The Intergovernmental Panel on Climate Change (IPCC) in its latest report on 31 March highlighted that the world is not well prepared to deal with the challenges of climate change. If global warming is not contained, various problems such as scarcity of food and water are likely to arise. According to World Bank estimates, if the world grows warmer by 2 degree Celsius, which may happen in just the next 20-30 years, among other things, there will be shortage of food in Africa and Asia. A number of initiatives are being taken at various levels to contain global warming and climate change. Global financial markets, too, are also doing their bit by mobilizing finances through green bonds to help investments in cleaner technologies.
What are green bonds?
In 2008, World Bank started its Strategic Framework for Development and Climate Change and green bonds are targeted to help increase both public and private sector activity in the area. “The World Bank Green Bond raises funds from fixed income investors to support World Bank lending for eligible projects that seek to mitigate climate change or help affected people adapt to it,” said World Bank’s fact sheet on green bonds. The bank helps projects in areas such as waste management, transportation efficiency and funding new technologies in the area of reducing greenhouse gas emissions.
Interestingly, it is not only this multilateral institution that is raising money through green bonds, a number of companies, too, have raised funds to invest in cleaner technologies. For example, as The Economist reported in its 22 March edition, Unilever, the second largest consumer goods company in the world, has raised $415 million through issuance of bonds to be used to reduce waste and greenhouse-gas emissions. Toyota was also reported to be raising $1.75 billion, which will be used to support sale of loans for hybrid and electric vehicles (see Spring in the air).
The issuance of such bonds has increased significantly in recent times. According to a report in the Financial Times, the issuance of green bonds went up over five times last year and a total of $11.2 billion was raised (see Climate focus drives demand for ‘green’ bonds, 11 March).
Future prospects
While experts argue that the world is not prepared to tackle the challenges of climate change, which will have a range of economic implications as well, it is encouraging to see financial savings being channelized into investments for sustainable development. However, it will be interesting to see if financial institutions continue to remain interested in green bonds once interest rates begin to rise in the developed world, including the US and Europe.
