwide increasingly seem to believe that climate change presents opportunities as much as risks for business, despite the fact that the phenomenon itself is poorly understood and therefore its implications, if any, are mired in uncertainty. The Economist reports that ‘green bonds’—instruments binding the proceeds of a bond-issue to environment-friendly investments—seem to have increasingly drawn investor interest in the last couple of years; in 2012, $3 billion of such bonds were sold while in the first six months of this year, it had reached $20 billion, twice the figure for 2013. The surge can be attributed to the fact that while it was only international agencies like World Bank who were selling green bonds earlier, half the green bonds issued this year have come from companies. Advocacy of supposedly curative action on climate change seems to have drummed up interest in green businesses, particularly renewable energy and carbon-cutting technology in high-emission sectors such as coal-based power, automobiles, etc. So, with Risky Business, a report by a bi-partisan group of policymakers, business leaders and scientists, advising companies to hedge for possible risks from climate change—if it is happening in the first place, that is—the business universe is expanding further to accommodate opportunities as well.

However, the outlook on the bonds and the businesses they fund remains split nearly evenly between verdant and bust. Given green bonds are still an infant market—despite the surge, they are a tiny fraction of $80 trillion overall bond market— and the fact that doubts cloud climate change claims, now is a great time to guard against a bust by standardising the product, The Economist argues. It cautions that, so far, a bond’s “greenness” remains a matter of the issuer claiming it to be so. Which is why World Bank is proposing eligibility criteria for green bond-funded projects and a reporting and compliance template.

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